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The Delta Surge and Impacts on a Reopening

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On September 28, BMO hosted a panel to provide an update on the current state of the pandemic and an outlook on what it means for the markets and the economy. The experts spoke to infection trends, vaccine hesitancy, booster shots, and how the economy and markets are performing amid an ongoing pandemic.

Listen to the full episode:

BMO COVID-19 Insights podcast is live on all major channels including AppleGoogle and Spotify.

Participants included:

  • David Casper, U.S. Chief Executive Officer, BMO Financial Group

  • Dr. Paul Casey, Chief Medical Officer, Rush University Medical Center

  • Angelique Richard, PhD, RN, SVP, Hospital Operations Chief Nursing Officer, Rush University Medical Center

  • Brian Belski, Chief Investment Strategist, BMO Capital Markets

  • Margaret Kerins, Head of FICC Macro Strategy, BMO Capital Markets

Tracking the Fourth Wave of COVID-19: BMO Expert Panel

Children are going back to school in the United States and Canada, but already a fourth wave of the COVID-19 pandemic is casting a new shadow over the road to recovery. As economic growth forecasts fall and markets become more volatile, BMO hosted a digital panel with internal and external experts to take measure of this latest stage of the pandemic, and the impact on health, markets, and the economy.

Moderated by BMO Financial Group U.S. Chief Executive Officer David Casper, the panel featured external medical experts Dr. Paul Casey, Chief Medical Officer and Angelique Richard, Senior VP of Hospital Operations and Chief Nursing Officer, both with Rush University Medical Center – and to discuss the economy and markets, BMO Capital Markets Chief Investment Strategist Brian Belski and Head of FICC Macro Strategy Margaret Kerins.

“We have a great balance of expertise on this call,” David Casper said as he opened the event, noting recent partnerships between BMO and Rush. “BMO and Rush have been partnering in a few different ways of late, including the recent launch of the Rush BMO Institute for Health Equity, and it's great to see our partnership continue to grow.”

Delta Surge

Even as the Delta variant continues to surge through the U.S. – at the time of this panel, there were still well over 100,000 daily cases and more than 2,000 daily deaths country-wide due to COVID-19 – Dr. Casey said medical authorities are beginning to see a “downward” slope in infections, an encouraging sign even though the virus has been inherently unpredictable.

With only 55 percent of eligible Americans fully vaccinated, there’s a direct correlation between hot spots for the virus and the rate of vaccination. “When one looks at the map of hot spots throughout the country or places where there are still cases, it's really inversely proportionate to the vaccination rate in those areas,” Dr. Casey said.

Much of that comes amid continued vaccine hesitancy, and Angelique Richard said a combination of fear, lack of information, myths and untruths about both the virus and the vaccine, and mistrust of the healthcare system, are all to blame.

The consequences of hesitancy, Richard continued, are not just an increase in cases, but an increase in deaths from the virus and multi-faceted impacts on the healthcare system.

“It’s at a crisis level,” she said. “There are limited bed capacities and workforce deficits, there's been a strain on the financial viability of many healthcare organizations and their performance, and then there's just the access and limitation, again that many healthcare organizations have either gone through or are going through, for patients with non-COVID healthcare needs.”

Turning to vaccination mandates in businesses, Richards said organizations need to be able to make decisions, and to communicate them more efficiently to employees.

“Courageous leadership is needed now more than ever,” she said, urging business leaders to take the time to understand, listen to, and educate employees who are troubled by vaccines.

A grassroots approach, incorporating partnerships with key trusted individuals and community leaders who can help spearhead campaigns or reach out personally, are just a few of the ways to better reach staff. “Make it personal,” said Richards.

Our experts also addressed the debate around long-term COVID-19 and the symptoms that can persist after the initial infection has run its course. For Dr. Casey, the science is still emerging about what is known as “long hauler syndrome”, but he said there are a number of symptoms he is seeing throughout the hospital system: persistent cough, significant fatigue, brain fog or a decrease in cognitive function, and headaches.

“We've had a few young, very healthy 30-year-old individuals that say they can barely walk from their car into work,” he said, noting that these types of ongoing symptoms are rare for other types of common illnesses.

The Economy: Faith in the Market Bull

Turning to the economy, Chief Investment Strategist Brian Belski said the resilience demonstrated by the Canadian and U.S. economies, underscoring their ability to pivot as a society and as a marketplace in the face of the pandemic, are what assure him that we are still only half way through a 25-year bull market that started in 2009.

“I have faith in the U.S. economy and stock market, and faith in the Canadian economy and stock market, and that's what has kept us so bullish,” he said in his opening remarks to the panel. “It really speaks to the strength of the United States stock market and our companies, and to the Canadian stock market and our companies, and we have to start believing that.”

Belski referenced inflation fears and recent signals from the U.S. Fed that it will begin tapering before the end of the year and maintained his view that inflation woes are transitory, likely lasting a quarter or two, and that he does not expect interest rate hikes until well into next year.

The Canada Value Proposition

Pointing to current forecasts for 5 percent GDP growth in Canada and 5.8 percent growth in the United States, Belski said many investors are missing the value proposition of Canadian markets, which he said are set to outpace their U.S. counterparts on the back of “epic” company earnings and cashflow.

“And so, we think Canada is going to continue to outpace the U.S., I think, for the fourth quarter, and well into 2022, with the great financial companies, or the great material companies, great consumer discretionary companies and industrials, and those areas will continue, I think, to outperform,” he said. “We are overweight the same sectors in the United States.”

Belski recommended a balanced approach to investing in both markets, being equal growth and value.

With respect to a three- to five-year outlook, he said, “We continue to believe that the stock market is going to be achieving 13 to 15 percent compound annual growth over the next five years, if not 10 years, and our favorite sectors by far are technology, communication services, and discretionary.”

FICC and Fed Rhetoric

Margaret Kerins, BMO Capital Markets Head FICC Macro Strategy, said that while she remains in the ‘inflation is transitory’ camp, a change in Fed rhetoric around tapering is already being priced into the market as something that will come sooner rather than later.

Recent messaging from the Fed has indicated it is “not willing to let inflation run hot for too long,” Kerins said. This comes a week after the Fed’s September meeting where it reinforced that the bar for tapering asset purchases had been met for inflation, and was just about met for employment.

She said the most recent change in tone would likely see a taper as soon as November or December, when the Fed will decrease purchases by $15 billion per month; she expects the taper would likely be followed by interest rate hikes late next year.

“In terms of a Fed taper, that ship is sailing,” she said, but that does not mean economic growth will grind to a halt. “The way that we're thinking about tapering is as a reduction in the tailwind pushing the economy forward,” said Kerins. “When the Fed does start to tighten, it does in fact become a headwind.”

Based on longer-term demographic trends and technological changes in the economy that will continue to weigh on employment, Kerins said that even when rates do start to rise, they will likely remain relatively low from a historical basis.

The environment will continue to evolve, however, and with it, Fed thinking, said Kerins. Upcoming changes in the composition of the Federal Reserve Board, for example, might see it behave more dovish, and maybe even push off tightening until 2023.

“A year is a long time in the markets, even for forecasts, so the data has to evolve as the Fed expects, in order for them to lift off,” she said.

Kerins said that next year will see a record amount of Treasury coupons available to the private markets – some $2 trillion compared to $1.8 trillion in 2021 and negative $443 billion in 2020 – but she forecast heavy issuance will be met with strong global demand against the backdrop of virus variants.

While COVID-19 continues to overshadow our road to recovery, there are reasons for “cautious” optimism. Optimism, our medical experts assured us, because of how far we’ve come in the past 18 months in terms of understanding this virus, but cautious because every new infection is another opportunity for the virus to mutate into something more serious.

Said Dr. Casey: “This isn't a U.S. effort or Canadian effort, it's a global effort to really get the vaccine levels to where they need to be in order to prevent more variants.”

“It is a tough time, it's challenging for all of us as business leaders,” Casper said to wrap up the event. “We want to get this economy continuing to move in the right direction.”

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DAVE CASPER: My name is Dave Casper. I'm the U.S. CEO for BMO. Thanks for joining us on what I think will be a very important conversation. We have a great balance of expertise on this call today. Two very well-respected medical professionals here in Chicago, Dr. Paul Casey, the chief medical officer at rush university medical center and Angelique Richard, the senior vice president of hospital operations and the chief nursing officer at Rush. Thanks to both of them for their time. Many of you may not know this, but BMO and rush have had a great partnership over many years. It's taken different shapes including recent launch of what we're very proud of, the rush-BMO institute for health equity. It's a great chance to see our partnership grow and help improve the equity here in Chicago. We also have superstars with BMO capital markets. Brian Belski and Margaret Kerins. Brian will speak on how the look at the economy and the markets today, how they have trended throughout the pandemic and factors that may impact where the economy and the markets will go from here. Margaret will provide an update on the federal reserve and the treasury. Lots to talk about there. To our customers on the call, thanks for your business and putting your trust in BMO and taking your time to join us for what I'm hoping will be a lively an informative discussion. We'll have questions at the end and you can submit the questions during the call by typing them in to the chat at the bottom of your screen. Before we begin, I want to put the disclaimer on that the contents of what you hear are for information purposes. Please see and consult your physician if you have health questions. We have great sources here today. So let's start with our good friends from Rush. First to Dr. Casey. Hello, Paul and Angelique. Good morning. >> Good morning. Thanks for having us. >> So Paul, first question to you. Give us an update. Where do we stand on the pandemic especially now that we have variants and as kids return to school, people go back to work.

DR. PAUL CASEY: Thanks for all that have joins and the continued partnership with BMO Harris and the joint work around health equity. Certainly no surprise to anyone that we're still well in the midst of the pandemic. Although we are beginning to see the downward slope of the delta variant that is really caused the surge of cases since about mid July where it became the predominant strain throughout the United States and prior to that had of course gone through Europe as well as India. So that's encouraging that we are seeing cases go down in most places throughout the country. I think the other thing that is important to note is when one looks at the map of hot spots or places where there's case, it's inversely proportionate to the vaccination rate in those areas. That's no surprise with what we know about the vaccine efficacy that we continue to see a number of hot spots pop up where there just hasn't been that level of uptick as we like with the vaccination. So again, one thing we learned about this pandemic is that it's inherently unpredictable. That being said, we closely trend the cases throughout the country and certainly here in Chicago and we're encouraged by what we've seen the last week or two.

DAVE CASPER: Paul, question: Because we're a North American bank, I was just down the hall with my Canadian colleagues that are here in the U.S. today. They are just about at 80% of double vax of those eligible. Where do we stand in some of the real hot spots on that? Also, give us an update on the booster as well.

DR. PAUL CASEY: Absolutely. The vaccine uptake here in the United States has been quite variable. There are areas -- overall when you look at the United States on a whole, it's about 55% of eligible Americans that have been vaccinated, fully vaccinated and 64% of Americans that have had at least one vaccine. Now, that also varies quite a bit by age group. The good news there is it's about 83% of those over 65 that are fully vaccinated and 94 that have received one vaccination. That is certainly the most at risk group for it as well. So we still see the trend as well in terms of the vaccination rate. Can tell you here in Chicago where we closely track the hospitalizations, 99% of the patients that we see that are hospitalized are unvaccinated. That's really the case throughout the United States. I'm sure other countries throughout the world is that the hospitalizations are being driven by the unvaccinated. Where we see in the news, you know, states and cities overwhelmed and have no more icu capacity, those are the states and cities where the vaccinate rate is quite low. In terms of the vaccine boosters, obviously a lot of that news is just emerging. Like any vaccine we've seen the -- the science is telling us what we expected with the vaccine, that over time the immunity would wane somewhat and that's the case for the vast majority of vaccines. We're seeing the data is really supporting that is most pronounced in those that are over 60 or 65 years old. That was a study out of Israel that helped the CDC to guide that decision because they've been following this closely. Looks like that waning immunity starts around six months after the second dose of the vaccine. So thus the recommendations of the CDC advisory panel to do a booster vaccine after six months for those over 65 or those high risk as the CDC director Rochelle Walensky put forward, people in high risk exposure are also recommended to get that booster vaccine. So something that we've certainly got a lot of questions about here at Rush and we made plans to roll that out throughout the city as well.

DAVE CASPER: Angelique, as we all know, there's a lot of people still for their own personal reasons are deciding not to get the vaccination. Can you give us your insights, explain the hesitancy and the ramifications of this.

ANGELIQUE RICHARD: Sure, Dave. I too want to thank BMO for having this. I think doing this is one of the most important things that we can do for our employees and quite frankly at large. There's multiple reasons for hesitancy. There's fear, lack of information, a knowledge deficit, there's myths and untruths about the virus as well as the vaccine. And there's mistrust among some around the vaccine as well as in some cases healthcare as a whole. I think the ramifications and the consequences of this are what we're seeing. This increase in cases, the growing numbers in different parts of the country of covid cases, opportunities for there to be further virus variants. As Dr. Casey mentioned, states where you're seeing the highest number of cases strong correlations with the lowest number of vaccine rates. Obviously the worst consequence is growing deaths from the virus.

DAVE CASPER: So Angelique, what is this doing -- what is he hesitancy doing to the healthcare system and healthcare professionals? We all woke up to see what's going on in New York City where firing healthcare professionals if they haven't been vaccinated. So you can take this question anywhere, but I'd love to hear the impact not only in Rush but in general.

ANGELIQUE RICHARD: It's going many places. I think this has truly been one of the most difficult challenges in healthcare. Certainly in my lifetime in many cases at many organizations. It's at a crisis level. So there are multiple strains and stressors on the healthcare system. There's shortages as you just described of healthcare staff that are either a result of the taking deposition on and mandating vaccines or because of the pandemic itself. There's limited bed capacities and work force deficits. You hear a lot about nurses on the news but there's food and nutrition workers and transporters and security staff, respiratory therapists. Those are some of the key challenges that healthcare systems are having from a work force perspective. There's supply and equipment challenges and deficits. There's a strain -- been a strain on the financial viability of healthcare and the limitation of services at different points in this pandemic such as surgical elective cases has also been a challenge. Thens will just the access and limitation again that many healthcare organizations have either gone through or going through for patients with noncovid healthcare needs. Somewhat in competition with patients who have covid. So they're I having for the same resources and the same beds. So it has been a real challenge and a real strain on healthcare organizations across the country.

DAVE CASPER: Thanks. We see it everywhere. So Paul, back to you. So a large number of our population have had covid now. And some have had it for, you know a year or more. What are we seeing, what is the science telling us about the long-term effects of those that have had covid regardless of whether it was a mild case or more severe. I'd love to hear that and our audience would as well.

DR. PAUL CASEY: A great question. Thanks T honest answer is the science is still emerges on this. We're participating in a large CDC trial around long hauler syndrome and what those symptoms are. We have a multidisciplinary clinic here. I can tell you the symptoms that we're hearing from those that are at that clinic really tend to be persistence of a cough, really fatigue to the point that we've had a few young very healthy 30-year-old individuals that say they can barely walk from their car in to work and they also complain of this persistent brain fog or difficulty with the same cognitive ability. Headaches are common. As well as really myalgias, muscle aches. This rarely happens with other common viruses, certainly cold viruses, flu viruses. There's a few sequelae, but we're seeing a higher incidence of these persistent effects with covid. So that's something that we're keeping an eye on and something that the science will continue to emerge on but it's not a small number of the population that ends up with some sequelae lasting anywhere from weeks to months.

DAVE CASPER: Science that says that if you have been vaccinated and you have covid, whether that will make any difference in the long-term effects?

DR. PAUL CASEY: That is really a key question. I don't think we have the data necessarily now to actually answer that. I think the feeling from what we're seeing early on and I think the data will support that the vaccine is very effective in decreasing the burden of the virus both the actual amount of virus that one is infected with as well as the long-term effects. So what we're seeing within the -- our long-hauler clinic is those that are unvaccinated, have accounted for 99.9% of the cases we're seeing there. So I think the science will support that as that data emerges.

DAVE CASPER: Thanks. Angelique, all of us that are running businesses or managing businesses are, I think, you know, all questioning our decisions, what we can do, what we can't do. I'll see at BMO we've said we've no longer made it optional to tell us whether you're vaccinated or not. Everybody has to tell us. That's mandatory. They either are vaccinated or expect to be or they're not or they'll tell us it's none of your business. We have said for those in category 2 or 3, if your job requires you to come to work, we need to have you tested at least twice a week. That's going into implementation today. So that's not all the way to a mandate, but it's pretty close. I'd love your ideas. What should we be doing, what can we do, what would you suggest to all of us in businesses what is the best route to take to nip this in the bid as much as possible?

ANGELIQUE RICHARD: Let me first start by saying, you know, I think courageous leadership is needed now more than ever. So I certainly applaud you and your team for making those really tough decisions. We've had to make similar ones. So I can appreciate the discernment that goes into that. You know, I think there's -- here's the good news. There's a lot that can happen and that we can do as it relates to our staff, our employees. I think, you know, this sounds very basic but it is. I think we need to seek first to understand where people are at. I think we need to listen and educate individuals because there's so many as I said earlier, so many myths and untruths and that they're hearing in their communities as well as on the news. I think in many ways a grass root approach is the best approach in particular with those that are struggling with this decision. You know, they're in a tough position as well trying to make this decision and in many cases, you know, determine if they're going to be able to work. So I think that, you know, this requires partnerships and mobilization of key trusted individuals and whether those are -- you know, we have partnered with community, religious leaders within the community. This also means, you know, key and trusted individuals within your organization. Maybe individuals that look like or have similarities to individuals that are struggling with this decision. It would be helpful to them. Sports heros. We did a huge campaign with them because we recognize the importance that they have in various communities, town halls like this, small groups, a peer-to-peer approach and personal stories. I'll share one of those personal stories. My doorman for over 20 years had really struggled with the decision of getting the vaccine. I think I had been talking to him since December up until we successfully got he and his teenage son vaccinated. It took every day having a conversation about this, took listening, understanding to what his fears were. Really what pushed him over the edge was understanding that he trusted me, right? I'm a healthcare provider, I'm a nurse. And offering to give he and his son the vaccine myself. And we -- it was probably -- I probably was more excited and happy about that than I was my own vaccine. So that's kind of what I mean about this, you know, make it personal. These are employees, our greatest assets. And really getting to that kind of grass roots level with them to help them to -- through this discernment and decision. That's some ideas, Dave.

DAVE CASPER: It's a great story. I'll tell you, I think we've all learned to kind of check our judgment Gene in our drawer before we come in to work and listening. Everybody has a story. It's easy to say how can you be so stupid. That's the wrong approach. You may get a few people asking for house calls. We probably all know a few people that can use your magic touch.

ANGELIQUE RICHARD: Happy to do it.

DAVE CASPER: So last question is for you, Paul. I'm an optimist. Our next speaker, Brian, is the ultimate optimist in a good way. Tell us -- give us some hope as to why we should be optimistic, where we are in the virus and the pandemic. If that's the wrong question, you can take me down the other way and tell me why I shouldn't be so optimistic. Didn't mean to lead the witness.

DR. PAUL CASEY: No, absolutely. I think Angelique and I fall in the optimism camp around here as well. So I would say, you know, we're also cautiously optimistic. Look 18 months ago. We didn't know the symptoms, how I'd spread, didn't have any treatments, certainly didn't have a preventative treatment like a vaccine. We've come an incredibly long way and that's reason for optimism. We know so much more about the virus in every single way that we can. We know how to prevent the spread if virus effectively. It's getting people over the hump. I say we add the cautiously piece because every new covid infection allows the virus the opportunity to mutate and create a new variant. That's why we closely track the variants of concern across the world. Because really it's going to take -- this isn't a U.S. effort or Canadian effort. It's a global effort to get the vaccine levels to where they need to be in order to prevent the emergence of variants and the concern there is that there may be a variant that could ebb investigate the anti-bodies generated by the vaccine. That is something that we need to continue to keep a close eye on.

DAVE CASPER: Okay. I'm feeling better. So Dr Casey and Angelique, can't thank you enough for all the work you do at Rush and for all of our communities. Thank you. Keep it up. I appreciate it. We're now going to turn things over to our BMO capital markets side. Our first speaker is my very good friend, our chief investment strategist, Brian Belski. Brian is going to talk to us about what he sees in the markets and how all of what we've heard and all of what we know will have an impact on the economy going forward. Over to you, Brian. Thanks again, Paul and Angelique.

BRIAN BELSKI: Thank you, Dave. I'm humbled to be sharing this with you. This is my 18th or 19th covid call that we've done for clients. I'm struck by Paul and Angelique and how clear, concise and complete they have been with their comments. Angelique made an awesome comment with respect to myths and untruth. Many of you know that I'm a myth and untruth buster. I state the truth and have faith. I have faith in the U.S. economy and stock market and in the Canadian economy and stock market. That's what's kept us so bullish. So at the end of my comments, we'll talk about our forecasts with respect to what all of this fun stuff means with the fed, the economy and the stock market. People have to step back and pat themselves on the back and really understand that the transition and the pivot that we made as a society and a marketplace is unbelievable. Speaks to the strength of the United States stock market, our companies and the Canadian stock market and our companies. We have to believe that. I'm going to steal Angeliques myth and untrust and talk about that in a bit. Margaret Kerins is going to talk about interest rates much more eloquently. Let's talk about the fed, what that means for the economy and some political things going on obviously in Canada and now the U.S. especially this week and what it means for your money. First off on the fed, the top of the house view is that the fed is most likely not raising rates for a while yet. The taper talk, which now is kitchen table type fodder much like quantitative easing was, in fact, back in 2007, 2008, we didn't know what quantitative easing was. We had to look it up like what taper was. For perspective, we've had one official tapener the history of the fed. Seems like the market and the economy is too fixated on the taper. Be that as it may, I think the key thing from the fed's perspective, they've been accessibly communicative. We're living in an age and society that we want to know everything right away. Mr. Paul has done a good job in terms of laying the ground work for eventually raising rates. He's been a little bit more ambiguous with respect to his data raising of rates but clear he's going to talk about tapering in November and then really start doing the tapers in December. That's the house view. I think it's consensus as well. So the market likes this. That we seem to have the same type of messaging from the fed in consistent messaging from the fed with respect to interest rates. In terms of inflation, the fed has been very clear that they continue to believe it's transitory. Seems to me that everybody kind of forgets that the smartest person in the room is the fed followed by the stock market. They flip back and forth. We seem to be debating this transitory inflation issue. We're going to go with the fed T house view is to go with the fed and what they're saying with this. There's a lot of talk with respect to bottle necks and the like and we continue to believe this is still a quarter or two effect with respect to inflation T key metric that many people are forgetting with respect to Mr. Paul is that last August at Jackson hole, he changed the mandate away from inflation and toward employment. If you read his statement last week, the first thing he talked about is employment. That remains the quandary and get to a sub 4% employment, which treasury secretary yellen points to with respect to the Biden administration. So I don't think there's an easy answer when the fed will raise rates. Looks like it's well into 2022. But what does that mean for growth? If you take a look at where GDP is in the forecast, we're forecasting 5.8% and 5.8% in Canada. What is interesting, we have a drop off in the U.S. going down to 3.5% GDP. Canada will surpass the United States next year by about 100 basis points with respect to GDP. I don't think anybody is talking about that. I think that really sets up Canada to do quite well in the fourth quarter, which is our call to outperform from a economic perspective but from a stock market perspective. I really think that Canada's fortunes are tied to the United States with respect to cross-border relationship, but many investors around the world need to start thinking more about Canada. On to politics, which you heard me speak before, we continue to believe that investors give politicians too much credit. Politics we have proven has nothing to do with the absolute performance of the stock market. It's about the trajectory of what happens. I think too -- let's use Angeliques I have no original thoughts so let's talk about myths and untruths. I'll harken back to the fourth quarter following the U.S. election. The first quarter following when the blue wave happened and it happened for real. There were a lot of fears that the full blown democratic government would derail the market. That didn't happen. We're up 20% this year. GDP continues to grow. I think there's too much assumption with respect to giving those politicians too much credit on to what will happen this week with the budget battle. We continue to believe it's the house view that they'll put some sort of patch work deal together to keep the government open. It's easier for president Biden to do that relative to other presidents especially given full control of congress. The infrastructure bill and even too is the taxes situation. So you go back to the beginning of the year and think about the myths and the untruths on what would happen on the political front. Let's not give politicians as much credit as the media and we're afraid of. Let's focus on how strong we are as an economy and how strong as a stock market. We've gotten through this and proven it's not right to be fearful of what potential politicians could do. Speaking of politics, we had an important election in Canada. It's status quo. The liberals won. My friend Doug Porter wrote about it in terms of budgets T biggest province, Ontario, analysts are seeing a budget deficit of twice what it came out with. There's a resounding fear that we're spending too much money. I think that Canada from a bank of Canada perspective will continue to follow the fed with respect to what is happening in interest rates in the United States. The Canadian economy is doing quite well. Jobs are coming back. The key things is the housing side. Housing continueses to be very strong and lending there is very strong especially on the residential side. So let's talk about what to do with your money. We continue to be bullish as Dave said. We've been on record by saying the United States stock market has been in the 20 to 25 year bull market that started in 2009. I think much of this has been driven by excess speculation on the negative side. This year we were supposed to have a negative year T month of September was supposed to be bad. You had a lot of people that do from what I do calling for a 10 to 20% price correction meaning prices will go down. Funny thing happened. Prices are flat for the month of September. September is typically a more volatile month. However, it's this type of chicken little analysis that I think is more about grabbing headlines than driving fear than what is true. So what is true? Canadian stock market is doing a wonderful job in terms of earnings. In fact, the last couple months we've been writing about the earnings riverry in Canada and using adjectives like epic. That epic earnings growth is transitions into fantastic cash flow, which of course in Canada, which is very important, dividend growth. So we think Canada will continue to outpace the U.S. for the fourth quarter and well in to 2022 with the great financial companies, great material companies, great consumer discretionary companies and those areas that will continue to outperform. We're overweight the same sectors in the United States, those being financials, consumer discretionary, industrials, materials. We believe a balanced approach to investing being equal weight, growth and value is the best way to play it. We've had the ebbs and flows type market, growth stocks outperform and value is oversold and rallies back up again. Same thing with small, mid and large. That's why in the beginning of the year we said equal weight everything. It's been the right call. If you care to hear about a three to five-year outlook, we will provide one. We think the stock market will get 13 to 15 compounded growth over the next ten years and the favors sectors are technology, communication services and discretionary. We're good at buying stuff in America. What are we buying? We've proven more than ever during the pandemic with respect to the need and demand for more technology, more contents. Those trends are going to continues. Not just from a personal side by clearly from a manufacturing side as we depend more on robotics and more or bringing manufacturing capacity back to the United States. That leaves us at 4,800 for an S&P 500 target on $210 of earnings. The second time we revised our targets for the U.S. and Canada in a year. We rarely do that. I think that really speaks to our confidence with respect to what we're saying in stocks N Canada, we think all-time highs for the TSX at 22,000 and $1,400 of earnings. We love the cross border relationship on a fundamental basis. I'm going to hand the ball off to my very good friend, Margaret Kerins who is BMO capital markets head of fixed income currency around commodity strategy. Margaret?

MARGARET KERINS: Thanks, Brian. Thanks to everyone for joining us. Brian mentioned fed taper and pretreasury market pricing. I'm begin with that. Basically what has been happening is the treasury market has been pricing to the expectations of how the fed will react to inflation on the ground and future expectations for inflation. So what we thought earlier this year is the market pricing in inflation trade is we thought the fed would wait to taper and lift-off would be a few years out. At that point, the high was reached around 174. Since then, what we've had is the fed messaging that they were not willing to let inflation run hot for too long in order to reach the employment mandate, which includes an inclusive employment as well as full employment. So basically earlier in the year, the market thought that inflagrants would run hot for quite a bit of time longer than the current pricing. So what we saw is rates peaked in March, late March and rallied back hard through the remaining course of the year up until the past few weeks where once again, the market is pushing rates higher so our view right now is that basically probably another 10 to 15 basis points to run before we see better buying coming in from the large institutional clients. We talk to large institutional clients every day. So this is what they're telling us. We actually think that rates will rally back down back to the 125 to 135 range by the end of the year. And then next year we will see a push higher, but not too much higher. Really looking for 175 to 2% in ten-year yields. Plus, what is critical next year and even now I think is a different story in the market is what will happen to five-year yields. Five-year yields should reflect the full tightening cycle. We pushed up past 1% today and we expect that pressure to continue through year end, probably reaching 110 to 115 and 140 by mid year next year. So again, we're expecting around 175 to 2 and to push up to 140 early next year. In terms of that taper, thatship is sailing as Brian mentioned. The fed is on pace to taper announcing as soon as November decreasing purchases by $15 billion in total per month. Over this period, will still purchase $280 billion in treasuries. The way we're thinking about tapering, it's a reduction in the tailwind pushing the economy forward. That is very different than a tightening cycle, which is a headwind. So the market is viewing the headwind -- you know what the headwind does. It will contain inflation. We know the fed has the tools to fight inflation and the market does in fact believe this and this is reflected in the long-term yieldses that we see today. So of course, when the fed does tighten, which is market is pricing for next year, we're are going to have some changes in the composition of the federal reserve board which could slant more dovish. A year is a long time in the markets, even for forecasts. So the data has to evolve as the Fed Ex pects. Probably about 3 points a year. Of course, you know, much more aggressive than we have seen in the last cycle. We started off with one for an entire year followed by 125 a year later. So depends on the evolution of the data. You know, we are in the inflagrants is transitory camp. We think that rates will remain relatively low historically. This is based on the longer term demographic trends, the technological changes in the economy that should continue to weigh on unemployment. We also have a part rate problem in the United States that will take time to work out in addition to the over-5.3 million below what they were in February of 2020. So this is going to take some time. We do think the curve of course is going to continue to flatten by 530. Interestingly, one thing to note is that we are expecting the U.S. department of treasury to begin cutting can you upon issuance as soon as November. Our projections are that they're about -- they would be 900 billion overfunded next year if they did not cut coupons. The 900 billion will be made up via bills as well as coupon cuts F you think about that, while the if Ed is slowing its purchases and the fed is cutting coupons, there's an offset to that. That said, the amount of treasury coupon debt that will be available to the public markets next year will be a record amount over $2 trillion. About $300 bill more than last year. Of course, when the site came out of the gates in March of 2020, the amount available for the public was negative 400 or 500 billion. Our expectation is that the coupon cuts will offset some of the decrease in treasury purchases. Another positive for the market that we should probably mention is that the fed will own and continue to own over $5 trillion in treasury. They will roll these over at auction. That is an enormous amount. They own 29% of treasury coupons outstanding. Even though we're decreasing this tail winds to the marketplace, the fact that they're still holding large balance of treasuries is quite positive. In addition to that they still will be buying 280 billion. Of course, when the fed does tighten, it does in fact become a headwind. One question that we are getting over and over again in these markets is about credit spread. Credit spread traded in about a ten-basis point range a year to date. They're near the post great financial crisis types right now. Many are asking, well, if the fed pushed everybody out, the risk curve, dooring QE, will that reverse once they slow QE down or start tightening? We think about this, think about last year alone. We had 1.7 trillion in treasuries available to the market. You know, corporate debt issuance was near record highs. On a net basis, that should come in around 400, $450 billion this year. Well below the over one trillion last year. Next year it will likely slow as interest rates rise a bit. Some of that will offset. We continue to expect I.G. credit spreads to remain near the post great financial type before coming under slight pressure next year. We're not expecting great big also in credit spreads. Moderately higher interest rates next year. Watching the five year sector and expect in the 175 to 2% range, which is probably quite a bit below the rest of the strait. Our interest rate call has been right the past several years. So with that, I'll will pass it back to Dave Casper. Thank you.

DAVE CASPER: Thank you, Margaret. Thank you, Brian. Great summary of what is going on. Okay. We have time for some questions. Some have submitted ahead of time and some have shown up already. So first question is to Paul. If I previously had covid 1, 3, 6 month ago, is the vaccine still necessary? How long after having covid to obtain the vaccine?

DR. PAUL CASEY: A great question. The recommendation around that is to wait until 90 days after having had covid for a vaccine. So importantly if you've had covid, that's not the equivalent of being vaccinated. So those that have been sick with covid still need to get vaccinated. But waiting that three month period will make sure that you don't have the -- you'll be covered through that period and not necessarily have the same reaction to the covid vaccine itself.

DAVE CASPER: Thanks. Next one is Paul. This could have been mine. If I had the Moderna vaccine, should I wait for the Moderna booster to come out?

DR. PAUL CASEY: Another great question. Yes, my advice is yes. The safest bet is to wait to be boosted with the same vaccine as your initial dose. That is in line with the CDC recommendation. The Moderna booster dosage should be approved we anticipate in the weeks ahead. Shouldn't be too long a wait. But the recommendation, if your initial series was with Pfizer, go with Pfizer. If your initial series was with Moderna, go with Moderna. That's the data available to know how effective those are.

DAVE CASPER: Thank you. Paul, allergies are bad right now. This could be mine, too. How would one differentiate between I have my usual allergies or whether or not I need to get covid tested?

DR. PAUL CASEY: Yeah, this is a tough one. I can tell you with three little boys at home, when one of them wakes up snotty, it changes from what we used to do a couple years ago about a common cold. You know, the advice around this is if you get seasonal allergies and you've always had seasonal allergies this time of year and it feels like the seasonal allergies, in all likelihood it's your seasonal allergies. If there's sometimes inconsistent with that, the safe bet is to get tested to be on the safe side. It's easyr fortunately to get the test and you can fairly rapidly get an antigen test that is followed up with a pcr as a confirmatory. That would be my advice.

DAVE CASPER: One for Brian or Margaret. What would a government shut down, what could of impact would that have on the markets and the economy and the likelihood of that as well.

BRIAN BELSKI: Ladies first, Margaret.

MARGARET KERINS: Thank you. We've seen this playbook so many times before. I think the best case is that breaching the debt ceiling, letting it go is not good for either political party with mid-term elections next year. Right now the Republicans and some of the more moderate Democrats want a lower fiscal package around holding the debt creeling to that. We think it will go down to the 11th hour but it will be resolved. Full government shut down, we've been through it. It's disruptive. But at the end of the day, we have seen the playbook before. The real implications for what's going on in the market, we have investors that can't risk buying anything surrounding those dates where the treasury might in fact run out of money. Even though we think it's a low probability, they shun those. Because they can't. They have to have that money. They can't get it three days later. So I think it's disruptive but the base case is it does resolve itself. We've been through this before. The last time they let it go, it was not good for either of them. Right?

BRIAN BELSKI: Yeah, we echo the same questions. Chairman Powell and secretary yellen are talking right now to congress. Really trying to push them to get this deal done. Per our comments, it echo what's Margaret said, they'll get the deal done. This is in 2011. The debt down grading of the United States. Let's not go back to the myths and untruths when this happens. Markets will rally when they feel better about this. The end of this week is the end of the calendar quarter, too. So you're probably going to see activity because of that.

DAVE CASPER: Can't wait. I feel we've been through a few times before. So Angelique, Brian, Margaret, Paul, I appreciate your time and I appreciate your honest and robust candid answers. To our clients on the call, thanks for joining us. Thanks for being clients and thanks for being perspective clients because you're not all clients yet. It's a tough time. It's challenging for all of us as business leaders and I want you to know that all of your BMO reps are with you and are available anyway we can be to help in many ways. If it's keeping the lights on in your operations, we can do that as well. But in all of the cases, we just want you to know we're here and we want to help and we want to get this economy continuing to move in the right direction. Thanks to everyone. There will be a recording on this call on our website for those that couldn't make it now. Thank you again. Thanks to all of our guests and to all of our listeners.

Brian Belski Chief Investment Strategist


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