A deteriorating economic backdrop may finally catch up to equity markets in the second half of this year, with investment managers skeptical of the stock market rally and favouring bonds.<\/p>\n
The year began with many economists forecasting a recession in the first six months, predicting slower growth would bite into company earnings. But a strong labour market and consumer spending have defied expectations, leading central banks to indicate that further rate hikes may be necessary.<\/p>\n
Mackenzie Investments’ mid-year outlook report<\/a> notes that growth is slowing in Canada as high interest rates weigh on consumer debt.<\/p>\n “Despite mixed signals, we believe that the rapid central bank tightening and steadfast fight against inflation will continue to weigh on the economy, which will prove to be a headwind for risk assets like equities as the economic slowdown dampens earnings growth,” said Lesley Marks<\/span>, Mackenzie’s chief investment officer of equities, in a statement.<\/p>\n While the S&P\/TSX Composite Index was up 1.7% for the year to June 21, U.S. markets have surged in the first half: the S&P 500 was up 13.7% and the Nasdaq is up more than 29%.<\/p>\n However, Mackenzie said the rally likely isn’t sustainable, with monetary policy eventually catching up with corporate earnings.<\/p>\n