The global markets continued to be volatile in June, triggered by economic data and a 0.75% interest rate increase by the US Federal Reserve. During the month the Energy sector came under pressure, despite still being the best performing sector this year, as investors traded towards recession risks over inflation concerns.
In this video we highlight the key risks affecting global markets today, as well as the opportunities and recent changes we’ve made in client portfolios.
As well, there are large amounts of capital appearing on the sidelines for institutional investors. Any signal of their flow of capital back into the equity markets could lead to a strong global equity market recovery later this year.
It is important to remember that while the US Federal Reserve is aggressively stifling economic growth with interest rate increases, they are also gaining back the ability to stimulate economic growth if needed down the road. By front-end loading the interest rate increases, they’re essentially creating a cushion with the tools necessary to decrease rates and therefore protect the economy from potential negative external shocks (i.e., another pandemic).
Quality firms can perform well in difficult or uncertain environments. They often have the purchasing power to pass along highinflation to their customers and can be seen as a “safe haven” compared to other equities, regardless of which sector they are in.
1. Large Retailers like Target and Walmart are now starting to report excess inventory as supply chain issues resolve and as demand for goods starts to cool
2. Consumers are transitioning back to balancing out their spending between goods and services (instead of only purchasing goods, they are now enjoying more services like travel)
3. Medium and Long-Term inflation expectations continue to decline, as measured by longer maturity government bonds
4. The year over year comparison from a higher price level means the math of inflation rate calculations start to show a decline
What are the Opportunities?
As with most broad market selloffs, we are in a situation where investors seem to “throw the baby out with the bath water”, resulting in opportunities to buy good quality companies trading at “sale prices”. It is about sifting through the sand and finding high quality companies that demonstrate the resilience to survive stress to their business model, and whose share prices have been oversold due to investor fear and capitulation.
As always, we are here to help answer any questions you may have about the investment portfolios or how this relates to your financial plan. Feel free to call us at 778 655-2410 and we look forward to hearing from you.