• Stocks lower to finish the week – Domestic markets were closed for Canada Day, while U.S. equities headed into the long holiday weekend on an up note, logging a gain on Friday after closing out the weakest first half to a year in more than a half century*.  It was a fairly quiet day on the data calendar and in the headlines, with the broader focus remaining on inflation and its impact on economic activity.  Both will be on display over the holiday weekend with travel expected to be strong, pitting still-healthy consumer demand against rising prices for services. Stocks received some help from the release of the June ISM Manufacturing report, which, despite indicating a moderation in factory activity, revealed some encouraging improvement in supply-chain bottlenecks as well as prices paid.
     
  • Interest rates pull back – While the 10-year Government of Canada bond rate remains above 3.2%, 10-year U.S. Treasury yields were lower again today, falling below 2.9% to the lowest levels in more than a month. The yield curve (long-term rates minus short-term rates) has flattened in recent months, as tighter Fed policy has spurred a sharper move in shorter-term rates. Canadian and U.S. yields are notably down from their June highs, which we'd attribute to growing concerns around the outlook for economic growth. With inflation pressures easing only modestly so far, we expect the Bank of Canada and U.S. Fed to remain committed to sizable rate hikes in coming months, meaning interest rates may not fall dramatically from here in the near term. At the same time, credible signs that consumer spending is slowing suggest that the sizable jump in interest rates earlier this year is unlikely to be repeated in the back half of the year.  Higher rates are taking a bite out of housing-market strength, but for investors, we think the majority of the pain in bond returns has already occurred, presenting potential opportunities in bonds as we move forward.
     
  • A better second half? – The S&P 500 is off by more than 20% so far this year, posting the worst first-half return since 1970*. We think headwinds from Fed rate hikes and slowing economic growth will persist in the coming months, but a large amount of pessimism is already discounted in this year's pullback. Thus, we think the second half of 2022 will be better than the first for both stocks and bonds.  To be clear, we don't anticipate a swift rebound, as we think markets will first require confidence that the Fed won't need to take a more aggressive tightening approach in order for equities to mount a sustained rally. To gain that confidence, we'll need to see several months of moderating inflation, suggesting that market volatility is likely to persist in the interim.  History supports a case for optimism, however. In prior instances in which the S&P 500 was down more than 20% in the first half of the year ('32, '62, '40, '70), the market logged a solidly positive gain in the second half of each of those years*.
     
    *Source: Bloomberg

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The Investment Policy Committee (IPC) defines and upholds Edward Jones investment philosophy, which is grounded in the principles of quality, diversification and a long-term focus.

The IPC meets regularly to talk about the markets, the economy and the current environment, propose new policies and review existing guidance - all with your financial needs at the center.

The IPC members - experts in economics, market strategy, asset allocation and financial solutions - each bring a unique perspective to developing recommendations that can help you achieve your financial goals.

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