October 30th 2023, 2:44:10 pm
(about a month ago)
North American equities are still suffering for the third month as the interest rates creep higher in anticipation of central banks remaining hawkish for longer. S&P 500 and Nasdaq lost 3.4% and 3.71% respectively and Canada’s S&P/TSX Composite declined 3.84% month to date.
The third quarter earnings are out and US companies are showing softer sales and fewer earnings surprises. The tech and communications sector was hit hard after giant companies like Google fell sharply following their reports. The Amazon.com reports on Friday helped the market sentiment to some extent. The market has been bearish for quite a while and more poised for at least a short-term rebound.
The US treasury curve is showing record high levels with all the matures from 3-month to 30-year staying over 4.8%. The short-term interest rates in the US are staying over 5.5% with mortgage rates of over 8% which is the highest level in more than 30 years.
All sectors of the North American economy are being affected by the highest rates from the weak housing sector to declining auto purchases. The US Federal Reserve still sees the risk of lingering inflation pretty high and the recent tensions in the Middle East are adding to the risk of higher energy prices which could keep inflation higher for longer.
Right now, the central banks don’t want to lose credibility, hence they will deploy everything in their power to make sure that inflation will be anchored around the 2% target even if it means keeping the rates at a high level for a couple of years, which indeed could be the remedy to the current situation.