Blog

Stock markets behaved themselves this week shaking off the threat of more rate hikes by multiple central banks. However, we still feel North American central banks are incorrectly anchoring their monetary policy to an inflation rate that is not economically sustainable. To target 2% inflation, interest rates will likely reach levels that will cripple the average consumer. And because inflation statistics are mostly backward looking, the severity of the downturn could be a repeat of the 1979-1980 experience. It is in our opinion why we see so many economists and portfolio strategist predicting interest rate cuts by the end of the year or by early next year at the latest.

Trouble is, between now and then a lot of things can happen. To start with, the hot A.I. craze is driving day traders into a feeding frenzy. Valuations are already skyrocketing and in typical Wall Street fashion, future revenue projections are going way overboard. Yes, we are likely in the first inning of a transformative technological leap that will change how we work and live. It may turn the tables on the current labor market gap that has put workers in the driver seat. Economically we are seeing a tidal wave of boomers reaching retirement with insufficient Gen Z and Millennials stepping in to fill the void. But with A.I. and robotics potentially entering a parabolic growth curve, we could see unemployment returning to post 1970’s recession levels.

Yes, work from home may continue to be a significant job perk but we would caution the labor force to keep in the back of their mind, A.I. could make their positions redundant. Our team has already started to use Chatgpt to edit and polish marketing letters and it can do in a matter of seconds, what used to take our team an hour or more. Now having said that, it cannot yet master the intricacies of the nuances that our experience can bring to the table. For example, in one of our commentaries this Spring we highlighted the magnitude of the price swings in the equity markets aka risk and Chatgpt edited right out. Score one for the old fogies.

Now back to markets. We continue to see a bifurcated market with the TSX and Dow posting minor gains year to date but the S&P and Nasdaq continue to soar led by a couple of dozen companies. it has broadened out over the last two weeks, which is generally a positive development, but too many sectors are still not doing well. We note for example the price of crude oil rose this week but, energy stocks, which are still making boat loads of money at $70 oil, continue to slide. So either the price of oil will fall or oil stocks will go up.

We also note we just have just two weeks to the quarter end which means money managers probably used today’s quadruple witching day to unload dogs in the portfolio and take on positions in hot flavor of the month stocks. Take Cava Group. This is a Mediterranean restaurant chain that we understand mostly services the lunch trade, that went public in New York at $22 per share. The opening price was $44.87 so for the lucky few that were able to participate in the IPO, they had the potential to double their money. At that price it has a market cap of nearly $5 Billion folks. In fairness after the frenzy the stock settled back to close at just over $38 on 8.4 million shares. And did I mention they are still not profitable? Got to hand it to J.P Morgan and Jefferies for generating the feeding frenzy though.

Now next week, we get housing data and leading indicators, so investors will need to focus on other things to keep things moving. We note FedEx will report earnings and as of today UPS workers have voted to strike for higher wages and better benefits. If it gets ugly, their 340,000 workers could materially impact economic growth in the US.

In Canada we will get the minutes from the last Bank of Canada rate decision and undoubtedly bond investors will try to glean insights into future rate decisions. Given our strong labor market we are predicting more rate hikes but at a more measured pace than the US.

Please note US Markets are closed on Monday so it will likely be a quiet day in Canada.
Happy trading and Stay Safe.

Steve Bokor and the Ocean Wealth Team

Information contained herein represents the views of the writer and not those of PI Financial Corp., and based on assumptions which the writer believes to be reasonable. The material contained herein is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. This information is intended for distribution in those jurisdictions where PI Financial is registered as an advisor or a dealer in securities. Any distribution or dissemination of this article in any other jurisdiction is strictly prohibited. PI Financial and/or its’ officers, directors, employees and affiliates may, from time to time, acquire, hold or sell a position in the securities mentioned herein.