January 31, 2023
2022, Year in Review
The typical Balanced Investor experienced a turbulent ride in 2022. Inflation, central bank rate hikes, oil prices, supply chain disruptions and the Russia-Ukraine conflict cast a long shadow on markets, causing extreme volatility and dominating financial headlines 24/7. The last time a balanced investor experienced these kinds of returns was 1937. What was really unusual was having both stock and bond markets down at the same time. As stressful as this has been, the worst is now likely behind us.
Economic indicators, currencies and oil
Despite the market swings and uncertainty, there were a number of positive North American economic indicators reflecting the U.S. and Canadian economies continue to be in relatively good shape. The unemployment rate in the U.S. and Canada remained low and job vacancies grew. Retail sales and consumer spending chugged along nicely while house prices on both sides of the border cooled. As we headed into the second half of 2022, the CEOs of two major grocery chains said food prices had started stabilizing and a CEO of a large shipping company said supply chains are getting back to normal.
Inflation, interest rates and central banks
U.S. inflation peaked at 9.1% during the summer, a 40-year high. Supply chain disruptions and rising energy, food and housing costs were the main contributors. Inflation then started to ease in the second half of 2022, cooling to 7.1% by year-end. This was driven by falling housing, healthcare and used car prices as well as less expensive gasoline, electricity and air travel. The Fed raised rates from near zero to 0.25%, in March, its first increase in three years and then went on to make seven large hikes, including four straight 0.75% increases, its biggest since 1994. At its annual Jackson Hole summit in Wyoming, Fed chair Powell said the Fed would continue hiking until inflation is back within its 2% target range.
In Canada, inflation headed north as well, hitting 7.7%, in Q2, its highest level since 1983, before cooling in the second half of 2022 and ending the year at 6.4%. The Bank of Canada also raised rates seven times, including a jumbo full percentage point hike in the summer. Bank governor Macklem noted it will take time for higher rates to bring inflation under control, but monetary policy is starting to have an effect.
What can we expect next?
As difficult as 2022 has been with rate hikes, high inflation and market swings, the worst is now probably behind us and the conditions created for a much more compelling investing environment going forward. Central bank policy, which operates with a lag, is likely to weigh on the economy into 2023, but equity valuations have normalized, and the potential returns of several asset classes offer attractive opportunities. Corporate earnings in general have remained resilient and supply chains are finally moving again.
Regardless of where we are in the market cycle, it’s important to take a disciplined approach to investing and stay focused on your long-term goals. This strategy helps you keep your emotions out of investing, typically buying high and selling low like many investors do. Ongoing monitoring and reviewing of your portfolio also ensure it remains on track. Diversifying investments reduces risk as well.
2022 RRSP deadline and new 2023 TFSA room
consider making an additional contribution? The new year also brings an extra $6500 you can allocate to your TFSA. Both RRSPs and TFSAs hold most types of investments. I can talk to you more about the tax-efficient advantages of RRSP and TFSA investing and maximizing your retirement savings.
Thank you for your continued trust in our team and for the opportunity to assist you in working toward your financial goals. We are with you every step of your investment journey. Should you have any questions regarding your portfolio, please do not hesitate to contact our office.
- Spire Advisors of Assante Capital Management Ltd.
IMPORTANT DISCLAIMERS:
The information in this letter is derived from various sources, including CI Global Asset Management, CI Financial, Globe and Mail, Daily Mail, National Post, Wall Street Journal, Forbes, MSCI, MSN.com, Advisor.ca, cp24.com, Toronto Sun, Bloomberg, Reuters, Investment Executive, US Treasury Dept, TNC News, The Post Millennial, Advisor’s Edge, Coindesk.com, U.S. Energy Information Administration, Marketwatch, Baystreet, CNBC, The Economist, The Guardian, Yahoo News, CTV News, Bank of Canada and Statistics Canada as at various dates. This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources and reasonable steps has been taken to ensure their accuracy. Market conditions may change which may impact the information contained in this document. Before acting on any of the above, please contact me for individual financial advice based on your personal circumstances.
Assante Capital Management Ltd. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada