Inflating

Vicki Cook • Jun 06, 2022

Have we reached peak inflation?


Well, if you thought peak inflation had been reached, the May U.S. Consumer Price Index certainly did not show that to be the case. And the markets are not a fan. U.S. CPI rose 1.0% in May, which brought the one-year tally to +8.6%. One little silver lining is that core CPI (excluding Food and Energy) was 6.0%, which is down from last month’s pace of 6.2%, marking its second month of declines. But really it was hard to find good news with this inflation print. This has clearly pushed equities lower as the timing of central banks slowing their rate hike pace has certainly moved out later into the future. 

And while this was a U.S. economic release, the impact has been global. In response, bond yields moved higher in the U.S., Canada, Europe, and elsewhere around the globe. The move is about 10-15bps at the time of writing, which has the U.S. 10-year at 3.17% and the Canada 10-year up even higher at 3.35%. Once again, that makes for a drop in equities and bonds, which is not something anyone likes. 10-year yields are now a decent amount over 3% and are at a pretty critical level. 

This has certainly opened the door for the Fed to not just go for two 50bps moves in the summer meetings; it could mean we see a bigger move or even keep the 50bps pace up longer. And after yesterday’s Bank of Canada Financial System review, it seems that the rate hike paces are unlikely to let up anytime soon. The futures market is now pricing in an overnight rate in Canada of 3.39%, compared with the current 1.5% level. The Fed futures really jumped on the CPI, with the year-end forecast at 3.1% compared with the current 1.0% level. 

Investment Implications 

We continue to believe the inflationary impulse will begin to fade later this year, but it certainly won’t be smooth. The economy works in waves and some waves move faster than others. Higher financing costs and financial conditions are now starting to slow economic activity. The wave or impact has a certain speed. The subsequent slowing of inflation is another wave that takes even longer, but we do believe it is still coming. 


Given most portfolios tend to be much shorter duration than the overall bond market, we would continue to recommend taking advantage of the rising yields by adding some duration back into the portfolio. Not all at once, but in stages. 


— Craig Basinger is the Chief Market Strategist at Purpose Investments 

Source: Charts are sourced to Bloomberg L.P. and Purpose Investments Inc. 


The contents of this publication were researched, written and produced by Purpose Investments Inc. and are used by Echelon Wealth Partners Inc. for information purposes only. 


This report is authored by Craig Basinger, Greg Taylor and Derek Benedet Purpose Investments Inc. 


The contents of this publication were researched, written and produced by Purpose Investments Inc. and are used herein under a non-exclusive license by Echelon Wealth Partners Inc. (“Echelon”) for information purposes only. The statements and statistics contained herein are based on material believed to be reliable but there is no guarantee they are accurate or complete. Particular investments or trading strategies should be evaluated relative to each individual's objectives in consultation with their Echelon representative. 


Echelon Wealth Partners Ltd. 

The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Echelon Wealth Partners Ltd. or its affiliates. Assumptions, opinions and estimates constitute the author's judgment as of the date of this material and are subject to change without notice. We do not warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Past performance is not indicative of future results. The comments contained herein are general in nature and are not intended to be, nor should be construed to be, legal or tax advice to any particular individual. Accordingly, individuals should consult their own legal or tax advisors for advice with respect to the tax consequences to them. 


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Forward-looking statements are based on current expectations, estimates, forecasts and projections based on beliefs and assumptions made by author. These statements involve risks and uncertainties and are not guarantees of future performance or results and no assurance can be given that these estimates and expectations will prove to have been correct, and actual outcomes and results may differ materially from what is expressed, implied or projected in such forward-looking statements. Assumptions, opinions and estimates constitute the author’s judgment as of the date of this material and are subject to change without notice. Neither Purpose Investments nor Echelon Partners warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Past performance is not indicative of future results. These estimates and expectations involve risks and uncertainties and are not guarantees of future performance or results and no assurance can be given that these estimates and expectations will prove to have been correct, and actual outcomes and results may differ materially from what is expressed, implied or projected in such forward-looking statements. Unless required by applicable law, it is not undertaken, and specifically disclaimed, that there is any intention or obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise. 

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Investor Strategy – 2022 Outlook – The Long Road Back to the New-Normal

By Vicki Cook • 23 Dec, 2021
The end of 2021 nears, and it was clearly a win for investors. Although the pandemic retains it grip on humanity, economies, companies, and behaviours have adapted relatively well, in aggregate. 2022 looks like it will be a more challenging year, as some trends are poised to change, which adds uncertainty. But, there is good news too, as the global economy appears to be expanding with solid momentum. This year ahead outlook is a collaboration among the investment management team at Purpose Investments. A team that continues to expand in both numbers and breadth. In the report, you will find: I. Market Recap – 2021 A Good Year with Many Market Surprises II. Key Macro Trends for 2022 The global tightening cycle has begun Economic growth continues to broaden Inflation risks remain persistent III. Market Cycle & Portfolio Positioning Current market cycle Portfolio positioning IV. Rising Trends in Asset Allocation Searching for alternative sources of diversification Positioning for continued energy transition Defending your long-term financial plans from inflation 2021 – A Good Year with Many Market Surprises — Greg Taylor Looking back at a year where many equity indices were higher by 15% or more, you could assume that it was a rather dull year and easy to make money. However, that wasn’t the necessarily the case as many multi-year trends reversed, and we expect many more trends to be at risk of turning in the near term. The year started with one of the strangest rallies in market history —the rally of the ‘broken’ meme stocks. In many cases, this trend was the result of the return of the retail investor, rediscovering the stock market and day trading during lockdown. Through tools such as the Robinhood trading platform, which gave access to options, leverage, and social media chat groups, these investors were able to cause massive moves in the most-shorted companies in the market. In the end, these share-price moves hurt many established hedge funds, which were on the wrong side of the new trend. It wasn’t only the meme stocks that participated in this retail mania. Cryptocurrency joined the party too. And not just the usually suspects, like Bitcoin, this year DeFi tokens, coins like Ether, Solana, and even dogecoin, and non-fungible tokens (NFTs) all experienced a surge in popularity. Like many historical rallies, looking back in a few years, we will shake our heads at some of these moves, but like the dot.com bubble, there will also be several winners that come out of this trend and go on to change the world. Could it be Ethereum? How Ether should fit into investor’s asset mix will be a fascinating debate over the years to come—it doesn’t seem like an asset class that investors can ignore going forward. Outside of the more speculative pockets of the market, there were also strong returns in many traditional parts of the market, notably the cyclicals, in particular the energy stocks. This sector had been left for dead in the new ESG world, as investors assumed demand would fade away and the group would disappear. However, those who ignored it missed the best performing group for the year . 
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