- Equity markets struggled this week as a solid run of economic data stoked the higher-for-longer interest rate narrative. After going back and forth, and back again, pricing in rate cuts later this year, markets now seem to be finally throwing in the towel that this cycle is going to take longer to play out.
- The S&P 500 slipped 1.2%, with materials and health care lagging, while banks held firm. The index has still broken strongly out of the trading range that was in place for most of the past year, and is eying the all-time high set in January 2022 (less than 10% to go).
- Meantime, the TSX fell 1.6%, with widespread declines across technology, materials, energy and banks. Canadian stocks are now falling well behind their U.S. counterparts on the year, up just 2.3% versus 14.6% south of the border.
2023 So Far
Bottom Line: Headline stock market numbers for the first half of the year are somewhat misleading, and while bonds have largely performed as expected, recession-related uncertainties remain for the rest of 2023.
Bottom Line: A rotation in equity markets is likely in the second half of 2023, while Canada can be expected to outperform.
Fixed Income Outlook
Bottom Line: Looking ahead, bonds are likely to perform well in a downturn and outperform if interest rates are lowered.
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