No data was found

Has the Dragon Been Slain?

July 17 to 21, 2023


Has the Dragon Been Slain?

July 17 to 21, 2023


Market Recap

  • Equities rallied this week amid generally strong earnings reports and a softer-than-expected U.S. inflation print that suggested we might be nearing the end of the road for Fed tightening.
  • The gains extended beyond Wall Street, though—the TSX closed the week 2.2% higher, and even the CSI 300 was up almost 2% on the week.
  • Annual growth in U.S. CPI slowed to 3.0% in June, a full percentage point below the previous month’s pace.


June’s U.S. CPI numbers are in, and they were a pleasant surprise, with inflation cooling to 3% over the previous year. We expected the CPI numbers to come down, but not by that much. It’s a good sign that the inflation picture is improving and is likely to provide much-needed relief to consumers going forward. Our expectation is that it will push a potential recession even further out. But it also puts pressure on the U.S. Federal Reserve (Fed). As we saw, the Bank of Canada (BoC) raised interest rates at its last meeting, which we were expecting. The Fed may still follow suit, but if we continue to see CPI numbers in this range or lower, there’s a real possibility that they will opt to stay on the sidelines for a while after their next meeting. Equity markets, meanwhile, may continue to chug along, which is why we advise not taking excessive risk off the table. With the exception of a pause during COVID, we’ve essentially been in a bull market for the last decade. We’re not entirely finished cleaning up the mess that COVID caused, but we are largely back on track, even if a pullback at some point remains a possibility.

Bottom Line: Central banks are likely to view the latest CPI numbers very positively, and the economy remains much stronger than many people realize.


Chinese exports fell by 12.4% in June compared to a year prior, the largest decline in over three years and well above the 9.5% decline that analysts had expected. This is an important number. During COVID, companies couldn’t rely on exports out of China and were forced to look elsewhere. The question was—when China reopened, would their export business bounce back? We didn’t expect it to come back fully, but it looks like it’s coming back even less than initially expected. Companies are also interested in diversifying their supply chains, not wanting to put all their eggs in one basket. These factors help to explain why China has underperformed this year relative to lofty expectations, and they’re likely to have a combination of knock-on effects. In the rest of Emerging Markets (EM), the news could be a positive, because if China’s not exporting, another country will. However, for developed markets seeking the lowest-cost inputs, the effects are less straightforward. China has fairly efficient supply chains, so if companies switch to new areas, there could be hiccups in the near term (or even the longer term) as operations get up and running.

Bottom Line: It’s looking increasingly likely that China might not bounce back as much as expected, which is why we’ve decreased our allocation to EM compared to the beginning of the year.


Where does Energy stand within the evolving economic backdrop? We’ve said for some time that Energy was undervalued, even amid concerns around OPEC cutting production and Chinese demand failing to materialize as expected. Those concerns haven’t gone away. But there has been a bit of a lift in energy prices of late, and the question is whether it will persist in the near term. We anticipate it will if market sentiment continues to be bullish. But is there a catalyst at the moment that could drive prices significantly higher? Probably not. We think there will be a better time to jump back into the sector down the road, and for the time being, we’re content with the gains we realized last year and early this year before we closed out our bullish position. There are also other opportunities that we prefer—Tech, for instance, which has recently outperformed.

Bottom Line: Uncertainty in Energy remains higher than we’d like, and for now, we think it’s best not to overweight that area.


Kudos to our Multi-Asset Solutions Team (MAST) for being prudent and not taking off too much risk despite some signs of economic weakening and predictions of an imminent recession. The latest inflation numbers we’ve seen, and the fact that the recession continues to get kicked down the road, has justified that perspective. Our independent thinking has served us well in this instance, and by staying the course, we’ve added tremendous value for our clients. We’re continuing that approach this month by remaining neutral on Equities while moving to neutral on Fixed Income and Cash. This provides a chance to benefit from potential Equity outperformance in the short term while having some (but not too much) protection against risk; we don’t, for instance, want to be locked into GICs when better opportunities in bonds could emerge later in the year. The decision to stay balanced was an important one, and we expect it to continue play out well this month, as it has all year.


The viewpoints expressed by the Portfolio Manager represents their assessment of the markets at the time of publication. Those views are subject to change without notice at any time without any kind of notice. The information provided herein does not constitute a solicitation of an offer to buy, or an offer to sell securities nor should the information be relied upon as investment advice. Past performance is no guarantee of future results. This communication is intended for informational purposes only.

BMO Global Asset Management is a brand name under which BMO Asset Management Inc. and BMO Investments Inc. operate.

Any statement that necessarily depends on future events may be a forward-looking statement. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Although such statements are based on assumptions that are believed to be reasonable, there can be no assurance that actual results will not differ materially from expectations. Investors are cautioned not to rely unduly on any forward-looking statements. In connection with any forward-looking statements, investors should carefully consider the areas of risk described in the most recent simplified prospectus.

This article is for information purposes. The information contained herein is not, and should not be construed as, investment, tax or legal advice to any party. Investments should be evaluated relative to the individual’s investment objectives and professional advice should be obtained with respect to any circumstance.

Commissions, management fees and expenses (if applicable) all may be associated with investments in mutual funds. Trailing commissions may be associated with investments in certain series of securities of mutual funds. Please read the fund facts, ETF facts or prospectus of the relevant mutual fund before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Distributions are not guaranteed and are subject to change and/or elimination.

For a summary of the risks of an investment in the BMO Mutual Funds, please see the specific risks set out in the prospectus. ETF Series of the BMO Mutual Funds trade like stocks, fluctuate in market value and may trade at a discount to their net asset value, which may increase the risk of loss. Distributions are not guaranteed and are subject to change and/or elimination.

BMO Mutual Funds are managed by BMO Investments Inc., which is an investment fund manager and a separate legal entity from Bank of Montreal.

®/™Registered trademarks/trademark of Bank of Montreal, used under licence.


Steven Shepherd profile photo
April 17, 2024

BMO ETF Portfolios’ April Commentary: “Imagine there’s no rate cuts…it’s easy if you try…”

Following a strong first quarter performance from global equities, investor’s collective nerves were shaken in early April.
House view
April 16, 2024

Delayed again: The soft landing that never comes

The view from 10,000 feet is that the economy is still in fairly good shape. That said, it is important to understand that we are beginning to see more signs of underlying economic weakness.
Sadiq Adatia
Sadiq Adatia
April 15, 2024

Jerome Powell Was Right

Given recent inflation numbers, are markets resetting rate cut expectations, and is a soft landing is still possible? How will the state of the consumer impact earnings season?
Sadiq Adatia
Sadiq Adatia
April 8, 2024

Total Eclipse of the Fed

What do Fed Chairman Jerome Powell’s recent comments mean for the interest rate outlook? And what impact are they having on equity and fixed income markets?
Sadiq Adatia
Sadiq Adatia
April 1, 2024

The Supply Chain Problem Rears its Ugly Head

How will supply chain disruptions caused by the Baltimore bridge collapse and conflict in the Middle East impact inflation? Do continuing problems in China’s property sector affect the country’s long-term growth outlook?
Sadiq Adatia
Sadiq Adatia
March 25, 2024

Reddit Goes Public: A Good Omen for the IPO Market?

Were Fed Chairman Jerome Powell’s comments as dovish as markets thought? With the Magnificent Seven driving markets, where can investors go if they’re looking to diversify?

Website attestation

You are entering the BMO Global Asset Management (GAM) Institutional website.

Read our Terms and Conditions
Click here to contact us

This information is for Investment Advisors only. By accepting, you certify that you are an Investment Advisor. If you are NOT an Investment Advisor, please decline and view the content in the Investor or Institutional areas of the site. The website is for informational purposes only and is not intended to provide a complete description of BMO Global Asset Management’s products or services. Past performance is not indicative of future results. It should not be construed as investment advice or relied upon in making an investment decision. The opinions expressed are subject to change without notice. Products and services of BMO Global Asset Management are only offered in jurisdictions where they may be lawfully offered for sale. The information contained in this website does not constitute an offer or solicitation by anyone to buy or sell any investment fund or other product, service or information to anyone in any jurisdiction in which an offer or solicitation is not authorized or cannot be legally made or to any person to whom it is unlawful to make an offer of solicitation. All products and services are subject to the terms of each and every applicable agreement. It is important to note that not all products, services and information are available in all jurisdictions outside Canada.