David Crotin, Investment Advisor of RBC Dominion Securities Inc.

It's been a very volatile stretch, with markets swinging drastically on a nearly daily basis. With this kind of market action and increasing fears, it's tempting to think you can get in and out at the right time.

After nearly 30 years as a student of the markets in this business, having traded for several banks, brokerage firms, and hedge funds, I've observed that it's very hard to successfully time the markets.

Picking highs and lows is particularly difficult because inevitably emotions get involved and information is imperfect. The most successful strategy remains to stay invested and avoid trying to time entries and exits to generate excess returns. To learn more, watch this video.

If you have questions or concerns about the market and your investments, please get in touch.

Good morning. Please enjoy today's morning notes. As always, the broad market is covered in the video below, with details that follow just below here. Please feel free to reach out with any questions. Have a great weekend.

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European recession risks rise. The European economy is vulnerable to recessionary risks that continue to grow, driven primarily by geopolitical stress in Ukraine and the economic fallout from the war, but higher manufacturing input prices are also beginning to impact economic output. GDP growth moderated substantially in the first quarter of this year, growing by 0.2% as the implications of higher energy prices continue to impact economic growth. Just this week, Russia shut off the flow of gas to Poland and Bulgaria after both countries refused to pay for their energy imports with Russian roubles. In addition, “European factories are signaling distress amid record inflation and a stubborn supply squeeze, aggravated by strict Covid lockdowns in China.” The confluence of economic challenges is reflected in European financial markets, with the Stoxx 600 Index seeing a decline of over -6.5% year-to-date on a total return basis (Bloomberg).

Consumption likely grew in March. According to the Wall Street Journal, US consumers are beginning to utilize that US $2.1 trillion in excess savings to support personal consumption expenditures. As expected, there has been a shift from spending on goods toward services as public health restrictions have begun to lift across much of the country. This could possibly alleviate some of the demand-induced price pressures that have been driving goods inflation. Given the inflationary pressures in the US economy, consumer spending may be elevated in nominal terms, particularly in the aforementioned spending on goods. Jamie Dimon, the CEO of J.P. Morgan said on an earnings call earlier this month that “the consumer has money. They pay down credit-card debt. Confidence isn’t high, but the fact that they have money, they’re spending their money.” He added that this was likely to continue into the third and fourth quarters of this year, and could potentially provide a lift to an already moderating economy.

Good morning. Please enjoy today's morning notes. As always, the broad market is covered in the video below, with details that follow just below here. Please feel free to reach out with any questions.

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U.S. GDP growth likely moderated in Q1. According to a Wall Street Journal survey of economists, consensus estimates put U.S. GDP growth at an annualized 1.0% growth rate in the first quarter of this year. This is in contrast to the 6.9% growth rate that was seen at the end of 2021, as the economy slowed on the back of supply disruptions, labour shortages, and high inflationary pressures. If consensus estimates are correct, this would mark the slowest pace of economic advancement since the first quarter of 2021 which saw the pandemic induced recession. Most signs point to the U.S. economy having a solid foundation due to a continuation of consumer and business spending, but risks are beginning to grow as the Fed tightens policy and inflation continues to hamper growth.

The Fed’s neutral rate of interest. As the U.S. Federal Reserve continues on its path of expeditiously raising interest rates to slow down inflation, there is a debate that is taking place on how high rates should go. Policymakers have estimated that the long-run neutral rate of interest is at 2.25-2.5%, and if their benchmark overnight interest rate rises above that, financial conditions become tight and risk pushing the U.S. economy into a recession. That being said, as inflationary pressures broaden out and grow at a faster pace, that might require the overnight rate to rise above the neutral rate in order to have a meaningful impact on slowing down price growth. At the last FOMC meeting, Reuters reports that the range of rates that policymakers projected as appropriate through this tightening cycle ran from 2.1% to 3.6% which is a substantial gap. With such a large gap in forecasts, it is difficult to project how consumers and businesses will handle a higher cost of capital. As a result, “equity markets have been rocked by volatility in recent days in part, Bank of America economists argued in an analysis, because the berth around possible Fed policy paths is currently so wide, with options contracts indicating the central bank's policy rate could top out anywhere between 2% and 4.5% over the next two years.”