September 2022

It has been an “interesting” year so far and will be an interesting week. We will likely see

another interest rate increase from the Bank of Canada and we are all holding our breath to see what the new inflation numbers will look like. Financial markets are betting on an increase of 75 basis points on Wednesday, which would leave the benchmark at 3.25% (Sean Kirkpatrick, The Canadian Press). This is in spite of the signs that inflation may have peaked and the Canadian economy is slowing down. Our central bank is clearly communicating that it will do whatever it takes (including increasing the risk of recession) to stop inflation from becoming entrenched.

Although inflation may have peaked, it is still almost four times higher than the Bank of

Canada’s target of 2%. Interest rates changes typically take six to eight quarters to have a full impact, but we are already seeing the some the results – house prices are falling (particularly in the hottest Canadian markets) and our GDP numbers are showing economic contraction (www.statscan.gc.ca). Many financial institutions are expecting these hikes to push us into recession in early 2023, the real question is how long and painful will it be. The hope is that there will be a “soft landing”, where inflation comes down without a significant decrease in unemployment or a substantial economic slowdown.

What does this mean for the market? First, remember that the market is a leading indicator, so the pain we have been seeing is anticipating the likelihood of upcoming recession. It is now about “what’s next” – is the decrease in inflation we’ve seen meaningful or simply due to falling energy prices; will central bank be able to finally slow down their aggressive rate hikes; and how much will corporate earnings be affected by the new reality of higher interest rates and potentially higher wages.

With so much unknown, the most prudent approach is to continue being well diversified and

cautious.

This information has been prepared by Shannon Straathof who is an Investment Advisor for IA Private Wealth® and does not necessarily reflect the opinion of IA Private Wealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Investment Advisor can open accounts only in the provinces in which they are registered. IA Private Wealth® is a member of the Canadian Investor Protection Fund and the Canadian Investment Regulatory Organization.