Lorne Steinberg's Top Picks: November 11, 2021
BNN Bloomberg
Top picks from Lorne Steinberg, president, Lorne Steinberg Wealth Management
MARKET OUTLOOK: Delta variant. Rising inflation. Fed tapering. Political dysfunction. Debt ceiling. Microchip shortage. Supply chain problems. China Evergrande. There is no shortage of negative headlines, yet the stock market is at a record high.
Against this backdrop, one might expect investors would be pessimistic. However, such is not the case.
The negative headlines tell part of the story, but they omit a few important things. This bull market has been underpinned by historically low interest rates and the assumption that we have seen the worst of the pandemic.
Regarding rates, the U.S. Fed has announced that it will reduce its monthly bond purchases, as the economy is now on a sustainable recovery path. Assuming that the recovery continues, rate increases will probably start in 2023.
There has been some concern about the recent uptick in inflation to the highest level in quite some time, but the Fed believes this increase to be transitory, which is why they see no need to raise rates at present. COVID shutdowns had a significant impact on supply chains and labour availability, resulting in shortages of many critical items, such as microchips. The relatively quick economic rebound has exacerbated these problems. While inflation may remain at elevated levels as we head into 2022, we expect supply chains will adjust over the next year and be back in balance by 2023.
The economic rebound has been accompanied by a sharp increase in corporate profits, and there remain opportunities, though markets in general are no longer cheap.TOP PICKS: