Darren Sissons' Top Picks: April 18, 2022
BNN Bloomberg
Top picks from Darren Sissons, vice-president and partner at Campbell, Lee & Ross
Darren Sissons, vice-president and partner at Campbell, Lee & Ross
FOCUS: Global and technology stocks
MARKET OUTLOOK:
An interest rate regime change is now in effect. Largely, since the onset of the 2008 global financial crisis, interest rates have been in structural decline, driven by highly accommodative monetary policy. That strategy ended with Canada and New Zealand both raising rates by 0.50 basis points last week and more importantly because the U.S. is widely expected to raise interest rates by an equivalent 50 basis points on May 9th.
The higher cost of capital will dampen demand and slow global growth. Equally so, China’ zero COVID strategy and the war in Ukraine will also lower global demand. Given the regime change and the drag from China and Ukraine, two large risks remain as yet unquantified i.e. how high will interest rates rise and how likely is a policy error?
Currently, the markets response to those questions is a mixed message as interest rates are rising quickly but the pricing of the Government of Canada (“GoC”) three-year bond is only marginally lower than the 10-year GoC bond. The narrow spread suggests two alternatives. First, short term interest rates will rise and then decline as inflation spikes then subsides. Alternatively, long-term interest rates will rise and remain elevated due to higher sustained inflation over the next few years.
