November 2022
Alfred Lam, CFA, Senior Vice-President and Chief Investment Officer, CI Global Asset Management
The October U.S. CPI, as reported at an annualized rate below 4%, leads to some hope that the Fed’s hiking has been effective, and rates are close to terminal. Investors have re-priced terminal Fed Funds rates throughout the year, from as low as 2% to most recently 5%. The current CPI details reveal that prices of services are finally cooling while goods are under increasing pressure. Online retailer Amazon recently commented that they expect this December to be one of the toughest Christmas holiday seasons for sales as demand continuously declines in America.
While higher interest rates have led to higher interest payments on variable term loans, consumers and corporations are yet to feel the pain as they are still paying low interest rates that were negotiated earlier. However, they have turned cautious on their spending due mainly to “wealth effect” as high interest rates have re-priced asset values lower. The S&P 500 Index, for example, has lost 18% since beginning of the year to Oct 31.
Read the rest of Alfred’s comments by downloading November Portfolio Construction – Short-Term Pain, Long-Term Gain
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