No data was found

The Consumer Snowball Effect

October 3 to 6, 2023


The Consumer Snowball Effect

October 3 to 6, 2023


Market Recap

  • Equity markets struggled this week as bond yields continued to push higher and test valuations.
  • The S&P 500 fell 0.7%, with utilities down sharply, while consumer stocks and financials also struggled. Ten-year Treasury yields continued to rise on the week, as did most of the yield curve, before backing off somewhat on Friday. That despite some sluggish data and a well-behaved ‘supercore’ inflation print, which rose just 1.7% annualized in August, or 3.4% over the latest three months.
  • Meantime, the TSX fell 1.2% as rate-sensitives and higher-yielding sectors struggled alongside new highs for GoC yields—as one example, the closely-watched 5-year yield pushed to 16-year highs.


A crisis in the Chinese property sector has been brewing for some time, and last week brought more stunning developments, as real estate giant Evergrande’s shares were suspended in Hong Kong on news that the company’s director and chairman, Hui Ka Yan, is suspected of “illegal crimes.”1 The property sector in China continues to have issues across the board. It will take quite some time for consumer confidence to return, and the problem is compounded by the fact that housing is by far China’s most important market. If it doesn’t stabilize, it will be difficult to imagine people having the confidence to invest, putting a cloud over the economy’s reopening and negatively impacting its growth prospects. In our view, weakness in the property sector is a key reason why we haven’t seen China’s economy bounce back as strongly as many had expected, with generally poor consumer confidence and a lack of government stimulus also playing a role. Going forward, the reopening will continue, but it’s unlikely to reach the level we experienced on this side of the Pacific—North America didn’t have to contend with both post-COVID challenges and a property crisis at the same time.

Bottom Line: Some kind of economic resurgence in China is still likely, but it may not reach pre-COVID levels anytime soon.


Recent numbers from the Conference Board, amongst others, shows that consumer confidence is waning in North America. This is how we’ve been expecting things to go. At the beginning of the year, expectations for the consumer were relatively low. But then around July, there was a realization that the consumer was actually holding on quite well, and expectations were revised upward. We believed that consumers were strong, but also that at some point in time, the impact of higher interest rates would have to kick in. That’s exactly what we’re seeing now—a gradual decline in the consumer. We expect it to be like a snowball rolling downhill: slow at first, but picking up speed over time. The question is—by the time it really gets rolling and consumers are feeling the pain, will governments and central banks have stepped in to stimulate the economy by, for instance, cutting interest rates? That’s a question for 2024. For now, higher oil prices, high interest rates, and a weak September for markets are all taking their toll, and the housing market also hasn’t bounced back the way people were expecting. Together, that’s a recipe for declining consumer confidence.

Bottom Line: We expect a slow, gradual decline of consumer strength in the coming months.

U.S. Government Shutdown

The Sunday morning deadline for the U.S. congress to pass a government funding bill has come and gone, and thanks to a last-minute deal, a shutdown was averted. This playbook has been repeated many times, most recently with the debt ceiling crisis: delays and delays, a bit of political grandstanding, then finally a deal. This agreement is only temporary, so the scenario could play out again in November. In general, however, this is not the kind of situation that will affect our portfolio positioning, as these crises are typically resolved before they can have a significant effect on GDP or the broader economy. That said, the larger issue is one of consumer confidence—higher for longer interest rates and above-average inflation, as well as the ongoing United Auto Workers (UAW) strike, could accelerate a slowdown in spending, and those impacts could begin to appear in the next one or two quarters. In our view, the UAW strike is more concerning than the political brinksmanship over a shutdown; it could last for some time, will have far-reaching implications for the Automotives sector, and could also have knock-on effects for other sectors. It’s entirely possible that labour groups in other industries may see this job action as a model, causing other potential production issues down the road.

Bottom Line: A short-term U.S. government shutdown would be unlikely to have a material impact on economic growth, but the UAW strike is a situation worth monitoring.


For a detailed breakdown of our portfolio positioning, check out the latest BMO GAM House View Report, titled Sidestepping Cracks in Uncertain Markets.


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.