Monday, March 14, 2022
Since the beginning of 2022, equity markets have been volatile. Covid, Russian aggression, inflation and rising interest rates have caused uncertainty in the markets. If you have concerns or would like us to update financial projections for you, we invite you to reach out.
The Russian-Ukrainian war, now in its third week, continues to impact the global economy. Interest rates are rising as central banks attempt to control inflation. For the period ending March 11, 2022, the Canadian market (as measured by the S&P/TSX) was up 0.38%. Over the same period, the S&P500 was down 2.83% and the NASDAQ was down by 3.63%.
Inflation shows no signs of slowing down, at least not in the short-term. U.S. consumer inflation soared to 7.9 per cent over the past year – the sharpest spike since 1982. It is likely to rise even higher as recently reported figures do not include the oil and gas price increases that resulted from Russia's invasion of Ukraine. Housing costs, which make up about a third of the government's consumer price index, have also risen sharply and are unlikely to reverse anytime soon. Canada’s inflation rate currently sits at 5.1 per cent, its highest level since 1991. It is also expected to trend higher. (1)
Russia’s war in Ukraine has made it the most it the most sanctioned country in the world- it faces more than 5,000 sanctions. (2) These sanctions have caused the value of the ruble to plunge, is impacting the daily lives of Russians and has pushed global energy prices to highs not seen for more than a decade.
If these prices are sustained or go higher, we can expect everything from economic growth to consumer spending to the cost of travelling to hiring to be impacted negatively. Higher gas prices mean that anything that has be transported could cost more. Rising gas prices not only impacts us economically, it also impacts how we view the economy. According to an August 2020 Gallup poll in the United States, increases in state gas prices made respondents feel more pessimistic about the economy over the time period in question. (3)
It is expected that the Federal Reserve will announce the first of several interest rate increases on March 15. An increase in rates is a standard policy decision to fight inflationary pressures in the economy. If effectively removes capital (as more flows into higher-paying instruments) and reduces the supply of money in the economy. This type of contraction risks slowing down economic growth, so it must be managed carefully. Other central banks will be faced with the same challenge.
During periods of stock market volatility like now it is worth remembering that:
Markets & Investing – Raymond James
Judy Asks: Can Sanctions End Russia’s War in Ukraine?
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Oil, commodities price shock could cost over 4% of global GDP, Trafigura says
Russia-Ukraine: How to Handle Geopolitical Risk
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.