Canadian rate hikes working better than it looks: CIBC economist

arnings. The S&P 500 P/E breaking above 20 this week may turn some investors and market prognosticators more bearish. However, valuation alone has not been a good indicator of medium-term market direction. For context, weekly data since 1949 shows that the S&P 500 P/E tends to de-rate by less than -1x on average in the next six months when multiples break above 20times. Furthermore, 40 per cent of the time index P/E moves higher from a 20 times starting point.

“Conventional wisdom holds that high debt loads should make Canadian households relatively more sensitive to changes in interest rates, but they’ve so far shown remarkable tenacity as monetary policy has tightened … Although monetary tightening has not yet achieved the desired effect on consumer demand and inflation, it has clearly taken the steam out of household borrowing. The pace of household credit growth has roughly halved from an average of 7.0% per year in 2021 and 2022 to 3.

Source: News Formal (newsformal.com)

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