We are halfway through 2022.

Why 1970? Because we just had the worst first half of a year in the markets since 1970 (for the S&P 500 index). As of June 30, 2022, the S&P 500 index (the 500 largest US companies) is down 20.58%, the NASDAQ index (US companies mainly in the technology sector) is down 29.51%, the TSX (Canadian stock market) is down 11.26%, Canadian bonds (represented by XBB, an exchange-traded fund) are down 13.59% and global bonds (represented by VGAB, an exchange-traded fund) are down 13.59 %. A less than rosy picture when you look at the short term, that’s obvious. Now that we know the January-June 2022 drop was similar to 1970, let’s hope July-December will also be similar to 1970. A comeback worthy of the New England Patriots in Super Bowl LI where they won the game after trailing 28-3 shortly after halftime.

A few quick questions before moving on to the rest of my comments:

• Could it continue to go down? Yes.
• Could the worst be behind us? Yes.
• Are there good opportunities right now? Yes, for those who have a reasonable time horizon. There are great opportunities right now, but they may not pay off in the very short term and may take some time to materialize.
• Should we be worried? No. In exchange for getting excellent long-term returns, you sometimes must go through periods of decline.
• Is my future in danger? No. Unless you need to withdraw all of your investments at the bottom of the dowturn, time will do, and they will come back up. If you had short-term liquidity needs, your investment strategy was built with this in mind.
• Did I lose my money? No. The value of your investments has gone down, over time it will get back up. To lose the money, you would have to withdraw everything, take the loss, have no more investments and miss the rebound when it comes.
• When will we see a rebound? I don’t know. Next week, in a month, in three months; although many people try to predict it, no one can. The only thing I know is that there will be one.
• Is it time to make changes in my portfolio? It depends. If you have good investments that are well positioned for the future, even if they’re not performing well right now, it’s best not to make changes. If not, it’s always a good time to make some changes.

June 2022

After an excellent week to end the month of May and a rather quiet start to June, the situation began to deteriorate around June 9 in anticipation of the publication of inflation figures in the United States, which were ultimately higher than expected. This increase compared to the previous month was largely due to price increases in the energy and food sectors, since inflation excluding these two factors was down for a second consecutive month. As a result, expectations of a 75 basis point interest-rate hike by the US Federal Reserve increased (and later materialized on June 15, 2022). This move pushed interest rates higher, driving down both stocks and bonds in tandem. As the month progressed, the conversation began to oscillate between inflation and recession.

Outlook

Inflation now shares the limelight with another theme, recession. Along with inflation, this will be something to watch in the second half of 2022. The risk of a recession is increasing, but the degree of such a recession could vary greatly. You may also hear about a “technical” recession that the United States may already be in as we speak. What is a “technical” recession? It’s a complicated term to talk about a recession that isn’t really one. The generally accepted standard for considering an economy to be in a recession is a negative growth in GDP (Gross Domestic Product) for two consecutive quarters. However, in the first quarter, the United States technically experienced a drop in its GDP even though the economy was running at full speed. A recession scenario is definitely possible, but for your investments it is important to remember that markets always look forward. So markets normally go down before a recession is announced and start to go up before the recession is over.

Companies’ quarterly results will be important for the short-term future of the markets in the coming months. The “earnings season”, which is the period when corporations announce their results for the last quarter, begins in the coming weeks and it will allow us to see if there is a real slowdown in corporate profits. With satisfactory results, it could bode well for the rest of the year in the stock markets. Conversely, volatility would persist.

When it comes to inflation, although newswires prefer to emphasize the negative data, there are still encouraging signs. First, as mentioned earlier, excluding items with more volatile prices such as food and energy, inflation has actually been going down since March. Then, speaking of volatile food and energy prices; oil, natural gas and gasoline prices all declined during the month of June. Same story on the food side with several key elements that fell in June (wheat, oats, soy, etc.). These are good signs for a future decline in inflation. There are also promising signs of easing of the supply chain problems (lower container prices, rising inventories, etc.).

In short, there are some good news (even if they’re not popular at the moment). The current problems do not need to be resolved entirely, but the good news must be sustained and demonstrate a trend going in the right direction. If we see inflation continuing to slow and corporate profits holding up in the second half of 2022, we will be in a good position.

2022 in examples