Market Review: A summer filled with ups and downs

Investors around the world have continued to experience heightened volatility in markets over the summer months as large interest rate hikes dominated financial headlines and steered market performance in the third quarter. The S&P 500 (a group of 500 leading public companies in America) returned ~9% in July before giving back all those gains over August and September, ending the quarter down ~6%.

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

Many of the factors that contributed to the poor first half performance in markets persisted into the third quarter of the year.  While headline inflation has shown signs of moderating (largely thanks to the fall in gas prices), core inflation (which strips out the influence of the more volatile food and gas prices) remains high and central bankers have been forced to raise interest rates faster than investors had previously anticipated. Why do central banks feel the need to raise interest rates so rapidly? Rising interest rates increase the “cost” of borrowing money for businesses and consumers which in turn helps to reduce demand for goods and services and ultimately brings inflation back to normal levels. 

What should I do?

When the stock market dives, it’s normal to feel uneasy but it’s also important to remind ourselves that down markets and recessions are to be expected when investing and selling when things get tough is a losing strategy over the long-term. From 1986 to 2021, the S&P TSX Composite Total Return Index (a proxy for the Canadian stock market) has delivered a positive return in 29 out of the 36 years, nearly 81% of the time. Despite this positive long-term trend, it is important to highlight that over this same period the average peak to trough price decline in any given year has been negative 15% with intra-year declines of more than 10% being quite normal. I think this quote from legendary investor Peter Lynch sums things up quite nicely:

“Everyone has the brainpower to make money in stocks. Not everyone has the stomach. If you are susceptible to selling everything in a panic, you ought to avoid stocks and mutual funds altogether.”

So, what should you do? First, make sure your portfolio is properly diversified and suitable for your situation. This is where a financial professional can be of great assistance. Finally, making regular, automated contributions into your investments is a great way to take advantage of market volatility. This strategy helps you keep your emotions out of investing, typically buying high and selling low like many investors do. When prices are down, like they are right now, you are getting the “sale price” and should be rewarded when markets eventually rebound.  

Submitted by:
Riley Love, MBA, CCS, BSc. Pharm
Partner/Financial Advisor – Love & Persson Group