The investment community is laser-focused on estimating when the U.S. Federal Reserve (Fed) should start raising interest rates. CIBC Asset Management (CAM) believes this obsession misses the bigger picture. The widely-used term lift-off is the wrong way to characterize the Fed's policy approach—crawling is probably more appropriate.
Fixed Income vs. Equity - In the context of continued sluggish growth with moderate inflationary pressures, equities should continue to outperform fixed income.
Equity - Equities should continue to generate mid-single-digit returns. European equities, particularly banks, and Japanese equities could outperform.
Fixed Income - Expect heightened volatility as the Fed likely begins to slowly raise interest rates. Agencies and corporate bonds are likely to outperform government securities. Relative to U.S. Treasuries, Canadian bonds may underperform.
Currencies - The Canadian dollar has likely transitioned to a trading range from the pure depreciation trend of the past two years.
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