16 September, 2022

Weekly Update - Hot Inflation Print Knocks Recent Gains Off Mark

Stocks turned downward last week after a hot inflation print on Tuesday sparked the biggest rout in more than two years, although the downturn was more subdued on the Canadian stock market.

 

U.S. inflation was firmer than expected in August, virtually assuring the U.S. central bank – the Federal Reserve – will be on track for a third-straight 75 basis-point interest-rate hike when officials meet Tuesday and Wednesday this week.

 

While prices climbed 8.3% from a year earlier, a slight deceleration, the consumer price index (CPI) increased 0.1% from July, after no change in the prior month. So-called core CPI, which strips out the more volatile food and energy components, advanced 0.6% from July and 6.3% from a year ago. All measures came in above forecasts.

 

While the size of Tuesday’s drop in stock markets was significant, it really only reversed gains made in the previous four days that had been fueled by expectations of softer inflation. Investors have been waiting for any sign of inflation slowing to jump back into the equity market, particularly into large-cap U.S. growth companies, which are highly sensitive to upward moves by interest rates.



As markets react and adjust to changing conditions, a continued focus on your long-term goals remains the best course of action. Investing through a well-diversified portfolio has historically provided the best experience through a combination of goals-based returns and reduced volatility over time.

 

• Short-Term View: Markets sold off on Tuesday following U.S. inflation numbers that showed price pressures are more persistent than traders were hoping.

 

• Longer-Term Thinking: Sticking to your long-term plan through periods of volatility is central to investment success.

 

• Logic Over Emotion: Perspective is key. Focus on long-term goals and timeframes. Contact your advisor to discuss any questions and concerns you may have.

Our Experts Say...

 

“We believe, at some point soon, consumption might be dropping noticeably while inflation remains uncomfortably high. The Federal Reserve will then have to make a choice between the level of inflation and how deep of a recession to accept."

 

Putnam Investments

High Yield Fixed Income Investment Specialist

 

 

 

Over the past 10 years, markets are positive. Perspective is key. Markets do react to short-term increases in volatility – see the grey lines below – but the long-term trend is upward in the blue and red lines.

 

 

 

Source: Morningstar Direct. Growth of $100,000 shown. Total returns from January 13, 2012 to September 15, 2022 in local currency. Volatility is illustrated by the rolling 5-day minimum and maximum percentage change for each of the indices shown.