Making Sense of the Mixed Signals
Making Sense of the Mixed Signals
When I began dating my wife Farrah, (a real life superwoman I might add), what seems like an eternity ago, it was a confusing time for me, especially in the early days of our relationship. Let me explain. I am a big Toronto Raptors fan, and with several of my colleagues being season ticket holders, I would regularly get my hands on tickets for most home games. While Farrah would usually jump at the chance to go on a date with me to see the Raptors play, I found she was usually busy or hesitant when I suggested dinner at a fancy restaurant. After a few dinner rejections, I felt maybe she was just using me for my access to Raptor’s tickets. Trusting my gut (the butterflies whenever I was around her), I remained persistent and focused on the great conversations and fun we had at the Raptors’ games. Turns out, what I interpreted as a mixed signal was, in fact, Farrah’s way of saying she was not the fancy dinner type. Rather, she preferred more interactive dates like attending sporting events, shooting hoops, go-carting, and hitting balls at the driving range/batting cages. Let me tell you, she is the competitive type, and usually wins!
I see similarities in the current market climate, which is plagued with mixed signals across macro-economic variables; equity and fixed income indicators. From calls of a repeat of the roaring 1920s to fears of an imminent recession on the horizon, the market narrative has shifted aggressively in less than a year. This is understandable, given the growing list of worries/uncertainties on the minds of investors including: the ongoing Russia/Ukraine war, stubbornly high inflation, policy normalization/risks of policy missteps, recessionary fears, a significant slowdown in China, COVID-19 lock-downs, etc. We will briefly discuss some of the mixed signals/conflicting messages investors are receiving, and how to interpret these messages, starting with real GDP growth expectations. While global growth has been revised lower for the world economy, US and Canadian real GDP is forecasted to grow in 2022 by +3.0% and +4.2%, respectively, well above the 1.8% historical run-rate. While slowing from record levels in 2021, these figures do not suggest that a recession is on the horizon - viewed as two or more consecutive quarters of a contraction in real gross domestic product - but a return to a more normalized and sustainable economic growth environment.
