Eye On The Markets

Retirement Income Planning, Calgary

Eye on the Markets

This is a special blog to simply track the markets and market sentiment as we navigate a fundamental shift taking place in the economy and the markets in 2022.

We are providing the weekly numbers along with some commentary.

The 5-day and YTD numbers are taken from google and may not be 100% accurate

and there may be some currency conversion that isn't factored.

5-Day return for the week ending August 12:

DOW was up 2.27%
NASDAQ was up 2.70%
S&P 500 was up 2.99%
TSX was up 2.61%

Year To Date Numbers:

DOW -8.09%
NASDAQ -17.59%
S&P 500 -10.77%
TSX -4.98% 

This past week was a monster week on the markets as the US reported lower-than-expected inflation numbers. The VIX dropped to 19.53. One thing you have to recognize is how fast the markets can turn. Just in the last month, the NASDAQ is up 16%, the S&P 500 is up 12.58%, the DOW is up 9.71% and up 8.41 on the TSX. That's pretty incredible. I wonder how many people got out, hoping to time the bottom, and are now wishing they stayed in; or how many people jumped on the GIC bandwagon? The year isn't over, and anything can happen, but the lesson right now is - to stay the course!

5-Day return for the week ending August 5:

DOW was up .15%
NASDAQ was up 2.76%
S&P 500 was up .80%
TSX was up .41%

Year To Date Numbers:

DOW -10.34%
NASDAQ -20.05%
S&P 500 -13.58%
TSX -7.61% 

The markets were flat this week with the exception of the NASDAQ, which saw a nice little increase of 2.76%. This index was down by almost 33% at its lowest point in early June and has rebounded by nearly 13% since that time. The VIX is steady at 21.15. There's still plenty of volatility and uncertainty in the markets. It's still a wait-and-see game as to where we go from here. Inflation is showing signs of letting up. The risk of recession is still there. Housing is cooling off. Stay tuned.

5-Day return for the week ending July 29:

DOW was up 2.8%
NASDAQ was up 4.67%
S&P 500 was up 4.15%
TSX was up 3.11%

Year To Date Numbers:

DOW -10.22%
NASDAQ -21.74%
S&P 500 -13.89%
TSX -7.70% 

The markets were all strong this week.  Inflation is still running high, but there is new optimism that it may get under control soon. The big story of the week was the FED raising its key rate by .75% and that the markets have posted the best month since November 2020. During the month of July the DOW is up more than 6%, the S&P 500 is up almost 9%, the NASDAQ is up 12%, and the TSX is up 4.4%. That's a pretty good month and nice to see after such a bad run so far this year. Another key point is the volatility index (VIX) is down to 21.33. All in all, a good week and a good month. As I have said before, stay invested through the ups and downs, as you can see, the markets can recover quickly.

5-Day return for the week ending July 15:

DOW was Flat
NASDAQ was down .63%
S&P 500 was down .46%
TSX was down 2.7%

Year To Date Numbers:

DOW -14.48%
NASDAQ -27.67%
S&P 500 -19.46%
TSX -13.38% 

The markets were relatively flat with the exception of the TSX, which was down 2.7% as energy and other natural resources declined. Inflation is still running too high. The big story of the week was the BoC raising its key rate by a full 1%. 

5-Day return for the week ending July 8:

DOW was up 1.17%
NASDAQ was up 5.71%
S&P 500 was up 3.13%
TSX was down .47%

Year To Date Numbers:

DOW -15.00%
NASDAQ -26.51%
S&P 500 -18.7%
TSX -11.18% 

The US markets had a positive week and the Canadian market was down slightly, mainly due to a decline in the energy sector. One good sign is to see the volatility index declining. The VIX ended the week at 24.67. 

 

5-Day return for the week ending July 1

DOW was down 1.38%
NASDAQ was down 4.57%
S&P 500 was down 2.43%
TSX was up .16%

Year To Date Numbers:

DOW -15.00%
NASDAQ -29.72%
S&P 500 -20.25%
TSX -11.18% 

Another volatile week on the markets. The Canadian market had a shortened week due to the July 1st holiday. It managed to rise 3.5% on Tuesday but gave it all up before the end of the week. The US indices had a similar pattern. These short-term bumps up are often referred to as bear market rallies and they don't have a lot of momentum. There is a fundamental shift taking place and it looks like we have to wait for it to run its course. Central banks are committed to raising interest rates until inflation is declining. It's a wait-and-see game. Stay calm and stay the course.

5-Day return for the week ending June 24

DOW was up 5.31%
NASDAQ was up 8.51%
S&P 500 was up 6.71%
TSX was up .50%

Year To Date Numbers:

DOW -13.90%
NASDAQ -26.69%
S&P 500 -18.45%
TSX -10.24% 

Another new bottom was reached last week and the markets started to stage a comeback this week. How long it will last is anyone's guess. I'm not getting too excited with the amount of volatility there has been this year. One thing that does stand out this week was the legging TSX. So far this year the TSX has been the leader - it still is - but that gain is losing steam. Another thing that stands out, and I think we have to be mindful of, is how quickly sentiment can change and the markets start moving up. Another reason it's so important is to stay invested and ride out the turbulence.

Week ending June 10

DOW was down -4.96%
NASDAQ was down -7.05%
S&P 500 was up -5.66%
TSX was down -3.05%

Year To Date Numbers:

DOW -14.19%
NASDAQ -28.38%
S&P 500 -18.67%
TSX -4.53% 

A new bottom was reached this past week as major North American markets went lower. Inflation is stubbornly high and recession fears are creating uncertainty. What is the relationship between inflation and your portfolio? 

Finding a silver lining. 

If this is a non-recessionary market correction then history has shown, Since 1970, the return is, on average, 17% in the six months after the market bottoms. (source) The big unknown is whether or not a recession is fast approaching. There are many leading indicators that still suggest no. Most experts are saying it is unlikely, but we'll have to wait and see.

There's a repricing of everything taking place. Valuations on stocks are coming down which is making many stocks more attractive. Once we get through this significant financial transition, retirement income and investment planning are going to be better.

Week ending June 3

DOW was up +0.50%
NASDAQ was up +1.21%
S&P 500 was up +0.76%
TSX was down -0.22%

Year To Date Numbers:

DOW -10.07%
NASDAQ -24.13%
S&P 500 -14.34%
TSX -2.10% 

All in all, the past week was rather flat with a slight increase in the US markets. One thing that stood out is the VIX - volatility index, which has decreased to 24.79. It's been over 30 for most of 2022. The VIX is referred to as the measure of fear in the market and anytime it is over 30 you typically see a stock market sell-off. We have now seen two weeks of gains. There are still a lot of issues in the world - inflation, rising interest rates, supply chain blockages, COVID lockdowns in China, energy crisis, and war in Ukraine.

The markets can move quickly - in either direction. It's difficult to pick the bottom or how long it will take to come off the bottom. There's a lot of talk about recession in the media, but yet the professional money managers that we listen to keep saying that the leading indicators do not suggest a recession is imminent. Stay calm and carry on.

Week ending May 27

DOW was up +5.79%
NASDAQ was up +6.45%
S&P 500 was up +6.09%
TSX was up +2.03%

Year To Date Numbers:

DOW -9.22%
NASDAQ -23.38%
S&P 500 -13.31%
TSX -2.30% 

There was a change in sentiment this week as the major indices reversed their downward spirals and posted the first gains in 8 weeks. 

Did a bottom occur?

We will find out in the coming weeks and months. There's a point at which the markets sell-off and buyers re-enter to pick up a lot of great companies at significant discounts. It's easier to just stay in the market than trying to time when to get out or in. However, if you have money on the sideline then this is a good time to buy at a discount to the recent highs.

The markets are unpredictable. In the short term, anything can happen. If you are in it for the long-term, stay focused, and we know from history, that the trend is upward.

Check out the chart below. The various crises come and go, but the markets continue to grow. Don't be knocked off course by temporary events.

 

Week ending May 20

DOW was down -2.77%
NASDAQ was down -3.18%
S&P 500 was down -2.78%
TSX was down +0.4%

Year To Date Numbers:

DOW -14.55%
NASDAQ -28.28%
S&P 500 -18.66%
TSX -4.89% 

Interesting to note, the TSX was slightly positive on the week and has performed the best so far in 2022. This is mainly due to the energy sector. The banking sector is off by about 15%, and other sectors are similar.

How many crises have there been in the past 50 years?

A lot. There's one just about every year. There's always a crisis somewhere and we have overcome everyone so far and we'll come through the current one as well. Be patient, stay the course, and avoid looking at your portfolio too often. 

 

Week ending May 13

DOW was down -1.49%
NASDAQ was down -0.99%
S&P 500 was down -1.41%
TSX was down -1.43%

Year To Date Numbers:

DOW -12.00%
NASDAQ -23.29%
S&P 500 -16.11%
TSX -5.35% 

What's the story of the week? 

After a volatile week, the markets actually rallied on Friday. Still down on the week, but at least a little bit of positivity to end the week. The story is the same - supply chain disruptions, inflation, rising interest rates, and recession. There's so much talk of a recession that it is more likely to be a self-fulfilled prophecy.

There is a larger fundamental mega-trend taking place in the economy and the markets. It's detailed below in more detail. It's a wait and hope kind of scenario right now.

The volatility isn't expected to go away anytime soon. The best thing to do is wait it out. There may be some opportunity to reposition your portfolio and do some capital loss harvesting, however, it's not a good idea to sell and try to time the bottom. One thing I am hearing often is that the next decade will not be anything close to the last decade when easy money and growing asset prices made everyone rich. You will need to be a lot more selective moving forward.

Encouraging factoid from the week: There have been 16 instances since 1940 where the markets have declined by more than 16% in a 4-month period. Out of the 16 times, the markets were higher 6 months later in 12 of those cases. If history proves us right, there's a 75% probability that the markets improve over the next 6 months. 

Week ending May 6

DOW was down -0.24%
NASDAQ was down -1.52%
S&P 500 was down -0.18%
TSX was down -0.36%

Year To Date Numbers:

DOW -10.07%
NASDAQ -23.29%
S&P 500 -14.04%
TSX -2.84% 

What's the story of the week?

Although the volatility was dramatic, the markets were only slightly down on the week. It's the highs and lows throughout the week that are note-worthy. The NASDAQ had and swing of over 7%. The DOW was over 4%.

We all see the volatility. We understand that there is run-away inflation. We know about the geopolitical risk. The supply chain problems in China. But, what does it all mean and what should you be doing?

Uncertainty

This is for sure the underlying issue. The market seems directionless and leaderless. Central bankers are trying to figure out what to do and their message is constantly changing. 

Inflation

The powers that be are finally admitting that inflation is a problem. Their only tool for combating inflation is raising interest rates. The problem is they know it isn't the only problem. the supply chain issues caused by a lock-down in China coupled with the energy crisis in Europe are also significant culprits. They can raise the rates and still see inflation increase. 

The debt bubble is losing air

Ever since the financial crisis of 2008 governments in the developed world choose to print more money and throw it at every problem. All of this money in the system has created another financial crisis - an unintended consequence. Historically low-interest rates. Which has resulted in hyperinflated prices across all asset classes. All of us have had easy access to cheap money. For individuals, this has meant the ability to buy a home. This ability has driven up real estate values faster than at any time in history. It has fueled the technology sector and driven up the stock values of tech companies way beyond what they were worth. Overall, we have a stock market that has seen gains beyond the historic averages. 

The party's over

It was fun while it lasted, but it ain't no fun no more. Prices across all asset classes are ready to come back to earth. At this point, we are seeing a correction take place in the stock market. Interest rates coming back to more historic norms. Common sense coming back to the markets. Value back in style. Real estate is slowing and will most likely continue to slow.

How long will this take?

That's a guess. It will depend on how quickly they raise interest rates and how much they slow the flow of money into the system. The central banks would prefer to ease their way out of this situation. In a sense, they prefer to let the air out slowly rather than burst the balloon altogether.

What does it mean for you?

A mean-reversion is looking more likely to happen. If you think in terms of long-term averages, the stock markets tend to deliver about 8-9% per year if one were to stay invested. In the past decade that average is much higher. Real estate has a long-term average growth of just above inflation - maybe 3-4%. It's not so much that everything is doomed and we'll see years of declines, but rather, the returns will be much more muted to bring the long-term average back in line with historic norms. A slower growth rate. There is a fundamental shift taking place.

What should you do?

Stay the course. The temptation is to try and time the markets. Get out now and buy back in at a lower price. That's a gamble and very difficult to predict. It's easier to stay in than to buy back in if you are all in cash. No one is able to predict the bottom until long after the bottom has occurred. 

Own quality companies. Larger bluechip companies are able to weather the storms better. Diversify across geographies and sectors. Own what people need. Energy, food, fertilizer, precious metals, shelter. 

There is no reason to panic or be fearful. What is taking place is a good thing and it's for the best. It's a great buying opportunity as everything is on sale. As Warren Buffet would say, "Be greedy when everyone else is fearful..."

Dividend-paying companies are certainly more attractive.

Consider more guaranteed sources of income.

Annuities are now back in play and should be looked at to generate some more cash flow. One annuity quote that I have been tracking has a monthly payment that is 9% higher right now than it was 3 months ago.

Be more conservative in your planning estimates for the next decade.

Avoid large drawdowns from your portfolio. Alternatively, you can use a LOC in the short term.

Capital loss harvesting. This may be the time to realize some losses and use them to offset future gains or carry back those losses to offset gains from the past 3 years. I don't mean selling quality companies, but rather getting rid of any junk you may have. 

There is good news

The economy here in North America is still strong and running on all cylinders. We are at full employment. The pandemic is over and we are enjoying life.

Conclusion

The volatility and uncertainty will always be present in the markets. It has always been there and always will be. It's beyond your control. What is within your control is how you plan. Have your total financial house in order with an income plan, an investment structure, tax strategies, risk management plan and an estate plan. These are within your control and it is something we help clients achieve. You can learn more about that process by clicking here.

 

Week ending April 22

DOW was down -1.74%
NASDAQ was down -3.60%
S&P 500 was down I contacted Langford Financial to see if they could help me with specific questions on retirement & estate planning, efficient tax strategies, CPP and OAS benefits, and income drawdown strategies. I was very nervous at first about whether they would be a good fit for my needs, but my concerns were quickly put to rest and Willis and his team made me feel at ease right from the very first meeting.

They are very easy to work with, are very knowledgeable and resourceful, are able to break down complex matters into an easy-to-understand manner, and are always quick to respond to any questions. They reviewed my situation and were able to tailor a plan to fit my specific needs, to my complete satisfaction.

The plan included amongst other things, the best way to utilize efficient income tax strategies. helped me to understand the correct drawdown of assets which would result in larger savings, and provided guidance on insurance products and efficient estate planning.

As a result, I have a much clearer picture of my financial situation now and feel very confident and satisfied with the plan that they have proposed for me, going forward. What I appreciated the most about Willis and his team was that, in addition to their friendly, personable and professional approach, at no time was there ever any pressure to purchase any products.


I am very happy with the service I received from Willis and his team and would recommend Langford Financial to anyone looking for advice on their retirement planning needs. You will not be disappointed!

Naila Jinnah

Naila Jinnah
Fee-Only Planning Client

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