Portfolio Strategy
Focus on the “Big Picture” Amid all the Uncertainty....
Our view: The recent surge in volatility so far in 2022 is the result of rising inflation and expectations of policy normalization by major central banks globally, including the Federal Reserve and the Bank of Canada. While we expect policy normalization efforts to remain a catalyst for volatility moving ahead, the Russian invasion of Ukraine has resulted in much greater uncertainty over the short-term. Firstly, our thoughts and prayers go out to all those affected by these tragic turn of events; however, we remain hopeful for a peaceful and diplomatic resolution to this crisis. Since the beginning of the year, we have stated that, while a repeat of 2021 returns/risk profile was unlikely, we were still expecting normalized returns of 5- 10% for the year for the S&P 500 and the S&P/STX index. We remind investors that the US and Canadian economies are in relatively good shape with economic growth still expected to rise above trend in 2022. As well, employment levels have recovered to pre-pandemic levels in record time. Additionally, corporations on both sides of the border remain in good financial shape. For the S&P 500 and the S&P/TSX indices, we are still expecting above trend earnings growth in both 2022 and 2023, which is in line with or slightly above consensus expectations. And following the recent sell-off, equity valuations also appear way more attractive than at the start of 2022 and are supportive of our constructive view for the US and Canadian economies and markets in 2022. While it may be difficult to see the bigger picture amid all the uncertainty, here are few certainties we would like 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”.
- Stay rational when others/markets appear to be behaving irrationally.
- Ignore your emotional tendencies and stick to your plan; otherwise you may end up buying-high & selling-low.
- Volatility should be expected and is NORMAL even during bull market cycles!
- Diversification + Asset Allocation = 🙂
