For the last six months, we have been in a bear market. A lot of statistics and data have been thrown at us, and sometimes the information that we see on the news can be confusing. Below is a list of examples I've seen lately:

• We are told that there are major supply chain disruptions and the shelves in stores are half-empty. Yet, Target announced on Tuesday that they have too much inventory and will be taking a write down and selling all excess inventory below cost. Walmart is likely to follow suit.
• The UK announced that they will implement a windfall tax on oil and gas companies unless their earnings are spent on new product development. This new incentive to drill for more fossil fuels comes after years of telling oil and gas companies to use cash flows to develop renewables and not reinvest fossil fuels.
• On the same note, the Biden administration is considering lifting sanctions against Venezuela and is also expected to head over to Saudi Arabia to ask for more oil production. Yet their first order of business after getting elected was canceling the Keystone XL pipeline.
• We are constantly being told how wages are not keeping up with inflation and people are losing purchasing power, yet there are shortages of automobiles for sale, which is usually the largest ticket item a household will purchase after their home.
• On the same note, if purchasing power has decreased so much, how can the airline and hotel capacity be at pre-pandemic levels with prices that are 30% higher than before the pandemic?
• Lastly, if the US economy is at the beginning of a significant recession, how can the May employment numbers increase by 390,000 (ahead of expectations) and unemployment stay at 3.6%.

If you're confused about the items above and the markets, you're not alone. Having said that, the chart below is not confusing at all. This chart illustrates the returns of each sector/industry of the S&P 500 from January 1, 2022 until June 6, 2022. There has only been one place to hide, Energy!

Regardless of all the information that we received from the news, one thing that history has taught us is that almost everything reverts back to the mean. As our final thought, at some point there is going to be a very good opportunity to reduce exposure to energy and increase exposure to technology. The $64 million question is when? Perhaps when inflation starts to come down? We’ll have to wait and see.

I've also included a piece from our CIBC Economics team entitled " Low expectations key to the soft landing".

As always if you have any questions please feel free to give us a call.

Have a great weekend.

Milan