Stock market: what should we anticipate now?

With the labor market returning to a more solid level, central banks are now focusing their attention on inflation, which continues to climb, as well as the withdrawal of economic stimulus measures. This implies the elimination of the quantitative easing (QE) already completed, the increase in interest rates already initiated and the reduction of the balance sheet of the Central Banks (QT) which will follow shortly. Since last year, we have repeated several times that the withdrawal of these measures will drastically change the investment conditions that prevailed over the past two years.

The bond market has quickly adjusted and interest rates have risen sharply in recent months. To the point where the 1er last April, the bond yield curve inverted. In fact, the rate of 2-year US bonds has become slightly higher than the rate of 10-year US bonds. Contrary to popular belief, such an inversion in the bond curve is not a sign of an immediate recession, but rather a signal that the economy will slow down in the coming months. The problem is indeed that the economy will eventually slow down to such a level that it will become vulnerable in the event of an unforeseen event that could affect it to the point of bringing it into recession. Such a scenario is not anticipated for this year. On the other hand, the probabilities of a recession during the second half of 2023 or at the start of 2024 are currently increasing.

So bond rates will have to start falling next year, which would help bond investments that have been posting negative returns since last year.

With regard to the stock market, there is also a downward revision of valuation multiples. Our view is that the stock market should not currently trade more than 18 times corporate earnings. The expected economic slowdown, the revaluation of multiples downwards, as well as the growing probabilities of a recession in 2023-2024, mean that any rise in the market should be used as an opportunity to adjust the portfolio. Our advice is to position yourself with a Value management style that invests in companies with low valuations. Defensive sectors such as healthcare, utilities, telecommunications, consumer staples and energy are historically the sectors that perform well in the current environment.

One thing is certain, the change in monetary policy will change the approach to investing and what has worked since the markets rally in March 2020 will not necessarily work the same way.

Caution :

Although this document has been compiled with the greatest care, nothing guarantees its accuracy or applicability in all particular cases. Some statements reflect the personal opinions of the author.

The economic and political situation, both domestic and global, is constantly changing. This implies that the comments, recommendations and suggestions contained in this document could become obsolete following such changes.

It is important to remember that a fund’s past performance is not necessarily indicative of future performance. The net asset value per unit and the return on capital fluctuate.

The opinions in this press release do not necessarily reflect the opinions of PlaniprĂȘt inc. and PEAK Securities Inc.

The sources used are believed to be reliable by the author of the press release but are not guaranteed.

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