The global economy continues to slow as we near the end of 2022. The last time that the world experienced a central bank confluence of growth-restricting policies was in 1982, when a global recession was induced. There is good reason to expect the same in 2023. The weak points include China with Covid policies that hurt their economy, and Europe, hindered by slowing global trade and the impact of the Russian war on Ukraine. The U.S. economy is more insulated and is relatively stronger than the other major economies.  In December, we maintained our twelve-month forward outlook for the U.S. economy of six months of Recession followed by six months of Stagnation.

The Chinese economy advanced 3.9% year over year in Q3.¹ China’s annual inflation fell to 1.6% in November, from 2.1% in the prior month.² China’s surveyed urban unemployment rate increased to a six-month high of 5.7% in November, amid ongoing COVID-19 restrictions.³ Exports from China plunged 8.7% year over year in November.⁴ The Euro Area economy expanded 2.3% year-on-year in the third quarter. Among the bloc’s biggest economies, Germany expanded 1.3%, France 1%, Italy 2.6%, and Spain 3.8%.⁵ Consumer price inflation in the Euro Area was revised to 10.1% year-on-year in November. Energy prices rose 34.9%, the largest contributor.⁶ The unemployment rate in the Euro Area fell to a record low of 6.5% in October, falling in Spain and Italy while remaining steady in France and Germany.⁷

The U.S. economy grew an annualized 2.9% in Q3 2022. The biggest positive contribution came from net trade, as imports sank while exports rose.⁸ The annual inflation rate in the U.S. slowed for a fifth straight month to 7.1% in November.⁹ The Canadian economy expanded 0.7% in Q3 2022, a fifth consecutive quarter of growth.¹⁰ Canada posted a trade surplus as exports rose by 1.5%, with growth observed in 8 out of 11 industries.¹¹ Canada’s annual inflation rate was 6.9% in October, as continued interest rate hikes by the Bank of Canada lifted mortgage costs by 11.4% annually, the highest since February 1991.¹² The unemployment rate in Canada was at 5.1% in November.¹³

A rally on the last trading day of November capped off a month of relief for the market in the form of easing inflation and optimism surrounding a potential slowing pace of U.S. rate hikes. The S&P 500 posted its second consecutive month of gains, with a total return of 5.6%. The S&P Mid Cap 400 and S&P Small Cap 600 were up 6.1% and 4.2%, respectively. With Treasury yields declining as a result of slowing inflation, U.S. fixed income index performances were positive across the board. Canadian equities continued to rise in November. The S&P/TSX Composite increased by 5.5%. The S&P Europe 350 turned in a 7.1% gain, with all its constituent countries ending the month in positive territory. The U.K. and France were the biggest contributors to the benchmark’s gains with contributions of 1.7% and 1.3%, respectively. The S&P Pan Asia BMI surged 13.6% in November with China contributing most to the gains.

In December, our optimization process was unable to identify portfolio solutions for any of our Model Risk Thresholds. With this guidance, we maintained our asset allocation, including the twenty percent cash position across all models.

Price growth has likely reached a point where it is destructive to volume growth The Fed aims to attain monetary policy that is sufficiently restrictive to return inflation to 2%. Rate hikes by central banks take an estimated 6-12 months to impact the economy. Companies currently face a worsening macro picture and risks to corporate profit margins due to ongoing higher costs and less ability from consumers to digest price increases. Energy prices will be one on the greatest challenges. Russian supply cuts in February to Western countries that have imposed a price cap on them will cause the energy market to flare up again in 2023. We are currently positioned for a recession in the U.S. in the next two quarters. Our approach to portfolio management is nimble, opportunistic, and deliberate in identifying asset classes that are best placed to generate returns in a new world order. Our focus is on protecting portfolios from downside risk, and we believe that our investment process is working to achieve that goal.

Deborah Frame, President and CIO

¹ Trading Economics. China Trade. October 24, 2022.

² Trading Economics. China Inflation. December 9, 2022.

³ Trading Economics. China Unemployment Rate. December 15, 2022.

⁴ Trading Economics. China Trade. December 15, 2022.

⁵ Trading Economics. Europe GDP Growth. December 7, 2022.

⁶ Trading Economics. Europe Inflation. December 16, 2022.

⁷ Trading Economics. Europe Unemployment Rate. November 30, 2022.

⁸ Trading Economics. U.S. GDP Growth. December 1, 2022.

⁹ Trading Economics. U.S. Inflation. December 13, 2022.

¹⁰ Trading Economics. Canadian GDP Growth. November 29, 2022.

¹¹ Trading Economics. Canada Trade. December 6, 2022.

¹² Trading Economics. Canada Inflation. November 16, 2022.

¹³ Trading Economics. Canada Unemployment. December 2, 2022.

Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. November 30, 2022. Index performance is based on total returns and expressed in the local currency of the index.

The Fed’s continuation of rate hikes in September to fight rising inflation, economic growth and geopolitical risk concerns, and a soaring US dollar combined to drive losses across all asset classes in Q3.   During past inflationary environments, inflation came in waves. This time will be no different. As supply induced inflation begins to decline over the coming months, real wage growth – which is negative – will turn positive. Real disposable income will rise. Aggregate demand will increase, pushing back up the steep side of the aggregate supply curve. With global growth on the upswing, commodity prices are expected to recover, causing a second inflation wave.

A second inflation wave will counter the belief that the neutral interest rate is low. After pausing its interest rate tightening campaign, the Fed is expected to begin hiking again in the second half of 2023, bringing the Fed funds rate and U.S. mortgage rates high enough to hit the housing market and the rest of the economy.

Europe will experience a different recovery than in North America, following the Russia imposed energy crisis and as China loosens its zero-Covid policy. Oil prices propelled higher following a decision by OPEC+ to make sizeable cuts to output that tightened supplies in an already strained market. The cuts take effect from November and are the start of an uncertain period for oil supplies heading into the winter, with the European Union set to implement sanctions on Russian flows in December. A recession in the eurozone during the fourth quarter of 2022 and first quarter of 2023 is expected, following deteriorating growth prospects in export markets including the United States and the United Kingdom. Both are expected to enter recessions shortly. In October we maintained our twelve-month forward outlook for the U.S. economy of six months of Recession followed by six months of Stagnation.

The Chinese economy advanced 3.9% year over year in Q3 of 2022, boosted by various measures from Beijing to revive activity. For the first nine months of the year, China’s GDP grew by 3%.¹ The latest figure was released just a day after President Xi Jinping secured a historic third term. China’s surveyed urban unemployment increased to 5.5% in September 2022 from 5.3% in August.² The Eurozone annual inflation rate was revised slightly down to 9.9% in September 2022, the highest rate since comparable records began in 1991, as the bloc’s energy crisis deepened.³ The unemployment rate in the Euro Area fell to a record low of 6.6% in September from an upwardly revised 6.7% in the prior month.⁴

The U.S. economy grew an annualized 2.6% in Q3 2022, rebounding from a contraction in the first half of the year. The biggest positive contribution came from net trade. Imports sank 6.9% while exports were up 14.4%, led by petroleum products.⁵ The U.S. unemployment rate fell to 3.5% in September 2022.⁶ The annual inflation rate in the U.S. slowed to 8.2% in September of 2022. The energy index increased 19.8%, due to gasoline, fuel oil, and electricity. Meanwhile, the core rate – which excludes volatile food and energy – rose to 6.6%, the highest since August of 1982, in a sign inflationary pressures remain elevated.⁷ Canada’s annual inflation rate slowed to 6.9% in September of 2022, below the 39-year peak of the 8.1% hit in June.⁸ The unemployment rate in Canada eased to 5.2% in September of 2022.⁹

Despite making a comeback in July and the first half of August, the S&P 500 slumped to a loss of 4.9% for the quarter while the S&P Mid Cap 400 and S&P SmallCap 600 declined by 2.5% and 5.2%, respectively. Treasury yields continued rising across the curve, resulting in U.S. fixed income index performances mostly negative. Canadian equities slumped into late September and all major indices finished down by single digits in Q3, with the S&P/TSX Composite falling by 1.4%. As central banks globally followed the Fed’s lead, international equities also suffered. The S&P Europe 350 dropped 6.2% in September and 4.04% in Q3, for its third straight quarter of losses. All constituent countries contributed to the S&P Europe 350’s losses, with the S&P United Kingdom pulling down the index most, off 3.1% in the 3rd quarter. The S&P Pan Asia BMI plunged 11.4% in September with all its components down for the month. Japan detracted most from the regional bellwether’s return, dragging the S&P Pan Asia BMI lower by 3.1%. Crude oil remained in a tug-of-war between the deteriorating economic landscape and supply-side risks in October. Gold posted its seventh straight month of declines in its longest losing streak since the late 1960s as rising treasury yields weighed on the non-interest-bearing metal. The stronger US dollar and a deteriorating global demand outlook offset gold’s ability to be a store of value.

In October, our optimization process was unable to identify portfolio solutions for any of our Model Risk Thresholds. With this guidance, we maintained our asset allocation, including the twenty percent cash position across all models.

We are currently positioned for a recession in the U.S. in the next two quarters. Inflationary pressures continue and central banks are steadfast in targeting job growth and core inflation and a second wave of inflation is anticipated.  Our approach to portfolio management is nimble, opportunistic, and deliberate in identifying asset classes that are best placed to generate returns in a new world order. Our focus is on protecting portfolios from downside risk, and we believe that our investment process is working to achieve that goal.

Deborah Frame, President and CIO

¹ Trading Economics. China GDP. October 22, 2022.

² Trading Economics. Unemployment. October 24, 2022.

³ Trading Economics. Europe Inflation. October 21, 2022.

⁴ Trading Economics. Europe Unemployment Rate: Eurostat. November 3, 2022.

⁵ Trading Economics. U.S. GDP Growth. October 27, 2022.

⁶ Trading Economics. U.S. Unemployment: U.S. Bureau of Labor Statistics. November 4, 2022.

⁷ Trading Economics. U.S. Inflation. October 13, 2022.

⁸ Trading Economics. Canada Inflation. October 19, 2022.

⁹ Trading Economics. Canada Unemployment: Statistics Canada. October 5, 2022.

Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. September 30, 2022. Index performance is based on total returns and expressed in the local currency of the index.

On the heels of the pandemic, the world is now having to deal with spillovers from Russia’s war, which is threatening a recession not only in Europe but across the developed world, and China’s ad hoc lockdowns. Corresponding supply shocks are fueling inflation across the globe, prompting central banks to tighten monetary policy further into restrictive territory. Emerging economies are struggling to cope with currency devaluations. Fiscal withdrawal is adding to the tightening, as governments attempt to address impaired public finances after the COVID-19 related stimulus of recent years. In August, we maintained our outlook for three months of Recession followed by nine months of Inflation for the U.S. economy.

The Chinese economy advanced 0.4% year over year in Q2 of 2022, slowing sharply from a 4.8% growth in Q1. This is the softest pace of expansion since a contraction in Q1 2020, when the initial coronavirus outbreak emerged in Wuhan. For the first half of the year, the economy grew 2.5%.¹ China’s annual inflation rate rose to 2.7% in July 2022 from 2.5% in June.² China’s surveyed urban unemployment inched down to 5.4% in July 2022 from 5.5% in June.³ The Euro Area economy expanded 3.9% year-on-year in the second quarter of 2022.⁴ The annual inflation rate in the Euro Area was confirmed at a new record high of 8.9% in July of 2022.⁵

The American economy shrank an annualized 0.9% on quarter in Q2 2022, following a 1.6% drop in Q1, technically entering a recession.⁶ Net trade made a positive contribution for the first time in two years, as exports jumped 18%, led by industrial supplies, materials, and travel, and imports were up 3.1%.⁷ The U.S. unemployment rate decreased to 3.5% in July 2022, the lowest since February 2020.⁸ The annual inflation rate in the U.S. slowed more than expected to 8.5% in July of 2022 from an over 40-year high of 9.1% hit in June.⁹ Canada’s annual inflation rate was at 7.6% in July of 2022.¹⁰ Canada’s trade surplus widened to CAD 5.0 billion in June of 2022, from a downwardly revised 4.8 billion in the prior month. It was the largest monthly trade surplus since August of 2008, as exports rose 2.0% from a month earlier to a record high of CAD 69.9 billion, primarily driven by higher sales of energy and metals and non-metallic mineral products.¹¹

After a tumultuous first half of the year, U.S. equities staged a comeback in July. The S&P 500 posted a gain of 9.2%, while the S&P Mid Cap 400 and S&P Small Cap 600 performed relatively better, up 10.9% and 10.01%, respectively. Canadian equities rebounded in July, with the S&P/TSX Composite up 4.7%. The S&P Europe 350 gained 7.6% in July, with all its constituent countries ending the month in the black. The U.K. was the biggest contributor to the pan-European benchmark’s gains, partially driven by the British pound’s 3% appreciation against the common currency over the course of the month, rising 3.6%. Worries about slowing growth and a potential recession in Europe drove down sovereign and corporate bond yields across Europe, resulting in broad-based gains for our range of regional fixed-income indices, amongst which the S&P Eurozone 7-10 Year IG Corporate Bond index was the best performer, up 7.1% in July. International equities started to reverse year to date declines, with the S&P Developed Ex-U.S. BMI up 5.3%. The S&P Pan Asia BMI gained 2.4% in July.

In August we continued with the defensive asset allocation that was established in May. Cash remains at 10% across all models. U.S. earnings are showing signs of stress in industries where inflation is impacting consumption. Gold is a safe haven in times of uncertainty, including inflation. Canadian oil and liquid natural gas directed through the U.S. pipeline system for export to Europe is benefiting Canada. Volatility is expected to continue in the fixed income arena. While we monitor events, we have noted that some of the global price pressures have shown signs of easing. Global shipping costs (and times) have been declining and wheat prices have reversed their surge on the initial Russian invasion of Ukraine. Oil prices have fallen from early June, pushing gasoline prices lower. In many countries, higher house prices have also shifted into reverse as early interest rate hikes cool housing markets.

So far in August, global equity markets have retreated, after Federal Reserve Chair Powell closed the door to a near-term dovish pivot at his highly anticipated Jackson Hole appearance on August 26th, signaling that the central bank is likely to keep raising interest rates and leave them elevated for an extended time to curb inflation. As monetary policy is forward looking and works with long and variable lags, we have concerns with a forward-looking policy based on lagging data. The probability of a “soft landing” is becoming less likely. Our approach to portfolio management is nimble, opportunistic, and deliberate in identifying asset classes that are best placed to generate returns in a new world order. Our focus is on protecting portfolios from downside risk, and we believe that our investment process is working to achieve that goal.

Deborah Frame, President and CIO

¹ Trading Economics. China GDP. July 15, 2022.

² Trading Economics. China Inflation. August 10, 2022.

³ Trading Economics. China Unemployment. August 10, 2022.

⁴ Trading Economics. Europe GDP Growth. July 15, 2022.

⁵ Trading Economics. Europe Inflation. August 18, 2022.

⁶ Trading Economics. U.S. GDP Growth. July 28, 2022.

⁷ Trading Economics. U.S. Trade. August 4, 2022.

⁸ Trading Economics. U.S. Unemployment: U.S. Bureau of Labor Statistics. August 5, 2022.

⁹ Trading Economics. U.S. Inflation. August 10, 2022.

¹⁰ Trading Economics. Canada Inflation. August 16, 2022.

¹¹ Trading Economics. Canada Trade. August 4, 2022.

Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. July 31, 2022. Index performance is based on total returns and expressed in the local currency of the index.

Escalating geopolitical tensions related to uncertainty around the war in Ukraine and prolonged supply chain disruptions have shifted stagflation concerns towards recession, as the first quarter of 2022 in in U.S. experienced negative growth. The emergence of highly transmissible COVID-19 variants also continues to risk derailing the global economic recovery. Central banks are weighing aggressive monetary tightening, in response to the current high inflation against recession risks. The inflation that we are experiencing today is less a ‘monetary phenomenon’ and more the result of adverse supply shocks, coupled with large fiscal injections that occurred during the pandemic. Any restrictive Fed hikes will coincide with a tightening of fiscal policy, economic weakness abroad, and war on Europe’s doorstep, fueling further commodity dislocation. In June, we maintained our outlook for three months of Recession followed by nine months of Inflation for the U.S. economy.

China is currently experiencing an Omicron outbreak that has prompted lockdowns and a prolonged downturn in the property sector. The Chinese economy expanded 4.8% year over year in Q1 of 2022, slowing from an 8.1% expansion last year, which was the steepest pace in nearly a decade. Retail sales fell 3.5%, down for the first time since July 2020.¹ China’s annual inflation rate was at 2.1% in May 2022.² The Euro Area economy expanded 5.4% year-on-year in the first three months of 2022, the biggest annual gain in three quarters.³ Annual inflation rate in the Euro Area increased to 8.1% in May of 2022, a fresh record high, from 7.4% in each of the previous two months.⁴ The unemployment rate in the Euro Area was unchanged at a record low of 6.8%.⁵

The U.S. economy contracted an annualized 1.5% on quarter in the first three months of 2022. Imports surged and exports dropped slightly less.⁶ The annual inflation rate in the U.S. unexpectedly accelerated to 8.6% in May of 2022, the highest since December of 1981. Energy prices rose 34.6%, due to gasoline (48.7%), fuel oil (106.7%, the largest increase on record), electricity (12%), and natural gas (30.2%).⁷ The trade deficit in the U.S. narrowed to a four-month low of $87.1 billion in April of 2022. Exports were up 3.5% to a record high. The deficit with China decreased $8.5 billion to $34.9 billion, with imports falling by $10.1 billion, the most in seven years.⁸ GDP in Canada expanded 0.8% on quarter in the first three months of 2022, the weakest performance in three quarters, due to a 2.4% drop in international exports volumes, mostly energy products.⁹ Canada’s annual inflation rate increased to 6.8% in April of 2022, the highest since January of 1991.¹⁰ The unemployment rate in Canada fell to 5.1% in May of 2022.¹¹ Canada posted a trade surplus of CAD 1.5 billion in April of 2022, narrowing from a downwardly revised 2.3 billion surplus in the prior month.¹² The Canadian central bank hiked the overnight rate by 50 basis points to 1.5% in early June.¹³

Equity market risk has shifted from interest rates (and the discount rate) to earnings. U.S. equities suffered in May, as inflation concerns along with Fed rate hikes weighed on markets. As a result of a comeback in the final week of the month, the S&P 500 posted a slight gain of 0.2%, while the S&P Mid Cap 400 and S&P SmallCap 600 were up 0.8% and 1.9%, respectively. U.S. fixed income performance was mostly positive while gains in commodities continued, particularly in the Energy sector. Canadian equities were flat for the month, with the S&P/TSX Composite up 0.1%. Switzerland and Denmark weighed heavily on the S&P Europe 350, pulling the benchmark to a loss of 0.6% in May. Among S&P Europe 350 sectors, Energy took the top spot with an 11% gain, extending its year-to-date advance to 36%. U.K. inflation-linked bonds were hit particularly hard, off 9%, extending its decline for a sixth straight months. The S&P China 500 and S&P Hong Kong BMI both gained 3%.

In June we maintained the defensive asset allocation that was set in May. Cash remains at 10% across all models. U.S. earnings are beginning to show signs of stress in industries where inflation is impacting consumption. The safe haven status of gold in times of uncertainty, including war and inflation, is central in our asset allocation. Canadian oil and liquid natural gas directed through the U.S. pipeline system for export to Europe is benefiting Canada.

June has witnessed financial market volatility and uncertainty. The war in Ukraine and sanctions on Russia continue to push prices of commodities higher. The current positively correlated bond and equity markets have created an investment environment where opportunities are rare and fluid. Our outlook reflects these developments. Our approach to portfolio management is nimble, opportunistic, and deliberate in identifying asset classes that are best placed to generate returns in a new world order. Our focus is on protecting portfolios from downside risk, and we believe that our investment process is working to achieve that goal.

Deborah Frame, President and CIO

¹ Trading Economics. China GDP. April 18, 2022.

² Trading Economics. China Inflation. June 10, 2022.

³ Trading Economics. Europe GDP Growth. June 6, 2022.

⁴ Trading Economics. Europe Inflation. May 31, 2022.

⁵ Trading Economics. Europe Unemployment Rate: Eurostat. June 1, 2022.

⁶ Trading Economics. U.S. GDP Growth. May 26, 2022.

⁷ Trading Economics. U.S. Inflation. June 10, 2022.

⁸ Trading Economics. U.S. Trade Gap: Bureau of Economic Analysis. June 7, 2022.

⁹ Trading Economics. Canada GDP. May 31, 2022.

¹⁰ Trading Economics. Canada Inflation. May 18, 2022.

¹¹ Trading Economics. Canada Unemployment: Statistics Canada. June 10, 2022.

¹² Trading Economics. Canada Trade. June 7, 2022.

¹³ Trading Economics. Canada Central Bank Rate Decision. June 1, 2022.

Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. May 31, 2022. Index performance is based on total returns and expressed in the local currency of the index.

The recent inflation surge is generating two challenges to the global expansion. The immediate one comes from a squeeze in household purchasing power, concentrated in Europe and low-income commodity importing nations. If growth stalls in the second half of the year, it will likely have negative repercussions for both growth and inflation. If growth proves resilient, then risks rise that the inflation surge passes through to price and wage setting, requiring tight monetary stances. In April, we updated our current outlook to three months of inflation followed by nine months of stagnation for the U.S. economy.

The Chinese economy expanded 4.8% year over year in Q1 of 2022.¹ China policymakers are dealing with a significant weakening amid lockdowns to bring the Omicron wave under control. China’s surveyed urban unemployment increased to 5.8% in March 2022 from 5.5% in the previous month. The latest figure marked the highest jobless rate since May 2020, amid re-imposing COVID-19 restrictions following widespread outbreaks.² The annual inflation rate in the Euro Area surged to an all-time high of 7.5% in March, compared to 5.9% in February, as the war in Ukraine and sanctions on Russia pushed fuel and natural gas prices to record high levels. Energy recorded the highest annual rate, with prices of other items, including food rising also.³ The unemployment rate in the Euro Area fell to a record low of 6.8% in February of 2022. Among the biggest economies in the Eurozone, declines in the jobless rate were seen in Spain, Italy, and France.⁴

The American economy expanded an annualized 6.9% annualized in the last three months of 2021.⁵ The U.S. unemployment rate declined to 3.6% in March from 3.8% in the previous month.⁶ The annual inflation rate in the U.S. accelerated to 8.5% in March of 2022, the highest since December of 1981. Energy prices increased 32%, as gasoline and fuel oil were impacted by Russia’s invasion of Ukraine. Food prices jumped 8.8%, the most since May 1981.⁷ The trade deficit in the U.S. remained near record levels of $89.18 billion in February, as imports continue to rise amid robust demand and rising oil prices. Imports were up 1.3%, on higher shipments of crude oil, other chemicals and petroleum products, fuel oil, and capital goods. Trade deficits were recorded with China, the EU, Mexico, and Canada. The goods gap with Russia widened to $2.1 from $1.6 billion.⁸

The unemployment rate in Canada fell to 5.3% in March from 5.5% in February. It was the lowest rate on record since comparable data became available in 1976, marking a robust recovery for the labor market from the Covid-19 pandemic.⁹ Canada posted a trade surplus in February, narrowing from an upwardly revised 13-year high surplus in the previous month. Imports rose by 3.9%, due to uncertainty about the future supply of metals from Russia. Exports rose by 2.8% to a record-high, led by sales of energy products (up 7.8%), largely due to soaring prices because of the war in Ukraine.¹⁰

The U.S. S&P Large Cap 500 faced a turbulent quarter, down 4.6%. Smaller caps underperformed, with the S&P MidCap 400 and S&P SmallCap 600 down 4.9% and 5.6% for the quarter, respectively.  An inverted yield curve signaled concerns of an impending recession. U.S. fixed income performance was weak across the board. Gains in commodities continued, driven by Energy’s outperformance. Canadian equities outperformed the U.S. in Q1, with the S&P/TSX Composite up 3.8%. Energy posted a 29% gain. The S&P Europe 350 rebounded from losses suffered in the first two months of the year, resulting in a negative 4.9% in the first quarter. Most sectors and countries represented in the benchmark declined in Q1 2022. Energy was the best performing sector, up 18%. The United Kingdom and Norway contributed positively to the region’s returns in the quarter, while German equities were the most negative. The S&P Pan Asia BMI posted three consecutive months of declines, down 6.2% for the quarter. Amongst local market gauges, the S&P China 500 sank 14.3% in the first three months of 2022.

We have maintained our asset allocation across all models in April. Last month’s move to reduce exposure to the 3-to-7-year U.S. Treasury bond and add to Gold and Canadian Equities has had a positive impact on the portfolio. We continue to rely on the safe haven status of gold in times of uncertainty, including war and inflation. Canadian oil and liquid natural gas directed through the U.S. pipeline system for export to Europe along with their higher prices will benefit Canada. We are monitoring large cap U.S. equity exposure.

The Russian-Ukraine conflict, surging inflation, and concerns about the Fed’s rate hike plan have led to the S&P 500’s worst quarter in two years. Real interest rates remain low and private sector balance sheets are healthy. Our outlook reflects these developments. Our approach to portfolio management is nimble, opportunistic, and deliberate in identifying asset classes that are best placed to generate returns in a new world order. Our focus is on protecting portfolios from downside risk, and we believe that our investment process is working to achieve that goal.

Deborah Frame, President and CIO

¹ Trading Economics. China GDP Growth. April 18, 2022.

² Trading Economics. China Unemployment. April 18, 2022.

³ Trading Economics. Europe Inflation. April 1, 2022.

⁴ Trading Economics. Europe Unemployment Rate: Eurostat. March 31, 2022.

⁵ Trading Economics. U.S. GDP Growth. March 30, 2022.

⁶ Trading Economics. U.S. Unemployment: U.S. Bureau of Labor Statistics. April 1, 2022.

⁷ Trading Economics. U.S. Inflation. April 12, 2022.

⁸ Trading Economics. U.S. Trade Gap: Bureau of Economic Analysis. April 5, 2022.

⁹ Trading Economics. Canada Unemployment: Statistics Canada. April 8, 2022.

¹⁰ Trading Economics. Canada Trade Surplus. April 5, 2022.

Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. March 31, 2022. Index performance is based on total returns and expressed in the local currency of the index.