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.
At Questrade, you can buy ETFs for free.
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.
Kyle offered:
- 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.
How to protect your portfolio with gold and bonds in the weekly reads from Banker on Wheels. On the subject of gold …
- 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.
Thanks for reading. Don’t forget to follow this blog, it’s free. Enter you email address in the Subscribe area.
Cut fees as you cut the crap investing …
Earn a break on fees by way of many of these partnership links.
CANADA’S TOP-RANKED DISCOUNT BROKERAGE
Cut the Crap Investing readers can earn a break on fees at Questrade by way of that partnership link. At Questrade, you can buy ETFs for free.
I have partnerships with several of the leading Canadian Robo Advisors such as Justwealth, BMO Smartfolio, Nest Wealth and Questwealth from Questrade.
Here’s Canada’s top-performing Robo Advisor, Justwealth.
Consider Justwealth for RESP accounts. That is THE option in Canada with target date funds that adjust the risk level as the student approaches the College or University start date.
CASHFLOWS & PORTFOLIOS
The self-directed investor might consider the service provided by Mark Seed from My Own Advisor. He runs Cashflows & Portfolios where they will provide options for that optimal retirement funding strategy. That service is provided for a very reasonable fee.
If you do head to Cashflow & Portfolios (as do many Cut The Crap Investing readers), be sure to tell them Cut The Crap Investing sent ya.
OUR SAVINGS ACCOUNTS
Make your cash work a lot harder at EQ Bank. RRSP and TFSA account savings rates are at 2.5% and 3.5%. You’ll find some higher rates on GICs, recently updated and increased to 3-5%. They also offer U.S. dollar accounts. We use EQ Bank, they have been awesome.
OUR CASHBACK CREDIT CARD
We make between $40 to $70 every month! And that’s on everyday spending. There are no fees with …
The Tangerine Cash Back Credit Card
Last month we received $45 in cash. Spending is down, yes! Less on gas, less on restaurants, less on groceries – our 2% cashback categories.
While I do not accept monies for feature blog posts please click here on the mission and ‘how I might get paid’ disclosures. Affiliate partnerships help me (try to) pay the bills for this site. That will allow me to keep this site free of ads and easy to read.
Talk of a recession and ongoing inflation is everywhere. It’s a worldwide phenomenon, so there’s no real way to escape it. You bring up some good points about staying the course and not worrying too much about things that are out of your control. I appreciate the insights!