One year after the launch of anti-Covid vaccines, financial markets have been willing to move beyond the pandemic while the economy has not. We see this with the disruptions among supply chains, particularity labor and commodity markets. The longest economic expansion in American history – 128 months – has been followed by the shortest recession – 2 months – and has registered the sharpest rebound ever measured. Inflation continues to be fed by supply shortages, labor costs, worker shortages, and consumers, who are responding to the changes imposed by the pandemic. In December, we maintained our twelve-month forecast of Growth (U.S. GDP greater than 2.5%) through the period while we continue to closely monitor the outlook for inflation.

The Chinese economy expanded 4.9% year-on-year in Q3 2021, down from 7.9% growth in the previous quarter, amid several headwinds including power shortages and supply chain bottlenecks.1 China’s consumer price inflation accelerated to 2.3% in November from 1.5% a month earlier.2 Exports from China increased by 22% to a record high in November.3

The Euro Area economy advanced 2.2% in the three months to September 2021. Household consumption accelerated while government expenditure slowed.4 The British economy advanced 1.3% in Q3, lower than the 5.5% growth rate in Q2.5 The annual inflation rate in the Euro Area increased to 4.9% in November from 4.1% in October. The biggest increase was seen in cost of energy (27.5%).6 The Euro Area seasonally adjusted unemployment rate edged down to 7.3% in October. Amongst the largest Euro Area economies, the highest jobless rates were recorded in Spain (14.5%), Italy (9.4%) and France (7.6%).7

The U.S. economy expanded an annualized 2.1% in Q3 2021. Personal consumption increased, mainly boosted by international travel, transportation services, and healthcare.8 Monthly inflation in the U.S. came in at 6.8% annualized in November. The indexes for gasoline (6.1%), shelter (0.5%), and food (0.7%) were among the larger contributors.9 The U.S. trade deficit with China decreased $3.2 billion to $28.3 billion. The gap with the EU also narrowed $2.1 billion to $16.6 billion but the deficit with Mexico widened $0.8 billion to $9.7 billion.10 The Canadian economy rebounded by 1.3% in Q3, underpinned by household spending and exports as pandemic restrictions were phased out.11 Canada’s headline inflation rate remained at 4.7% in November, amid supply chain issues and low base year effects.12 The unemployment rate in Canada fell to a new pandemic-low of 6.0% in November.13

It was not smooth sailing for U.S. equities in November, as concerns about the Omicron strain coupled with less-than-transitory inflation and accelerated tapering by the Fed upset markets during the last three days of the month. The S&P 500 posted a loss of 0.7%, outperforming the S&P Midcap 400 and the S&P Small Cap 600, which declined 2.9% and 2.3%, respectively. Canadian equities posted moderate losses with the S&P/TSX Composite down 1.6%. The European markets began November positively, but lockdowns and rising COVID caseloads spread across the continent towards the end of the month, before the twin challenges of a new virus strain and soaring core inflation pushed equities firmly into the red. The S&P Europe 350 finished with a loss of 2.5%. Nearly every country represented in the pan-continental benchmark contributed to the declines, except Switzerland. The S&P U.K. (GBP) was down 1.9%. The broad-based S&P Pan Asia BMI was down 3.8%. Most Asian regional fixed income indices advanced this month, led by the S&P/ASX Australian Government Bond Index, which gained 3% as investors steered towards the relative safety of government securities. Commodities fell heavily, led by a 20% decline in S&P GSCI Crude Oil on the back of fears that new restrictions on global travel may sap demand.

In December, we maintained our Asset Allocation across all models. Corporate earnings across all market caps were solid in Q3. U.S. fiscal spending that will fund local governments in the pending infrastructure bill supports our exposure to short-term treasuries and municipal bond exposure in the U.S. We believe that raising rates too early in 2022 during a transitory inflation environment will not occur for risk of causing a recession.

The global economic recovery is moving forward with limited slack. Against the backdrop of an incomplete recovery and a significant buildup of public sector debt, we have lowered our growth recovery expectations while maintaining our outlook to above 2.5% GDP growth in the U.S. over the next twelve-months. The changing picture of the economy comes with structural challenges to some sectors but eventually expects to lead to improved liquidity, healthy consumer balance sheets, and a healing labor market. 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. October 18, 2021.

2 Trading Economics. China Inflation. December 9, 2021.

3 Trading Economics. China Exports. December 9, 2021.

4 Trading Economics. Europe GDP. December 7, 2021.

5 Trading Economics. U.K. GDP. November 11, 2021.

6 Trading Economics. Europe Inflation. December 17, 2021.

7 Trading Economics. Europe Unemployment. December 2, 2021.

8 Trading Economics. U.S. GDP. November 24, 2021.

9 Trading Economics. U.S. Inflation. December 10, 2021.

10 Trading Economics. U.S. Trade. December 7, 2021.

11 Trading Economics. Canada GDP. November 30, 2021.

12 Trading Economics. Canada Inflation. December 15, 2021.

13 Trading Economics. Canada Unemployment. December 12, 2021.


Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. November 30, 2021. Index performance is based on total returns and expressed in the local currency of the index.