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Economy

As the economy hits its peak, stock market gains could be harder to come by – CNBC

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A specialist trader works inside his post on the floor of the New York Stock Exchange (NYSE).
Brendan McDermid | Reuters

Diminishing economic returns could mean diminishing stock market returns as the U.S. transitions to a post-pandemic economy.

Wall Street increasingly is talking about peak growth in both the economy and corporate earnings as a stimulus-fueled recovery gives way to more normalized patterns.

Congress and the Federal Reserve have provided trillions in funding and liquidity measures that soon either will dry up or at least begin evaporating, leaving investors to ponder what lies ahead with their portfolios.

The market will have to handle what is likely to be a lasting bout with inflation at a time when the drivers for growth are uncertain.

“It’s a world that we haven’t had to deal with in 40-plus years, and I don’t think you can just take out your regular playbook from the last couple of decades,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group. “Valuations of pretty much everything are extraordinarily high, which means there’s no room for error.”

Boockvar spoke of an environment in which inflation will be higher as growth moves lower, a cycle known as “stagflation,” something the U.S. wrestled with for years from the mid-1970s to early ’80s. Practically no one thinks the current conditions will morph into something that bad, but there are similarities.

Inflation is running at 30-year highs, according to the Fed’s preferred gauge, while growth lately has been solid but a bit disappointing. Second-quarter GDP rose at a 6.5% annualized pace, but that was well below the 8.4% Wall Street estimate. Manufacturing data released Monday showed the sector still expanding, but at a lower-than-expected rate.

The factors are combining in “the classic recipe for a growth scare,” wrote Nick Colas, co-founder of DataTrek Research.

Looking at Apple Mobility and Google data that examines how people are getting around, Colas found that they are providing “a worrisome combination” though it’s too early to tell how things will shape out in the long run.

Still, he warned that investors high on the second quarter’s record-breaking pace of corporate earnings beats may find trouble ahead.

“Excellent Q2 earnings have allowed us to shake off that [growth scare] narrative every time it’s come up in recent weeks,” Colas said. “Now that the bulk of earnings season has passed, however, and seasonal volatility trends assert themselves we may see the growth scare narrative break through more convincingly.”

The trouble with optimism

The factors of higher inflation, slowing growth and waning stimulus occur amid high levels of investor sentiment as the major stock market averages hover around record highs.

In fact, that brimming optimism is flashing warning signs, according to Bank of America.

The firm’s gauge of investor sentiment that measures Wall Street portfolio allocations to stocks is the closest it’s been to a “sell” signal since May 2007, shortly before the market was about to hit record highs that soon would come tumbling down during the financial crisis.

“We have found Wall Street’s bullishness on stocks to be a reliable contrarian indicator,” Savita Subramanian, head of U.S. equity and quantitative strategy at Bank of America, said in a note to clients. Higher allocations to stocks eventually end up pointing to a decline ahead, the gauge has shown.

Subramanian said the indicator’s current level is pointing to price returns in the next 12 months of just 7% compared with the average forecast of 13% since the financial crisis ended in 2009.

To be sure, a slowing economy doesn’t mean negative returns, and the current conditions may be pointing at nothing more than a cooling off for a market that has been on fire since rocketing to its pandemic low in late March 2020. After all, even though fiscal stimulus is slowing, the Fed remains committed to keeping its policy ultra-loose until it sees much more progress on employment.

“With the recovery still underway, investors shouldn’t be frightened by headlines declaring slowed momentum,” said Seema Shah, chief strategist at Principal Global Investors. “Once markets have digested the transition to a more sustainable pace of expansion, decelerating growth is usually associated with weaker, but still positive, equity returns.”

In fact, the past two peaks in earnings cycles have led to double-digit market gains over one-, three- and five-year periods, said Jason Pride, chief investment officer of private wealth at Glenmede.

“Rather than obsessing over near-term growth peaks, investors would be wise to see the bigger picture,” Pride said in his weekly market note.

Still, signs that growth is abating are worrisome.

The bond market in particular is pointing to a substantial slowdown ahead, with the 10-year Treasury note yielding just 1.18% Monday afternoon. The benchmark yield below 1.25% is the bond market “signaling not all is well economically,” wrote Christopher Harvey, senior equity analyst at Wells Fargo.

Boockvar, the Bleakley investment chief, said the current economic environment could cause problems for a market that has relied on investors willing to pay consistently at higher valuation multiples.

“One of the characteristics of the equity market in the 1970s was one of multiple compression,” he said. “A lot had to with the sharp rise in interest rate. But it becomes a more challenging environment with a bout of stagflation, even if it’s stagflation-lite.”

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Economy

Rural development grants to spark Nicola Valley economy – Global News

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The province announced on Friday a series of rural development grants in the Nicola Valley to support economic development and diversification.

This is the next step in the StrongerBC Economic Plan and the ongoing recovery efforts in Merritt following the floods in November last year.

“People in Merritt have been through a lot in the past year, and they know how important business recovery is for community rebuilding,” said parliamentary secretary for rural and regional development Roly Russell in a press release.

The provincial government is providing a $1-million rural development grant to the Small-Scale Meat Producers Association to build a community abattoir in the Merritt area.

Read more:

B.C. announces $228M to help farmers, ranchers impacted by floods

This will provide meat processing and cut-and-wrap services to local farmers and ranchers.

“This project represents significant job and economic opportunities for the region, while ensuring local ranches, abattoirs and businesses are part of a strong, resilient B.C. food system,” said minister of agriculture and food Lana Popham in a press release.

“With the recent changes to B.C.’s meat-licensing system and investments in facilities like the Nicola Valley community abattoir, this revitalization of the small-scale meat industry makes it easier to produce, buy and sell B.C. meat in our rural communities, and helps strengthen our food security and food resiliency.”

The abattoir will be a government-inspected licensed facility with a full range of services to process red meat.

According to the province, local producers have been impacted by the lack of processing capacity. Julia Smith who is a pork and beef producer in Merrit is hopeful this new facility will help her business as well as other local producers.

“My partner and I moved to the Nicola Valley in 2016 planning to expand our business to meet the growing demand for well-raised, local meat. But we soon found that the processors we relied upon were not able to keep up with our production and we had to scale the business back instead of growing it.”


Click to play video: 'More than 900 people still displaced following Merritt flooding last fall'



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More than 900 people still displaced following Merritt flooding last fall


More than 900 people still displaced following Merritt flooding last fall – Feb 25, 2022

“We were on the verge of giving up. But now we are ready to press on, because this facility will allow us, and other local family farms and ranches, to grow and thrive while providing greater food security for the community.”

The province is providing a $1-million rural development grant to the Scw’exmx Tribal Council toward Gateway 286 in Merritt.

“After an unbelievable year of fires, floods, and a pandemic, we welcome the B.C. government’s $1-million grant that will bolster our rural community, support good-paying jobs and much-needed economic development,” said Spayum Holdings LP director and Scw’exmx Tribal Council Terrence (Lee) Spahan in a press release.

“The Gateway 286 project is a 30-plus-year vision of past and present Nicola Valley Indigenous Chiefs and these monies will take our commercial and tourism development one more step closer to reality. This project will enhance the experience of the [traveling] public by providing much-needed services, and it will provide good-paying jobs and entrepreneurial opportunities for the residents of the Nicola Valley.”

Meanwhile, the City of Merritt is receiving a $500,000 grant related to economic recovery for communities that were affected by the flooding. The grant will go towards completing economic development projects and initiatives to support long-term economic recovery.

This is in addition to $329,000 in provincial funding for the City of Merritt to update flood-hazard mapping and develop new flood-mitigation plans.


Click to play video: 'Anger grows over Merritt evacuations'



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Anger grows over Merritt evacuations


Anger grows over Merritt evacuations – Nov 28, 2021

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China's Economy Contracts Sharply as Covid Zero Cuts Output – BNN

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(Bloomberg) — China’s economy contracted in April, with Covid outbreaks and lockdowns dragging the industrial and consumer sectors down to the weakest levels since early 2020 as millions of residents were confined to their homes and factories were forced to halt production. 

Industrial output fell 2.9% in April from a year ago, worse than the median estimate of a 0.5% increase in a Bloomberg survey of economists. Retail sales contracted 11.1% in the period, weaker than a projected 6.6% drop. The unemployment rate climbed to 6.1%, higher than the forecast of 6%.

China’s economy has taken an enormous toll from the government’s stringent efforts to keep the virus at bay. Beijing has insisted on sticking with its Covid Zero strategy to curb infections, even though the high transmissibility of omicron puts cities at greater risk of repeatedly locking down and reopening compared to earlier strains. 

“Covid outbreaks in April had a big impact on the economy, but the impact is short-term,” the National Bureau of Statistics said in a statement. “With progress in Covid controls and policies to stabilize the economy taking effect, the economy is likely to recover gradually.”

China’s benchmark CSI 300 stock index was down 0.3% as of 10:04 am local time. The onshore yuan was little changed at 6.7917 per dollar. The yield on the 10-year government bonds rose 1 basis point to 2.83%.

Fixed-asset investment increased 6.8% in the first four months of the year, largely in line with projected growth of 7%, likely supported by the government’s push to expand infrastructure spending.

The economic shocks from the zero-tolerance policy have pushed China’s ambitious full-year growth target of around 5.5% further out of reach, and is weighing on the global growth outlook. 

Beijing has signaled that policy makers will step up support for the economy, with Premier Li Keqiang recently urging officials to ensure stability through fiscal and monetary policy.

The People’s Bank of China took steps on Sunday to ease a housing crunch by reducing mortgage rates for first-time homebuyers. It left the interest rate on one-year policy loans unchanged on Monday, as inflation pressure and worries about capital outflows reduce the scope for more easing.  

Monetary stimulus is proving less effective because of the stringent virus restrictions, with data on Friday showing businesses and consumers had little appetite to borrow in April. Credit growth weakened sharply last month, with new yuan loans sinking to the lowest level since December 2017.

(Updates with comment from statistics office)

©2022 Bloomberg L.P.

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Economy

Potential of Seaweed on Economy Being Explored in Upcoming Webinar – VOCM

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A webinar on the potential of seaweed as an economic driver is coming later this month.

The webinar, put together by The Laurentic Forum Consortium, will look at how coastal communities can use an abundance of seaweed to boost the economy, as seaweed is being used as fertilizer, diet supplements, bioplastics, animal feed, pharmaceutical products, and much more.

Webinar moderator and the executive director of the Canadian Centre for Fisheries Innovation, Keith Hutchings, says seaweed farming could provide opportunities in Newfoundland and Labrador.

He says if utilized correctly, communities and regions can add one more industry to help sustain them.

The webinar is taking place May 19.

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