Weekly Market Commentary - February 17th, 2022

The Markets

Why did North American stock markets finish the week lower?

• Rising inflation. Major North American stock indices were trending higher until the U.S. Consumer Price Index (CPI) Summary showed inflation at a 40-year high. Consumer prices overall were up 0.6 percent in January with seasonal adjustment, and 7.5 percent over the last 12 months without seasonal adjustment, according to the U.S. Bureau of Labor Statistics. U.S. stocks sold off sharply on the news before regaining lost ground, with Canadian stocks following suit, albeit to a lesser extent.

• Changing rate-hike expectations. After the inflation report was released, St. Louis Fed President James Bullard indicated that he would like to see the Fed funds rate rise rapidly to fight inflation, reported Lisa Beilfuss of Barron’s. Investors recalibrated their expectations and by the end of the week the probability of a 0.50 rate increase in March was at 94 percent, according to the CME FedWatch Tool.

• Flattening of the yield curve. Expectations for more aggressive central bank actions rolled through bond markets last week. The yield on benchmark 10-year U.S. Treasuries rose above 2 percent, before finishing the week at 2 percent. The yield curve flattened as 2-year Treasury yields rose more sharply, finishing the week at 1.5 percent. Government of Canada bonds largely mirrored their American counterparts, with the 10-year and 2-year bond yields ending the week slightly lower than those south of the border, at 1.85 percent and 1.46 percent respectively.

• Escalating geopolitical tensions. Then again, the culprit behind U.S. stock market performance last week could be the Biden administration’s insistence that Russia is preparing to invade Ukraine and start a war.

Both the United Kingdom and the U.S. have suggested that Russia could soon invade Ukraine and advised their citizens to leave the country, while both Russia and the president of Ukraine himself have played down fears of an imminent invasion.

• Declining consumer sentiment, especially among the wealthy. Consumer sentiment south of the border dropped 8.2 percent from January to February, reaching the lowest level in a decade. Notably, “The entire February decline was among households with incomes of $100,000 or more; their Sentiment Index fell by 16.1% from last month, and 27.5% from last year. The impact of higher inflation on personal finances was spontaneously cited by one-third of all consumers,” reported Surveys of Consumers Chief Economist Richard Curtain. It’s possible that consumer pessimism will slow demand for goods and that, in turn, could help lower inflation.

The reality is that there often is no single answer to explain why stock markets move up or down. Each of the above may have contributed to last week’s downturn. As a result, it is possible that markets will remain volatile in the weeks ahead. If you have any concerns about your investment portfolio or current market conditions, please don’t hesitate to give us a call.

Source: FactSet

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The Nature Cure

When you were a kid, your parents probably told you to go outside and play. Your mom and dad may have just wanted to get you out from underfoot but, as it turns out, going outside is good for your mental and physical health.

In 2019, Mathew White of the European Centre for Environment and Human Health and his colleagues published an article in Nature. Their research found that people who spend more than two hours a week in nature “had consistently higher levels of both health and well-being” than those who spent less time in nature. The benefits of nature appear to max out at four hours.

Jason Goldman of Scientific American reported, “The two-hour benchmark applied to men and women, to older and younger folks, to people from different ethnic backgrounds, occupational groups, socioeconomic levels and so on. Even people with long-term illnesses or disabilities benefited from time spent in nature—as long as it was at least 120 minutes per week.”

So now that you’re an adult, your doctor may tell you to go outside and play.

A non-profit organization, called Park Rx America – Nature Prescribed, encourages doctors “to decrease the burden of chronic disease, increase health and happiness, and foster environmental stewardship” by prescribing nature during healthcare exams. The organization helps doctors identify parks in their patients’ neighborhoods and provides educational materials.

Here in Canada, we’re taking things a step further. Physicians can prescribe an “Adult Parks Canada Discovery Pass,” which gives their patients free access to 80 national parks, historic sites, and marine conservation areas, reported Andy Corbley of the Good News Network.

Even if you don’t have a free pass, it’s a good idea to go outside and play!

Weekly Focus - Think About It

“Freedom is valued not only for its intrinsic worth, but what it costs. And a people to whom liberty is given will never prize it as highly, defend it bravely, or wear it as proudly as a nation that wrenched it from the hand of tyranny.”

-Frederick Douglass, American abolitionist, writer and statesman

Best regards,