There has been mounting evidence that the pace of the global recovery has slowed. In many economies, it reflects increased consumer caution about high virus cases and shortages limiting how fast economies can grow. The shortage of semiconductors and the current logjam that is taking place at ports along the west coast of the U.S. has had a big impact on the recovery in the U.S. and their trading partners. The root of the issue boils down to the pandemic disrupting the “traditional” flow of activity — causing a supply and demand imbalance. The most likely outcome is a weakening macro backdrop that will weigh on the longer-end of the yield curve. In September we maintained our twelve-month forward forecast of Growth (U.S. GDP greater than 2.5%) through the period.

The Chinese economy expanded 4.9% year-on-year in the third quarter of 2021, easing sharply from a 7.9% growth in the previous period.1 It was the slowest pace of expansion since the third quarter last year. China’s corporate debt has risen to US$27 trillion, nearly one third of the world’s total corporate debt and 159% of China’s GDP. The construction and engineering sectors (around 45% of the debt) could trigger contagion effects on the global economy.2 The European economy expanded 2.2% in the second quarter of 2021 while the British economy expanded 5.5%.3 The Eurozone annual inflation rate was confirmed at 3.4% in September 2021, the highest rate since before the global financial crisis in September 2008. Energy prices were responsible for almost half of the overall year-on-year inflation reading, rising by 17.6% in September after a 15.4% advance in August.4 Unemployment in Europe held at 7.5% while in the U.K. it was 4.5% in August, the last reported month.5

The final U.S. Q2 GDP growth rate came in at 6.7%. The annual inflation rate in the U.S. edged up to a 13-year high of 5.4% in September from 5.3% in August.6 The U.S. unemployment rate dropped to 4.8% in September 2021, from 5.2% in the previous month. It was the lowest rate since March 2020, as many people left the labor force and the negative effects of Hurricane Ida and the Delta variant’s summer spike started to fade. The jobless rate remained well above the pre-crisis level of about 3.5% due to ongoing labor shortages.7  The Canadian economy unexpectedly shrank 0.3% in Q2 2021, ending three straight quarters of expansion mostly due to a decline in home resale activities and exports.8 The annual inflation rate in Canada went up to 4.4% in September of 2021 from 4.1% in August.9 The unemployment rate in Canada declined for the fourth straight month to 6.9% in September of 2021 from 7.1% in August.10

Mounting fears of inflation, an ongoing Congressional budget impasse, and anticipation of a reduction in Fed liquidity provisions all weighed on U.S. equities in September. For the third quarter, the S&P 500 posted a gain of 0.6%, while the S&P MidCap 400 and the S&P SmallCap 600 fell 1.8% and 2.8%, respectively. Despite losses in September of 2.2%, Canadian equities managed to post slight gains in Q3, with the S&P/TSX Composite up 0.2%. The blue-chip S&P Europe 350 managed a 0.9% gain for the third quarter after declining 2.9% in September. U.K. equities bucked the trend, escaping September’s downturn and rising 2.1% in Q3. The Netherlands had the largest contribution (48bps) to the benchmark while Germany hurt the composite due to an uncertain outcome in government elections at the end of the quarter. The broad-based S&P Pan Asia BMI shed 1.4% in September, leaving it with a loss of 3.0% for the quarter. Japan was the top-performing Asian index in September, with the S&P/TOPIX 150 up 4.7% for the month. Hong Kong and Korea lagged, as an ongoing regulatory crackdown in China and Evergrande’s widely publicized troubles soured investors.

In October we maintained our asset allocation for all portfolio models. The added exposure to Canadian equities in September worked well as the Canadian market, led by higher energy prices, experienced a strong month. 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 continue to include gold in the asset allocation as a portfolio stabilizer during volatile equity markets.

Our outlook hinges on whether the sources of recent disappointment are transitory amid several headwinds including power shortages, supply chain bottlenecks, a persistent property bubble in China, and COVID-19 outbreaks. Shortages of workers in many economies are also weighing on the growth for the rest of the year. The changing picture of the economy comes with structural changes that will challenge some sectors while at the same time, the reopening is expected 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. October 18, 2021.

2 S&P DJ. “Can China Escape Its Corporate Debt Trap?”. October 19, 2021.

3 Trading Economics. Europe GDP. September 7, 2021.

4 Trading Economics. Europe Inflation Rate. October 20, 2021.

5 Trading Economics. Europe Unemployment Rate. September 30, 2021.

6 Trading Economics. U.S. Inflation Rate. October 13, 2021.

7 Trading Economics. U.S. Unemployment Rate. October 8, 2021.

8 Trading Economics. Canada GDP. August 31, 2021.

9 Trading Economics. Canada Inflation Rate. October 20, 2021.

10 Trading Economics. Canada Unemployment Rate. October 8, 2021.


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