Interest rates may go higher but risky assets don’t listen

North American stock markets finished the week higher as investors are buying more into the belief that US central bank is leaning toward not increasing the rates much higher. S&P 500 and Nasdaq rose 1.9% and 2.58% while Canada’s S&P/TSX Composite added 1.79% last week.

The idea of the central bank pivoting or at least stopping interest rate hikes has been persistently undermined by US Fed officials and markets seem to be naïve to not believe them.

So far, the reports from the job market, as a key indicator, showed that even with layoffs from giant tech companies, unemployment in both US and Canada remains low and the economy has been resilient enough to cope with the higher rates.

The last US inflation report was not as low as expected, the job market also remained strong, and the housing sector data shows some signs of revival. Although mortgage applications declined to 40-year lows. Nevertheless, stocks rose, shrugging off the higher rates.

Canadian inflation and job market report were more constructive, and the bank of Canada has already called for an end to rate hikes at 4.5% which is already 0.25% lower than US policy rates. If the US decides they need to continue with higher rates, Canada is inevitably affected and has to follow suit.