September 1st 2023, 5:52:45 pm
(about 24 days ago)
North American equities edged up for the fourth straight day after a couple of weeks of downward trend caused by high rates concerns. S&P 500 topped 4,500 led by tech giants including Apple and Nvidia. S&P 500 and Nasdaq are down 1.61% and 2.28% respectively and Canada’s main benchmark S&P/TSX Comp lost 1.44%.
The continued hawkish tone from the US Fed and the upward pressure on bond yields led investors to believe that the central bank might have one more hike up in its sleeves. The recent inflation data coming from both US and Canada shows signs of cooling down but still are susceptible to immediate rebound so officials are sending the signal to the markets that rates must stay higher for longer to make sure inflation will substantially subside.
The firm stance of the officials is well supported by the so-far strong economic data and high employment figures. As consumer demand stays strong, so will the central banks’ will to put more pressure by tightening financial conditions.
Past few days, though, economic data has shown some signs of weakness which historically is not welcomed by the markets. This time around, they are counted as a silver lining to push back the Fed’s stance.
The economy moving into the not-too-cold nor hot phase is the perfect blend for stocks to transition through the higher rates regime by the central banks. There are global risks that need to be considered as well including geopolitical tensions and China's weakening economic activity that could push the global financial markets down and leave inflation and rates still high. The scenario that could cause a supply-driven economic recession.