Lexicon Financial Group Weekly Update 

Monday, April 11, 2022


Looking Back

After rallying in March, markets stalled somewhat last week. Markets are expected to remain choppy as investors try to navigate the continuing Russia/Ukraine war, high inflation, and central banks eager to raise interest rates. However, economic growth and earnings trends still remain healthy and if inflation moderates over the rest the year, we may see an easing of pressure on central banks to tackle inflation. The big question is whether or not short-term interest rate hikes can effectively combat inflation or if measures that are more drastic are required. (1)

In the US and Canada, job numbers continue to improve, which is a positive sign for the economy. Unfortunately, this also puts inflationary pressure on the economy. More people working means more people who have disposable income to spend which will not help this inflationary situation.

As always, we continue to monitor and review each investment portfolio, and adjustments have been made to try to help navigate these choppy waters.

 

Looking Around

Last Thursday the Canadian government released its budget for 2022. It included several measures aimed at helping Canadians deal with the rising cost of living. The Canadian government‘s hands are tied somewhat, since inflation is a global problem at the moment.

Very few domestic policies will be enough to resolve the problem in the short term. Inflation continues to be a major concern for consumers. In a survey conducted exclusively for Global News from March 11-16, Ipsos found that six in 10 Canadians say they are concerned they might not have enough money to feed their families. This figure is up 16 percentage points from a similar poll conducted in November, when the annual rate of inflation stood at 4.7 per cent. (2)

Federal budgets often create challenges for investors, as they have to navigate through new initiatives and proposals to ensure that their portfolios are positioned appropriately. This budget is no different, and so we are working hard to understand how it impacts each investor and their overall financial plans. For example, some investors may be able to take advantage of the Tax-Free First Home Savings Account that was introduced. The new measures proposed in the budget will factor into any financial projections or financial plans we produce moving forward.

 

Looking Beyond

The surge in the price of oil is a significant contributor to inflation globally and there is not a lot that any single government can do about it. The price of oil in international markets is the single biggest component of gasoline prices, which is why most feel the pinch at the pump. But it isn’t just the cost of fuel for our own vehicles that drives prices up. Delivery trucks, including food, also experience higher costs. Some local and national governments are reducing taxes temporarily to lessen the impact at the pump, although this is not a long-term sustainable policy decision since these taxes generate significant revenue for government coffers.

It is a commonly held belief that high oil prices directly and negatively impact the economy and the stock market. Andrea Pescatori, an economist at the International Monetary Fund (IMF), attempted to test this theory in 2008. He measured changes in the S&P 500 as a proxy for stock prices and crude oil prices and found that, although both occasionally moved in the same direction at the same time, the relationship was weak. Higher oil prices do have an impact but it goes both ways. Higher oil prices drive job creation and investment as it becomes economically viable for oil companies to exploit higher-cost oil deposits. Higher oil prices also hit businesses and consumers with higher transportation and manufacturing costs. (3)

So there seem to be some positives resulting from higher oil prices. Those in favour of climate change suggest that higher gas prices are necessary to fuel the green revolution.

 

Further Reading

Markets & Investing – Raymond James

Everything you need to know about the commodity Sunflower oil

Don’t Blame Big Oil For High Gasoline Prices

 

The opinions expressed are those of Craig Swistun and not necessarily those of Raymond James Investment Counsel which is a subsidiary of Raymond James Ltd. Statistics and factual data and other information presented are from sources believed to be reliable but their accuracy cannot be guaranteed. It is furnished on the basis and understanding that Raymond James is to be under no liability whatsoever in respect thereof. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. Raymond James advisors are not tax advisors and we recommend that clients seek independent advice from a professional advisor on tax-related matters.

 

 

  1. Weekly market guide, Raymond James, April 8, 2022
  2. 2. 60% of Canadians worry about feeding their families amid inflation: Ipsos poll, Craig Lord, Global News, March 23, 2022
  3. How Oil Prices Affect the Stock Market, Sean Ross, November 30, 2021, Investopedia

 

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