While we had some initial success in getting inflation down from the 8% range, we are now getting stuck in a zone that is much higher than the 2% “target”. I’d even suggest that rate hikes have had little to nothing to do with that inflation-fighting success. For higher rates to have a real impact, we’d likely have to have a meaningful recession and rising unemployment. Of course we don’t know with any certainty if that recession (soft or hard) will arrive. But if the central bankers truly do want to bring inflation down to 2% it will take some economic hardship. I’m guessing that sticky inflation will eventually force them increase the inflation targets. It may be too painful to get to 2%. And there’s nothing wrong with a 3% to 4% inflation range.
It was another bouyant week for investors as reported by Kyle Prevost as he makes sense of the markets for MoneySense.
My main themes or observations continue to play out. Inflation is proving to be sticky in Canada and around the globe. It appears that rates are not getting cut any time soon. In fact, the potential of more rate hikes is creeping back on the table. For many, many months I have suggested that the econonomic forces are moving in slow motion.
For now the markets are enthusiastic. U.S. stocks were up 1.65% for the week. The growth oriented Nasdaq 100 (QQQ) was up almost 3.0%. The Canadian markets were down over 0.7% for the week.
And maybe there’s more good times to come. Market performance after a very strong first 100 days …
Growth leads the way
And growth sectors continue to lead the way for the year. Energy is the exception as oil prices anticipatesa pending recession of some sort.
In April I came in as a relief writer on MoneySense and offered …
It’s my guess (one I share with many) that we are not going back to the 2% inflation target. We might enter a period where 3% to 4% inflation is the norm and, well, historically that is closer to the longer-term trend. More good news is that stocks typically perform well with that level of inflation.
- Shelter costs were 4.9% higher year-over-year
- Grocery prices increased 9.1% year-over-year
- Health and personal care expenses were up 6.4% year-over-year
- Alcoholic beverages and tobacco products were up 5.3% year over year.
Clothing, transportation, gas and household furnishings were all below 3% inflation.
Scotiabank thinks we need another rate hike, but not everyone agrees.
Sun Life CEO Kevin Strain thinks we will stay in a higher rate environment of 3% to 4% for the near future.
Thank you for shopping at Walmart
On the earnings front I was pleased to see Walmart (WMT) deliver very solid earnings. That is one of my favourite defensive stocks. Kyle also showed how Canadian insurers are offering some protection by delivering the profits.
Canadian energy stocks are still pumping out the profits and big dividends. I recently received another special dividend from Tourmaline (TOU) in a few accounts. While oil and gas stocks are getting beat up, I’m happy to chip away adding more shares.
Some analysts believe that oil will hit $100 per barrel this Summer, driven by the reopening of the Chinese economy.
More Sunday Reads
And here’s the week in review thanks to Dividend Hawk. In the posts of the week, Hawk includes 10 dividend growth stocks from Ferdis at Seeking Alpha. I always have time for Ferdis’ posts and investment ideas for consideration.
- Gold prices soared in the 1970s era of inflation, but the root causes of inflation are different today
- In six of the last eight recessions, gold outperformed the S&P 500 by 37% on average
Gold help my cause so much during and coming out of the great financial crisis, when I lost my job. I was working for a U.S. bank – bad employment positioning 😉
Fritz at The Retirement Manifesto has a look at the retirement blind spots.
On My Own Advisor, Mark Seed looks at the tyranny of compounding costs. Of course, the evils of high fees is a main theme for this blog, and basically why this blog exists. From the post –
For those who remain invested in any high-fee funds, the sticker shock might be overwhelming…
You can also compare some of the small differences that fees can do that limit your wealth-building power in the next link. Use this free calculator to see how different fees could impact your investment strategy!
Yes, you should do the math. High fees are wealth destroyers.
Here’s a good starter post on the financial planning basics.
Big on dividends
At Tawcan, Bob continues to impress with his April Dividend Income Report.
These 16 dividend paycheques added to $5,343.33. This is a new monthly dividend income record!
Bob has a wonderful savings rate and he invests on a regular schedule. Bravo, for sure. And while we love our dividends, I will always remind readers of the greater benefit of portfolio growth – total returns. More money creates more income. And that can and should include a generous allocation to U.S. stocks and ETFs. We might also include international markets.
All said, Bob does include many stocks with solid growth characteristics.
And there’s a fresh post every day, Monday to Friday on Findependence Hub.
Keep on keepin’ on
There is much uncertainty, thanks to the unpredictability of inflation. Retirees should be prepared for anything and everything. Those in the accumulation stage might ignore all of my interesting economic observations and continue to invest on a regular schedule.
At FiPhysician a very needed post on the value of friendship. I am trying to get better on that front. I am guilty of letting my oldest and dearest frienships wilt. I do greatly enjoy making new friends through this blog.
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