American Exceptionalism
 As we all know, rates/yields have moved substantially higher over the past couple of years, yet that impacts different parts of the economy differently. Based on different economic compositions from one country to the next, rate changes can hurt more or less. The U.S., for instance, is less sensitive to rates given the structure of their mortgage market. Dominated by 30-year fixed mortgages, changes in rates don’t impact consumers’ mortgage payments as much. It is estimated the U.S. has less than 10% of mortgages set to variable rates, compared to 30% in Canada. Furthermore, fixed mortgages in Canada max out at 5 years, meaning the resetting of higher payments is increasingly being felt as mortgages are renewed.
Wait for it, but we could be getting close to a period when good economic news stops being suitable for markets. This incredible run over the past three months has seen the S&P 500 rise 14 of the past 15 weeks – a feat not repeated since the early 1970s. The initial rise was from an oversold market that started celebrating more evidence that inflation was coming down, opening the door for rate cuts this year. This traversed from inflation optimism to optimism about U.S. economic strength. Unfortunately, strong economic growth does not give with rate cuts nor with inflation making a speedy decline down to the magic 2% realm.
Final Thoughts
The U.S. is the biggest economy in the world, and its equity market now carries about a 70% weight in the MSCI World Index. Yes, if you buy a passive cap-weighted global equity ETF, it's really just the S&P 500 plus some odds and sods. The U.S. economy could certainly remain immune to slowing growth elsewhere. Maybe the stock market can keep climbing with earnings growth slowing. However, the biggest constant for both markets and economies is often reversion to the mean. And both are well above their means at the moment.
— 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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