After a year of punishing returns with few places for investors to hide, many are looking around for good news.
But Luc de la Durantaye, chief investment officer at CIBC Asset Management, said he doesn’t think the market has reached bottom just yet.
According to de la Durantaye, the initial correction in the market this year was mainly driven by rising inflation putting downward pressure on valuations.
While certain markets have corrected to some degree, he said the next leg will be because of “sticky inflation” and the damage to company earnings from central bankers’ inflation fight.
“We think that analysts are still too optimistic about earnings and they need to be revised lower,” he said.
In terms of monitoring inflation, de la Durantaye said central banks lost credibility when they initially stated inflation would be transitory. Now, they don’t want to risk calling a peak too early, so they’re likely to lean toward over-tightening, he said, which could cause earnings to drop further.
“The central banks are not forward-looking,” de la Durantaye said. “They want to see confirmation that they will control inflation.”
Two areas they’ll be monitoring are rents and the labour market. There’s a lag in rent numbers, which haven’t even started to peak yet, de la Durantaye said, while the labour market remains tight.
“The easing in the market has to come through a decline in job openings and potentially also a rise in unemployment,” he said.
For now, de la Durantaye said investors will need to be patient before going back into the equity market.
This article is part of the AdvisorToGo program, powered by CIBC. It was written without input from the sponsor.