The week in the markets -
July 29, 2022

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“Bad news travels at the speed of light; good news travels like molasses.”

 - Tracy Morgan, comedian


What did we learn from a busy week of financial news?

Microsoft and Alphabet both missed their expected earnings results. Microsoft cited the reasons for this as being unfavourable currency, zero-COVID-19 policies in China, a worsening market for PC parts (as other companies mentioned), poor results in their advertising business and the company’s decision to stop selling products and services in Russia. On top of that, cloud, Xbox and gaming spending slowed; it seemed that everything that could have gone wrong did go wrong. Yet its stock moved up. Sure, it was not a disaster, but it was not good either.

It was a similar story for Alphabet (Google), whose stock went up in a big way. Both these anecdotes point towards our theory that a lot of the worries covering our “wall of worry” are already priced in. All evidence seems to point to us getting over that wall, and that the situation is not as bad as was feared.

On Wednesday, the Federal Reserve raised its policy rate three-quarters of a percentage point to 2.5%. The war on inflation has forced the Fed to step up its effort to cool inflation and reduce the size of its balance sheet. In simple terms, quantitative easing allowed for far too much spending for too long. “Demand is still strong, and the economy is still on track to grow this year,” Fed Chairman Powell commented.

In the U.S., the average 30-year mortgage rate is hovering around 5.54% from just 3% earlier this year, but with more increases projected for later this year, this will reward savers. The goal is to bring inflation down to 2% (it currently sits at 9.1%).

Our view is that inflation is on the rise due to several key factors: almost full employment across North America, exceedingly high energy prices (because of the Ukraine-Russia war) and trends of excess spending due to pent-up demand.

Spending increases are being led by sporting goods, pet shops and services, along with general retail shopping. Consumer spending, while slowing down somewhat, is still high, so this continues to fuel the economy.

The dreaded “R” word (recession) continues to be thrown around, but the data suggests that we have slowed down — we are not contracting broadly across all sectors. Next week, we’ll analyze the GDP data and continue to watch the impact of back-to-back rate increases in Canada, Europe and the U.S.

This week's market closing value - week ending July 29, 2022

(As of 4:00 PM EST. )
EQUITY INDICES Level Change 1-week YTD 1-year 5-year
S&P/TSX 19,720.70 764.86 4.03% -7.08% -2.80% 5.42%
S&P 500 4,138.08 183.23 3.74% -12.02% -3.35% 11.44%
DJIA 32,846.45 945.84 2.09% -8.40% -3.49% 9.01%
FTSE 100 7,423.43 147.06 2.69% -8.36% -5.07% -0.97%
CAC 40 6,448.50 231.68 2.98% -17.90% -13.81% 2.32%
DAX 13,484.05 230.37 1.01% -22.69% -23.33% -0.29%
Nikkei 27,801.64 -113.02 0.70% -15.56% -13.97% 3.43%
Hang Seng 20,156.51 -452.63 -3.06% -13.32% -21.09% -5.51%
CURRENCY RETURNS CAD Change 1-week YTD 1-year 5-year
USD 1.2806 -0.0110 -0.85% 1.34% 2.65% 0.52%
Euro 1.3089 -0.0095 -0.72% -8.93% -11.61% -2.40%
Yen 0.0096 0.0001 1.11% -12.55% -15.57% -3.24%
3-month 2.65 0.13 Oil $98.18 $3.61
5-year 2.62 -0.22 Gold $1,761.63 $37.86
10-year 2.61 -0.22 Natural Gas $8.31 $0.01