Gordon Reid's Top Picks: December 16, 2021
BNN Bloomberg
Top picks from Gordon Reid, president and CEO, Goodreid Investment Counsel
Gordon Reid, president and CEO, Goodreid Investment Counsel
FOCUS: U.S. stocks
MARKET OUTLOOK:
The Federal Reserve, America’s answer to our Bank of Canada, changed course a couple of weeks ago, signalling that it no longer views inflationary trends as “transitory,” and that it plans to wind down its asset purchase program more quickly than was previously telegraphed. However, let’s make sure everybody is on the same page. They continue to make monetary policy MORE accommodative, just at a slower pace. In addition, they haven’t yet raised interest rates, but the signals are that two or three, quarter point hikes are in the cards before the end of 2022, off a zero base. Not exactly tight monetary policy.
All this frenzied talk is in response to high inflation, which, only a month or two ago was almost universally agreed to be a supply issue; that is supply chain disruptions were causing cost-push inflation. At Goodreid we have long held that many of these issues would work through the system, leaving some residual inflationary tailings, most notably in the labour markets. If this comes to pass, and the Fed aggressively tightens in 2023 and beyond, we may be setting up for a Fed mistake; that is tightening just as the economy softens on the back of slower supply driven inflation and the satisfying of demand. The bond market appears to hold the same view. If inflation were a concern to bond holders, the longer end of maturities would pay higher rates and the yield curve would be steeper.
For now, Goodreid will continue with its bar-bell approach to investing, holding both growth and value-oriented positions. We think it likely that the Fed will revert to its more dovish rhetoric when inflationary pressures start to ease.
