Despite sub-par global economy GDP growth this year, uncertainty around central bank policy paths continues to dominate markets.

In September, Developed Markets continued to tighten, with their central banks (outside Japan) moving in unison with rate hikes, accompanied by guidance for further tightening ahead. This is a response to two closely related developments. First, central banks are shifting their views on slack with larger and more front-loaded action. Second, their actions have not created results thus far. The Fed hiked the fed funds rate 75 basis points for the third straight meeting to 3.25% in September, followed by tightening from several other central banks, including a 50-basis point hike from the Bank of England. The Bank of Canada continued its steepest rate-hiking path in decades, lifting the overnight rate to 3.25%.1 Markets sold off both in anticipation of and in response to the Fed’s rate projections and Fed Chair’s comments. In September, we updated our twelve-month forward outlook to six months of Recession followed by six months of Stagnation.

The Chinese economy advanced 0.4% year over year in Q2 of 2022, slowing sharply from 4.8% growth in Q1.2 China’s annual inflation fell to 2.5% in August from July’s 2-year high of 2.7%.3 The Euro Area economy expanded 4.1% year-over-year in the second quarter of 2022, the slowest growth in three quarters.4 Annual inflation in the Euro Area was confirmed at a record of 9.1% in August. The highest contribution came from energy.5 The unemployment rate in the Euro Area edged down to a record low of 6.6% in July.6

The U.S. economy contracted an annualized 0.6% on quarter in Q2 2022. The economy technically entered a recession, following a 1.6% drop in Q1.7 The U.S. unemployment rate rose to 3.7% in August of 2022, the highest since February.8 The annual inflation rate in the U.S. eased for a second straight month to 8.3% in August.9 The trade deficit in the U.S. narrowed by $10.2 billion to a 9-month low of $70.7 billion in July. The deficit with China was down by $3.9 billion to $33.0 billion in July with exports rising to $12.8 billion and imports decreasing to $45.8 billion.10 GDP in Canada expanded by 0.8% on the quarter during the three months leading to June 2022. Canada’s annual inflation rate slowed to 7% in August, from 7.6% in July.11 The unemployment rate in Canada rose to 5.4% in August from the record-low of 4.9% observed in the previous two months.12 Canada posted a trade surplus of CAD 4.1 billion in July. Exports fell by 2.8% to CAD 68.3 billion, as lower energy prices prompted a decline in sales of energy products.13

U.S. equities began August in rebound mode but reversed course to end the month in negative territory after a hawkish Fed and recession fears weighed on investors. The S&P 500 posted a loss of 4.1%, while the S&P Mid Cap 400 and S&P Small Cap 600 saw declines of 3.1% and 4.4%, respectively. Treasury yields rose along with expectations for the future path of Fed hikes. Canadian equities were down in August with the S&P/TSX Composite off 1.6%. The S&P Europe 350 suffered a 4.9% loss in August, with 14 out of its 16 constituent countries ending the month in the red. The U.K. was the biggest contributor to the pan-European benchmark’s losses, partially driven by the British pound’s 3% depreciation against the common currency over the course of the month. The S&P Pan Asia BMI slipped 0.6% in August. Apart from Agriculture, Commodities posted losses across the board.

In September, our optimization process was unable to identify a portfolio solution for the Conservative, Moderate Growth, and Growth Model Portfolios. With this guidance, we added ten percent to the current cash position across the board, bringing cash to 20% across all models. In the Conservative Model we raised the cash by reducing Canadian Equity and Municipal Bonds exposure by 5% each. In the other models, the exposure to the S&P 500 and the Municipal Bonds was reduced by 5% each. In the Canadian models, where there is no exposure to the U.S. Municipal Bond, U.S. Midterm Treasury exposure was reduced by 5%.

Despite the anchoring of medium-term expectations, inflationary pressures continue to broaden with Developed Market core inflation remaining above a 5% this quarter. Central banks are steadfast in targeting job growth and core inflation. As monetary policy is forward looking and works with lags, we remain concerned with a forward-looking policy based on lagging data. 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. Fed Funds Rate. September 21, 2022.

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

3 Trading Economics. China Inflation. September 9, 2022.

4 Trading Economics. Europe GDP Growth. September 7, 2022.

5 Trading Economics. Europe Inflation. September 6, 2022.

6 Trading Economics. Europe Unemployment Rate: Eurostat. September 1, 2022.

7 Trading Economics. U.S. GDP Growth. August 25, 2022.

8 Trading Economics. U.S. Unemployment: U.S. Bureau of Labor Statistics. September 2, 2022.

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

10 Trading Economics. U.S. Trade Gap: Bureau of Economic Analysis. September 7, 2022.

11 Trading Economics. Canada GDP. August 31, 2022.

12 Trading Economics. Canada Unemployment: Statistics Canada. September 9, 2022.

13 Trading Economics. Canada Trade. September 7, 2022.


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