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Making sense of the markets this week: May 24, 2021
– moneysense.ca
Each week, Cut the Crap Investing founder Dale Roberts shares financial headlines and offers context for Canadian investors.Stocks could fall when the Fed fights inflation
How do the U.S. Federal Reserve and other central banks fight inflation? By increasing rates. And the fear is that inflation-fighting in 2021 will kill stocks.
Let’s back up a bit and look at how that works. As always, one of the greatest threats to stocks is bonds. Higher rates will increase borrowing costs to cool inflation and cool off the economy. By design, the rate increases could put a heavy lid on, or even reverse, economic growth.
In this post on Yahoo! Finance, hedge fund manager Dan Niles suggests that stocks could fall by 10% to 20% when we see those rate increases.
From that post…
“‘If you’ve got food prices, energy prices, shelter prices moving up as rapidly as they are, the Fed’s not going to have any choice,’ he said, predicting that the Fed could signal the beginning of a move to wind down its monthly $120-billion-a-month pace of asset purchases by this summer…
Should investors even bother with bonds anymore?
– moneysense.ca
Regular readers of the recently published MoneySense ETF All-Stars package may notice a growing skepticism from our panellists about bonds as an asset class, and bond ETFs in particular.
The bond bull market is getting long in the tooth after four decades of tailwinds generated by declining interest rates. As seasoned investors know, there’s an inverse relationship between interest rates and bond prices. When rates rise, bond prices fall, and vice-versa.
Predicting interest rates is as fraught with peril as divining short-term stock market moves. Pundits were declaring two and three years ago that interest rates couldn’t possibly fall much further, and that the next move could only be up. Tough call in practice, especially when in Europe and various other developed nations there is the spectre of negative interest rates.
COVID-19 has had an impact, says Matthew Ardrey, wealth advisor with Toronto-based TriDelta Financial. He cites the Vanguard Aggregate Bond Index ETF (VAB/TSX) as a proxy for fixed-income markets…
The bond bull market is getting long in the tooth after four decades of tailwinds generated by declining interest rates. As seasoned investors know, there’s an inverse relationship between interest rates and bond prices. When rates rise, bond prices fall, and vice-versa.
Predicting interest rates is as fraught with peril as divining short-term stock market moves. Pundits were declaring two and three years ago that interest rates couldn’t possibly fall much further, and that the next move could only be up. Tough call in practice, especially when in Europe and various other developed nations there is the spectre of negative interest rates.
COVID-19 has had an impact, says Matthew Ardrey, wealth advisor with Toronto-based TriDelta Financial. He cites the Vanguard Aggregate Bond Index ETF (VAB/TSX) as a proxy for fixed-income markets…
