Market Review: A difficult first half of the year for investors

It has been a tough start to the year for investors around the world with both stocks and bonds losing value. In fact, for the S&P 500 (a group of 500 leading public companies in America) it was the worst first half performance since 1970.  Canadian markets have fared slightly better than their US counterparts, buoyed by Oil & Gas firms which have seen their share prices rise with the price of oil. 

Market Performance (as of market close June 30, 2022)

Several factors have been working together to contribute to the poor performance of both stocks and bonds. Because of persistently high inflation (stemming from the combination of COVID induced supply chain constraints, Russia’s tragic unprovoked war on Ukraine and pent-up consumer demand), central banks around the world are rapidly increasing interest rates at an unprecedented rate with the hope of taming the inflationary pressure which all consumers are feeling. Rising interest rates reduce what investors call “the present value of future cashflows”, which in turn reduces the amount of money investors are willing to pay to invest in company (also called a company’s “valuation”). This “valuation reset” has been a main factor in the decline in stock market prices, with high-growth, tech companies being hit the hardest (as can be seen in the year-to-date return of the tech-heavy NASDAQ composite index). Historically, bond markets have been positive when central banks hike interest rates as bond investors typically anticipate rate increases and the market adjusts accordingly. This time investors were caught off-guard and the faster-than-expected rate increases have hurt bond prices (which move in the opposite direction of interest rates).

What should I do?

Given everything that is happening, it can be a great time to review your investments with a financial professional to ensure that they are meeting your objectives and suit your risk tolerance. It’s also important to have a financial plan in place and to not let times like this derail that plan because as legendary investor Warren Buffet once said:

“Over the long term, the stock market news will be good. In the 20^th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow (an American stock market index) rose from 66 to 11,497”.

Like Mr. Buffet, I can’t say with certainty where markets will be a month or even a year from now. If someone tells you they can, tread cautiously. What I can say, is that if history is any indication of the future, over time they will trend up and reward patient investors who keep a long-term perspective.

Submitted by:

Riley Love, MBA, CCS, BSc. Pharm

Financial Advisor – Love & Persson Group