On October 27th, the U.S. economy posted growth of 2.6% for Q3 2022 according to the Bureau of Economic Analysis compared to the market’s expectation of 2.3%. This expansion takes the U.S. economy out of the recession zone, underscored by the U.S. economy contracting 1.4% in Q1 2022 followed by another contraction of 0.9% in Q2 2022. However, the output declines seen in Q1 and Q2 U.S. GDP in 2022 resulted from the normalization of inventory spending, contextualized by U.S. firms overstocking inventory in 2021 due to historic pandemic-induced supply chain hurdles, a situation which is an anomaly. While supply chain challenges persist, there is a significant easing of the delays seen at the start of 2022, allowing exports to flow more freely. Highlights of the Q3 GDP Growth include a strong rebound in international trade, specifically improved export levels coupled with upbeat government spending and resilience in consumer spending, forming 2/3rd of U.S. GDP. Of note, consumer spending grew 1.4% in Q3 2022 compared to levels of 3.1% and 2% in Q1 and Q2 respectively of the same year. The slowdown in consumer spending could be influenced by inflation pressures impacting consumers, evidenced by consumer confidence declining in October after consistent monthly gains up to September. U.S. headline inflation was 8.2% in September 2022, while core inflation was 6.6% for the period compared to the U.S. Federal Reserve’s target of 2%. The Atlanta Fed GDPNow GDP estimate for Q4 2022 is 3.1%, firming up the thesis that the U.S. economy still has momentum in 2022 despite stubbornly high inflation and continuously rising interest rates. However, 2023 could show a different picture as the Ukraine-Russia conflict remains as an inflation driver. For context, the International Monetary Fund (IMF) forecasts U.S. inflation to be 8.1% for 2022 and 3.5% for 2023. We believe that as 2023 approaches, dividend players are a major value driver for investors. Inflation and recession resistant sectors such as consumer staples and healthcare are crucial for investors. Consumer staples examples include Coca-Cola (KO), Colgate-Palmolive (CL) and Proctor & Gamble (PG). Also, healthcare examples include Johnson & Johnson (JNJ), United Health Group (UNH), CVS Health Corp (CVS) and Walgreens Boots Alliance (WBA). Markets are likely to see more volatility as the Fed’s hiking cycle continues within the purview of sticky inflation, evidenced by core inflation being 6.6% in September 2022. Also, given that consumer spending is seeing a shift to services and away from goods, we could see choppy waters for S&P 500 listed stocks given that most of these are goods producers. Importantly, mega-cap tech stocks such as Meta (META), Alphabet (GOOG), Microsoft (MSFT), Apple Inc (AAPL) and Amazon (AMZN) together disproportionately affect the performance of the S&P 500 index and even more so the Nasdaq which are down 18.15% and 29.04% year to date respectively. Meanwhile, the Dow Jones Industrial Average, which is less influenced by tech stocks is down 9.57% year to date. Tech companies by nature are heavily focused on innovation and research to produce their products and services which is riskier than producing a pair of shoes or a new menu item at a fast-food spot. This makes technology companies highly sensitive to interest rate hikes, because in theory more expensive funding increases the failure rate of the innovation process. On that note, it is key to look for companies with strong leadership, pricing power, branding, clear competitive advantages and strong balance sheets. In an interest rate hiking cycle, tech as a sector has large downside sensitivity but Apple Inc remains an outlier because of its brand power, its cash pile and product mix. We believe that the first post-pandemic holiday season being in Q4 2022 is another opportunity to look at strong consumer discretionary brands like Pepsi (PEP), Coca-Cola (KO), Costco (COST) Dollar General (DG), Target (TGT) and Walmart (WMT). This is supported by events, parties and gatherings which should bolster consumer spending. All in all, we believe there is opportunity in carefully selected names despite the dynamic risks at hand. We encourage investors to speak with a licensed investment professional in making their investment decisions.

From our vantage point, the Jamaican economy is in a state of transition, from a “snapback” post- pandemic recovery growth phase at the backend of 2021 into the start of 2022, to an ongoing slowdown into the second half of 2022. This turn in the tide is influenced by a mix of high inflation, supply chain challenges and rising interest rates. For context, the Jamaican economy grew 4.8% for the April to June quarter of 2022 versus the prior comparable period according to the Statistical Institute of Jamaica (STATIN). Of note, the boom in the services sector continues, led by a 56% expansion followed by wholesale and retail trade growing 7.6% for the period. However, this was contrasted by a contraction in the goods producing sector, dominated by a 62.5% decline in mining and quarrying followed by a 5.2% downturn in construction for the period. These contractions overwhelmed growth of 6.3% and 5.6% seen in agriculture and manufacturing respectively for the period. Given that the services sector is larger than the goods producing sector, the growth profile supports local unemployment hitting a record low of 6.6% as at July 2022, coming from 8.5% as at July 2022 according to STATIN. The sector with the largest job gains was real estate, renting and business activities followed by accommodation and food service activities. This colours our sector outlook, in that the more cyclical areas such as the retail subsector and real estate and construction should lose some momentum as 2023 approaches given the stubbornness of inflation conjoined with the lagged effect of the Bank of Jamaica’s (BOJ’s) successive rate policy rate hikes in 2022 which should largely kick-in in 2023. For perspective, Lumber Depot’s (LUMBER) revenues and profits for the three months ended July 31, 2022 were down 4.8% and 32.7% respectively year over year. According to STATIN, point to point inflation was 9.3% as at September 2022, which is below August 2022’s reading of 10.2%. However, the reality is that inflation has remained firmly above the BOJ’s 4% to 6% inflation target range consistently since September 2021 due to structural drivers which are largely external including tight supply chains, record monetary and fiscal stimulus from the U.S. authorities in 2021 not least of all, high commodity prices partly driven by the Russia-Ukraine conflict. The stickiness of high inflation builds the case for further policy hikes from the BOJ in the near term, especially considering the U.S. Federal Reserve’s likelihood of doing the same. This coincides with the International Monetary Fund’s (IMF) inflation outlook for Jamaica being 9% and 7% for 2022 and 2023 respectively. Net Remittance flows fell 1.5% to US$2.27B for the January to August 2022 versus the same 2021 period according to BOJ data. Given that U.S. inflation was 8.3% in August 2022, there would be a 9.8% year over year decrease in purchasing power of net remittance flows for the eight-month period. This trend is expected to continue into 2023, creating a drag on the pace of local consumer spending. Against this background, we expect Wisynco Group (WISYNCO) to continue to benefit from the post-pandemic services boom especially through entertainment events, tourism and restaurants. We expect Supreme Ventures (SVL) to continue to grow as the demand for its products is inelastic and also considering its expansion of distribution points. The Limners & Bards (LAB) stands to benefit from an uptick in advertising as companies aim to make special offers and sales given the inflationary crunch on consumer spending. Fontana’s (FTNA) customer loyalty, new location coupled with its hybrid offering of a full-service pharmacy and a curated retail experience positions it to resist inflation and more sluggish conditions. We see Stationery and Office Supplies (SOS) benefitting from its expanding product portfolio, improved capacity and larger fleet which should outweigh slowing conditions. Future Energy Source Co. (FESCO) may benefit from its expansion of locations, brand loyalty and the possibility of energy prices being biased to the upside against the backdrop of geopolitical uncertainty, conflict in Europe and supply chain bottlenecks. We believe the demand for One on One (ONE) ‘s training products could resist a slower economy, and that it’s Post-IPO balance sheet is strong enough to withstand rising interest rates. The education technology space itself is in its high growth phase which should propel ONE’s growth by extension. Nevertheless, we recommend that our readers speak with a licensed advisor before making investment decisions and to stay informed in to get the most from today’s rapidly changing market conditions.

Last week we learned that U.S. inflation clocked 8.2% in September 2022, signaling that consumer prices rose more than expected, keeping inflation stubbornly near its highest level in decades. With the cost of living in the US showing stickiness to the upside, what can we expect from the Federal Reserve to address this nagging issue and how soon will things turn around? Higher prices for just about everything, rent, healthcare, food & groceries are just some examples of everyday commodities and services that have directly affected consumer purchasing power. For context, U.S. retail sales were unchanged month over month as at September 2022 compared to August despite falling gas prices, but rose by 8.2% year over year which is exactly in line with the inflation reading for the period. This suggests that more of consumers’ money is being spent on a similar number of goods. Given this backdrop, the U.S. Federal Reserve is leaning on the most powerful weapon in its arsenal to ensure price stability: interest rates. The Fed has hiked interest rates five (5) consecutive times since the beginning of 2022 in incrementally larger amounts to contain inflation. Considering the US inflation target of 2% versus the current headline level of 8.2% and with the less volatile and more stubborn core inflation reading at 6.6%, the FED has some way to go. Core prices, which exclude volatile food and energy categories and are widely seen as a more reliable barometer of underlying inflation, hitting at 6.6% annually in September – the highest since 1982. Core inflation is typically more stubborn and usually gives a better representation of where inflation is likely to hover into 2023. For perspective, the International Monetary Fund’s (IMF's) expectation of US inflation stands at 7.1% in 2022, and at 3.6% for 2023, which is still almost twice the FED’s target level of 2%. Also, given that core inflation, which is sticky, is 6.6% as at September 2022, we believe it is not likely to fall to as low as a 2% level in 12 months, which is what would happen for U.S. headline inflation to align with the IMF’s estimate of 3.5% for 2023. Importantly, FED hikes typically result in lower inflation and an uptick in unemployment but that hasn’t been case so far and because of this, The Fed is forced to maintain its hawkish stance and extend the current hiking cycle into 2023 in an effort to get inflation under control, slowing consumer demand and softening the labour market in the process. As we anticipate the next Fed meeting on November 2nd, 2022, and a baseline expectation of another 75-basis point hike, there are growing concerns of a recession, not only in the U.S. but worldwide in 2023. Fed Chairman Jerome Powell recently acknowledged that the broad impact of higher borrowing costs will bring “some pain to households and businesses”, from this we can expect job losses, or labour market softening and a possible recession. Of note, the true effects of the rate hikes typically lag by 6 months before taking effect on the real economy. Therefore, October’s real economy is driven by April’s policy rate. Oil prices have fallen to roughly $80 per barrel from more than $120 in early June amid growing fears about a recession. To address this, the Organization of Petroleum Exporting Countries (OPEC) cut oil output by 2 million barrels per day (bpd) in October, boosting crude oil futures. This is also expected to increase the prices at the pumps, also contributing to the inflationary concerns. The decision was made based on the uncertainty that surrounds the global economic and oil market outlook for Q4 2022 going into 2023. The higher oil prices could sustain above average inflation for countries buying their oil using US dollars. OPEC’s next meeting is on December 4, 2022. Where do markets go from here and how to position an investment portfolio? We can expect more robust tightening ahead given that inflation is here to stay. The IMF is expecting the global inflation to continue to persist for 2022 to 8.8% but decline to 6.5% by the end of 2023 and 4.1% by 2024, which is still above the target of 2%. Global economic activity continues to experience broad-based and sharper than expected slowdown, with inflation peaking at historic levels. The cost-of-living crisis, tightening financial conditions in most regions with the ongoing invasion of Russian and Ukrainian territories and the lingering Covid- 19 pandemic all weighing heavily on the outlook. Investing in bonds that have shorter maturities should reduce portfolio downside, as longer bonds tend to fall more when interest rates rise. Given that interest rates are on the rise, investors can capture more yield than they would have in 2020 or2021 without buying weaker credits. Higher yields could also increase defaults for weaker credits more so junk bonds, thus, buying on fundamentals should benefit investors. Equities are likely to see more volatility as the labour market loses steam and as hikes continue. Technology has more downside risk, with outperformers expected to include energy and consumer staples on a relative basis. The post-COVID Christmas trade continues to be attractive for opportunistic investors who wish to buy U.S. stocks like Mastercard, Apple, Dollar Tree and Coca-Cola that are positioned to significantly benefit from holiday spending in terms of earnings.