The contents of this publication were researched, written and produced by Purpose Investments Inc. and are used herein under a non- exclusive license by Echelon Wealth Partners Inc. (“Echelon”) for information purposes only. The statements and statistics contained herein are based on material believed to be reliable but there is no guarantee they are accurate or complete. Particular investments or trading strategies should be evaluated relative to each individual's objectives in consultation with their Echelon representative. 

Talking about the USD , this too is applying much pressure to the markets, financial systems, and many economies. The above chart is the year-over-year change in the U.S. trade weighted dollar (USD vs a basket of other global currencies). A rise in the USD similar to the last few months has coincided with many of the past market events that really roiled markets. 

We should point out this may be a cart-in-front-of-horse or horse-in-front-of-cart scenario . Does the USD spike because of a crisis or does the spike help cause the crisis? This is important because so far there does not appear to be a crisis or breakdown in the market. (Yet…anyhow.)

Fund flows are certainly adding to the stress, measured by mutual fund & ETF flows. This is U.S. data, but it is similar in Canada. Bond outflows have remained pretty resilient this year as investors flee higher yields—effectively selling low, but the mob is the mob.

Equity inflows remained during the early months of this bear market as the buy-the-dippers tried one more time. But that cohort appears spent and flows have turned negative in September. If you are wondering where the money goes, it is cash. Cash vehicles have been ballooning. 

This is precisely the same behaviour we can witness in any bear market. And while it may feel good and even be right with a potential event ahead, the market outflows and cash inflows ALWAYS persist for quarters and even years after the markets’ bottom. Remember, as investors, if it feels good, you are likely doing it wrong. 

Portfolio Construction

2022 has not been an enjoyable year for investors, nor for advisors, and certainly not for portfolio managers. And the risk of some sort of event that triggers a final capitulation is high, given emotions and stresses in the markets and economy. And while the bottom does not appear to be put in just yet, we are likely getting must closer to the final bottom.   

Does it need a final capitulation? Perhaps, but that’s not a certainty. Could an improvement in U.S. inflation data out next kick off a strong rally in both equities and bonds? Perhaps… The various paths forward from current levels are very divergent, which makes going in on risk assets or going to defensive cash both potentially perilous. 

While an event may be looming, we would also note that the TSX is yielding 3.4% and trading at only 11x earnings. This was the valuation trough during the 2020 pandemic. Much bad news is priced into many markets, including the bond market. 



This is a dangerous time to make any outsized bets. Stay diversified and if you look forward 12 months, even with a potential recession, both equities and bonds likely have a higher probability of being higher than today’s levels. But the path from here to there will likely be a wild one. 

— Craig Basinger is the Chief Market Strategist at Purpose Investments

Source: Charts are sourced to Bloomberg L.P. and Purpose Investments Inc.

The contents of this publication were researched, written and produced by Purpose Investments Inc. and are used by Echelon Wealth Partners Inc. for information purposes only.

This report is authored by Craig Basinger, Chief Market Strategist, Purpose Investments Inc.
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