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INVESTMENT STRATEGY QUARTERLY

Letter from the Chief Investment Officer

Carrying the Torch

Athletes at the Olympic Winter Games will either taste the thrill of victory or the agony of defeat. The same can be
said for investors, as the easy victories over the last two years will become more challenging and hard fought in
the year ahead.

2021 was all about speed – the fastest economic recovery on record and a history-making equity market run. And
while speed is important, winter Olympic champions have demonstrated that precise execution is equally as
important, especially as they grapple with weather, equipment, and slippery surfaces. For the markets, execution
will be centre stage – from the Federal Reserve’s (Fed) and Bank of England’s managing of monetary policy, to
corporate CEOs’ ability to maintain healthy margins, to OPEC’s oil supply decisions. With elevated valuations for
most asset classes, performance under pressure will be unrelenting. At times, the margin of error may be slimmer
than that of a figure skater nailing a Triple Lutz. However, we are optimistic that the economy and financial mar-
kets are well-trained, have favourable fundamentals, and are set to carry the torch for positive investment returns.
That is why despite some periods of tough sledding, we forecast another gold medal year for the markets and
economy.*

As we anxiously prepare to watch the Winter Games, we felt the Olympics scored a 10 as a backdrop for our Ten
Themes – so we prepared 10 captivating sports metaphors to accompany our views.

The U.S. and U.K. Economies are Ready to recovery. Brisk capital expenditures and the steady rebuilding of
Take Off inventories should also help the economic expansion go the dis-
tance.
The economy’s view from the top of the ski jump ramp is a lot less
scary now that effective vaccines are available. But what really pro- The Fed and the Bank of England Must
pelled the 2021 results was the momentum from supportive fiscal Adeptly Navigate the Fast-Moving
and monetary policies. Now the economy is ready to take off and Economy
fly at an above-trend pace for the second consecutive year – but
this time on its own, without policy support. In fact, this is the first Like a bobsled hurtling down its track, the global economy is racing
time annual economic growth, in the US, will soar above 3.5% for to reopen, and pent-up demand is pushing inflation like the
back-to-back years since 2000! The emergence of variants may g-forces in a tight turn. The inflationary surge is also pushing the
cause some resistance, but COVID’s gradual transition from a pan- Fed into its next heat – tightening monetary policy. The Fed and
demic to endemic state should be the biggest tailwind. Consumers BoE will be the brakeman, deciding if, and when, to slow the pace
will probably return to more normal lives. And with still elevated of growth to throttle back on inflation. We see the Fed steering in a
cash balances, services spending will lift off and join already resil- less aggressive, more pragmatic manner than many expect, antici-
ient goods consumption to improve the aerodynamics of the pating at least two well-telegraphed interest rate hikes, with the

Investment Strategy Quarterly is intended to communicate current economic and capital market information along with the informed perspectives of our investment professionals.
You may contact your Wealth Manager to discuss the content of this publication in the context of your own unique circumstances. Published 06/01/2022. Material prepared by
Raymond James as a resource for its Wealth Managers.

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