Portfolio Strategy
Focus on the “Big Picture” Amid all the Uncertainty....
Our view: The recent surge in volatility in 2022 is the result of several factors including: 1) stubbornly high inflation; 2) policy normalization efforts by central banks globally (e.g., the US Federal Reserve, Bank of Canada, etc.); 3) the ongoing Russia Ukraine war, and the related global sanctions which followed the invasion; 4) COVID-19 lockdowns; and, 5) a deep slowdown in the Chinese economy, which is the second largest economy in the world.
Since the beginning of the year, we have stated that, while a repeat of 2021 market performance was unlikely, we expected markets to head higher, but follow a much more choppy path than in 2021, as extreme COVID-19 policy measures/levels of accommodation begun to unwind. However, that said, we remind investors that the Canadian/US economies are in relatively good shape versus the rest of the world economies – the cleanest dirty shirts in the laundry – with economic growth still expected to rise above trend in 2022 and grow at a more normalized pace in 2023 rather than contract. As well, the employment rate has rebounded above pre-pandemic levels with corporations on both sides of the border in relatively good financial shape. For the S&P 500 and the S&P/TSX indices, we are expecting above trend earnings growth in 2022 and trend growth in 2023. And following the sell-off in markets globally since the beginning of the year, equity valuations also appear way more attractive than at the start of 2022, and are supportive of our constructive view for US and Canadian equities to outperform many of their peers/markets globally in 2022.
While it may be difficult to see the bigger picture amid all the uncertainty, here are a few certainties to share with investors:
- It pays to stay invested - avoid the temptations to time the market; it’s a losing proposition for even the smartest minds (e.g., Long-Term Capital Management).
- Ignore the headlines/noise and remember to be “fearful when others are greedy, and greedy when others are fearful” – Warren Buffett.
- Stay rational when markets/investors appear to be behaving irrationally.
- Ignore your emotional tendencies and stick to your plan; otherwise, you may end up buying-high & selling-low.
- Volatility/market sell-offs should be expected and are NORMAL even during broader bull market cycles!
- Diversification + Asset Allocation = 🙂
