Amidst the sun-soaked days of mid-July, we are enjoying the pleasures of summer, like longer days, memory-filled getaways, patio cookouts, and the comforting whisper of warm summer nights. Just like the seasons change, the financial market's initial energy has transitioned into a calmer state, allowing investors to catch their breath and reflect on what lies ahead. A handful of exceptions - AI stocks and homebuilders - sustain their robust momentum, serving as bright spots despite the overall tranquility. However, while decelerating inflation lends a comforting warmth to the markets and breeds optimism for a soft economic landing, a careful examination of key data suggests potential storm clouds on the horizon. To navigate these changing winds, we draw upon a myriad of trusted sources to shape our strategies and decisions. Among these, the Economic Cycle Research Institute (ECRI) stands out as a respected authority renowned for its dedication to economic cycle research and its ability to offer valuable insights into how the economy is evolving. In this month's newsletter, we shine the spotlight on commentary from the ECRI that, in our opinion, offers an incredibly insightful perspective. They delve deep into important data metrics that indicate potential shifts in the economy, giving us a better understanding of what it means for the US economy and our own financial situation. They go beyond the usual measures like GDP and discuss concepts like Gross Domestic Income (GDI) and its significance to the world's largest economy. Interestingly, their analysis suggests that the US economy may have entered a recession either at the end of 2022 or in early 2023. As we shift our focus from ECRI's views on the slowing economy, we can't ignore the role of central bank policy in potentially making the situation worse. Their actions over the past few months have left many, including us, somewhat perplexed. The Bank of Canada, which had briefly paused interest rate hikes in May, has since resumed their upward trajectory, with the U.S. Federal Reserve expected to follow suit. This policy direction has faced resistance, particularly from people with debt, as it puts more pressure on them. In Canada, for instance, mortgage interest payments have ironically become the largest contributor to headline inflation. Interpreting the commentary presented by the central banks, it becomes apparent that, in their view, inflationary pressures are not subsiding rapidly enough. These pressures are connected to concerns about future price increases due to strong demand, high housing prices, and the possibility of wages increasing and leading to higher prices overall. It sometimes feels like the central banks' decisions are influenced more by the challenges of government spending, regulation, and self-induced increases to debt service costs, rather than solely focusing on fundamental economic indicators (which don't always support their conclusions). When we examine the actual data closely, we find an interesting and opposite development: a complete reversal in headline inflationary trends, which can be traced back to the COVID-19 pandemic in 2021. Along with this reversal, there are indications that banks are tightening credit, manufacturing activity is slowing down, retail sales are decreasing, and more people are filing for unemployment benefits. These factors may result in inflation decreasing more than expected. This situation is not unique to our economy; it's a global trend. The story of inflation, which peaked about a year ago, continues to impact investors' expectations and decisions. With significant progress in the fight against inflation, one wonders, will central bank inflation fighting policy doggedly press on? Reflecting on economic teachings about the long and varied lags of policy, it's clear that this story has more to reveal. While we don't know how it will end, we suspect that just as last summer was punctuated by peak inflation, this one might bring about peak interest rates. Economic cycles, with their ups and downs, are part of our financial journey. We are committed to guiding your wealth through these ever-changing times. Your best interests are our priority, and we are always here to answer your questions and address your concerns, providing the guidance and assistance you need to navigate these cycles with confidence.
- Jack
.jpg)
In the complex landscape of economic policy, the Bank of Canada and the US Federal Reserve have made decisive moves to increase interest rates over the last year, most notably with the Bank of Canada raising its overnight rate to 5.00% this month. These policies are designed with the intention to contain inflation, but they can inadvertently end up heightening inflationary pressures. This is particularly impactful for debtors like homeowners. Homeowners, especially in Canada, are finding themselves at the sharp end of the stick with the rise in mortgage rates. These rates have escalated their debt servicing costs to an extent that has a significant number of them worried. According to a recent survey, over one-third of Canadian homeowners fear their financial resilience might not be strong enough to endure the rate hike for more than 9.7 months. The irony of the situation is brought into stark relief by the latest Canadian CPI reading: mortgage interest costs, which surged 29.9% in May compared to a year ago, made it the single largest contributor to the latest monthly inflation reading. This rise has been fueled by the very policy that was implemented with the intention of tempering inflationary pressures, inadvertently inflating them instead. Further rate hikes are anticipated, with Canada guiding for more rate increases if inflationary metrics remain above targets. This could potentially intensify the pressures already at play. Meanwhile, the US Federal Reserve has put a hold on its interest rate hikes after more than a year of consistent increases, although the expectation for future hikes still persists. As central banks sail these tricky waters, they must proceed with caution. The aggressive push for interest rate increases is already triggering the paradoxical effect of further stoking the very inflation these policies were designed to cool, and without strategic modifications, this situation is set to escalate.
Running for a Million Reasons: Richardson Wealth's Nationwide Commitment to Children's Hospitals
This past May, Richardson Wealth, with the participation of 78 team members across seven provinces, proudly took part in the Million Reasons Run. This nationwide event supports 13 Children's Hospitals across Canada. Together, we surpassed our initial fundraising goal of $50k, raising an impressive $101,116, and covered a staggering 7,381.1km. These funds will significantly contribute to vital research aimed at improving the health of every child in Canada. On a personal note, I was able to contribute 102km to our team's total distance, a noteworthy achievement considering that I had not run a single kilometer over the prior 12 months. Our collective efforts placed Richardson Wealth amongst the top corporate contributors in both fundraising and distance covered. This experience has been a humbling reminder of the power of collective effort and the significant impact we can make when united by a worthy cause.
- Jack
