What might “less bad” mean for investors?

Positive surprises in recent measures of economic activity, although not indicative of robust growth, have signaled things may have stabilized enough—or are at least sufficiently “less bad”—that a recession could be avoided altogether. As in many other advanced economies in the first quarter, Canada’s labour market was still strong, equity markets were buoyant, bond yields rose, government budget deficits attracted concern, and the Bank of Canada resisted cutting interest rates contrary to market expectations at the start of the year. So what might a “less bad” economy mean for investors? 

At the end of the first quarter, the Canadian economy found itself in a situation similar to many other advanced economies—albeit with a few uniquely Canadian wrinkles, such as immigration dynamics and household debt levels. Although there were ongoing signs of softness in new housing and business investment, overall economic activity and sentiment held up better than consensus expectations, while inflation continued to trend down. 

Inflation data could be considered the most encouraging of the lot, given that, as of February, it had descended to a level just outside the upper end of the Bank of Canada’s (BoC’s) target range of 1% to 3%, as shown in Exhibit 1 (Download the PDF to view exhibits). Measured over shorter time frames, the news is even more encouraging. For example, on an annualized basis, three-month moving averages of CPI-median and CPI-trim were both below 2.5%. As noted in our global quarterly outlook, Canada has been outperforming other countries in terms of getting domestic inflation under control.

Important information 

SEI Investments Canada Company, a wholly owned subsidiary of SEI Investments Company, is the Manager of the SEI Funds in Canada. 

The information contained herein is for general and educational information purposes only and is not intended to constitute legal, tax, accounting, securities, research or investment advice regarding the Funds or any security in particular, nor an opinion regarding the appropriateness of any investment. This information should not be construed as a recommendation to purchase or sell a security, derivative or futures contract. You should not act or rely on the information contained herein without obtaining specific legal, tax, accounting and investment advice from an investment professional. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Statements that are not factual in nature, including opinions, projections and estimates, assume certain economic conditions and industry developments and constitute only current opinions that are subject to change without notice.