{"id":2028,"date":"2025-10-21T17:33:25","date_gmt":"2025-10-21T21:33:25","guid":{"rendered":"https:\/\/garandgestionprivee.ca\/october-2022-markets-recovering-and-thoughts-on-the-coming-recession\/"},"modified":"2026-04-03T10:39:41","modified_gmt":"2026-04-03T14:39:41","slug":"october-2022-markets-recovering-and-thoughts-on-the-coming-recession","status":"publish","type":"post","link":"https:\/\/garandgestionprivee.ca\/en\/october-2022-markets-recovering-and-thoughts-on-the-coming-recession\/","title":{"rendered":"October 2022: Markets Recovering and Thoughts on the Coming Recession"},"content":{"rendered":"<div class=\"elementor-element elementor-element-f960d9a elementor-widget elementor-widget-text-editor\" data-id=\"f960d9a\" data-element_type=\"widget\" data-widget_type=\"text-editor.default\">For a rare time this year, I can start my monthly commentary on a positive note as North American equity markets had another positive month.<\/div>\n<div class=\"elementor-element elementor-element-dcb52e8 elementor-widget elementor-widget-theme-post-content\" data-id=\"dcb52e8\" data-element_type=\"widget\" data-widget_type=\"theme-post-content.default\">\n<p>Both Canadian and U.S. equities, as well as international equities; October 2022 will have been a good month. However, it wasn&#8217;t all rosy, as emerging market equities and bonds ended the month in the red once again.<\/p>\n<p>Several factors influenced this increase in October, but the most decisive factor was, you guessed it, the hope that inflation will finally come down soon. However, U.S. equity indexes touched their 2022 lows around mid-October before rallying again on some positive economic data.<\/p>\n<p class=\"has-medium-font-size\"><strong><u>Recession<\/u><\/strong><\/p>\n<p>This month, rather than focusing on how the stock markets have moved in October, I thought I&#8217;d delve deeper into the current theme you&#8217;re probably hearing about around you: the recession. This is a disturbing subject at first glance and one that is mentioned more often than not in the media. So, what about a recession and what could be the impact on you and your investments?<\/p>\n<p>First of all, what is a recession and when is it a recession? You may remember my article earlier this year (<a href=\"https:\/\/garandgestionprivee.ca\/juin-2022\/\" target=\"_blank\" rel=\"noreferrer noopener\">see here<\/a>) where I talked about the signs of a technical recession in the United States, defined by two consecutive quarters of declining Gross Domestic Product (GDP). This is a kind of rule of thumb often used when talking about recessions, but it is not recognized as the official indicator. For a recession to be &#8220;official&#8221; in the United States, it must be declared by the National Bureau of Economic Research (NBER) and be defined as &#8220;a significant decline in economic activity, spread across the economy and lasting more than a few months,&#8221; according to the White House (<a href=\"https:\/\/www.whitehouse.gov\/cea\/written-materials\/2022\/07\/21\/how-do-economists-determine-whether-the-economy-is-in-a-recession\/\" target=\"_blank\" rel=\"noreferrer noopener\">source<\/a>). In Canada, it is the Bank of Canada or the Minister of Finance who officially declares recessions; And the criteria are quite similar.<\/p>\n<p>What impact can a recession have on you? Whether it&#8217;s a temporary slowdown in your company&#8217;s sales, a short-term decline in your investment portfolio or a slowdown in your work activities for a while; The impact it would have would be different for everyone. Some may be more impacted, while others may not be at all. The things to remember are that recessions are normal, healthy, and temporary.<\/p>\n<p>Now, a recession being a slowdown in economic activity, there will of course be effects on your investments since they evolve, in the long term, largely according to the financial results of the companies in which you invest. This means that if the economy in general slows, companies should see their revenues and profits decline for a certain period of time. On the other hand, as mentioned several times in the past, financial markets look at the future outlook and not just the present. They usually react before the events are made official and when it is done, they are already looking to the future. So there is already some of this recession risk that is discounted in your investments and that explains part of the decline this year in anticipation of a possible recession.<\/p>\n<p>As an example, consider the financial crisis of 2008. It is deemed to have extended from December 2007 to June 2009. Although these dates are generally accepted today as the &#8220;official&#8221; dates of the financial crisis, they were not determined in the midst of the crisis. The same goes for the financial markets, i.e. we don&#8217;t know that the bottom is reached until well after it has actually been reached. Indeed, the NBER&#8217;s official recession announcement in the United States was only published on December 1, 2008, a full year after the &#8220;official&#8221; start date of the recession according to the dates we know today (<a href=\"https:\/\/www.nber.org\/news\/business-cycle-dating-committee-announcement-december-1-2008#:~:text=This%20announcement%20was%20originally%20posted,the%20Bureau%20of%20Economic%20Analysis.\" target=\"_blank\" rel=\"noreferrer noopener\">see the NBER&#8217;s official announcement here<\/a>). And on our side of the border? The Bank of Canada announced that the Canadian economy was in recession 8 days later, on December 9, 2008 (<a href=\"https:\/\/www.banqueducanada.ca\/2008\/12\/banque-canada-abaisse-taux-cible-9\/?_gl=1*yn1j9z*_ga*MTA0NTQzODAzMS4xNjY3MDUxMzQ2*_ga_D0WRRH3RZH*MTY2Nzg0OTQyOC40LjAuMTY2Nzg0OTQyOC4wLjAuMA..&amp;_ga=2.265866444.274789426.1667846269-1045438031.1667051346\" target=\"_blank\" rel=\"noreferrer noopener\">see the official BDC announcement here<\/a>).<\/p>\n<p>What am I getting at with these official announcement dates? They reinforce the point that financial markets act in anticipation of future events rather than in reaction to them. Make no mistake, the markets are of course reacting to current events, but especially to those that were not already expected. I have produced the following charts of the S&amp;P 500 (U.S. equities) and the S&amp;P\/TSX (Canadian equities) for the period<sup>from December 1<\/sup> , 2007 to June 30, 2009 to illustrate this:<\/p>\n<div class=\"wp-block-columns is-layout-flex wp-container-core-columns-is-layout-28f84493 wp-block-columns-is-layout-flex\">\n<div class=\"wp-block-column is-layout-flow wp-block-column-is-layout-flow\">\n<figure class=\"wp-block-image aligncenter size-large\"><img fetchpriority=\"high\" decoding=\"async\" class=\"alignnone wp-image-2344 size-full\" src=\"https:\/\/garandgestionprivee.ca\/wp-content\/uploads\/SPX-01-12-2007-to-30-06-2009-anglais-1536x1291-1.png\" alt=\"\" width=\"1536\" height=\"1291\" srcset=\"https:\/\/garandgestionprivee.ca\/wp-content\/uploads\/SPX-01-12-2007-to-30-06-2009-anglais-1536x1291-1.png 1536w, https:\/\/garandgestionprivee.ca\/wp-content\/uploads\/SPX-01-12-2007-to-30-06-2009-anglais-1536x1291-1-300x252.png 300w, https:\/\/garandgestionprivee.ca\/wp-content\/uploads\/SPX-01-12-2007-to-30-06-2009-anglais-1536x1291-1-1024x861.png 1024w, https:\/\/garandgestionprivee.ca\/wp-content\/uploads\/SPX-01-12-2007-to-30-06-2009-anglais-1536x1291-1-768x646.png 768w\" sizes=\"(max-width: 1536px) 100vw, 1536px\" \/><figcaption class=\"wp-element-caption\"><strong>S&amp;P 500<\/strong><\/figcaption><\/figure>\n<\/div>\n<div class=\"wp-block-column is-layout-flow wp-block-column-is-layout-flow\">\n<figure class=\"wp-block-image aligncenter size-large\"><img decoding=\"async\" class=\"alignnone wp-image-2346 size-full\" src=\"https:\/\/garandgestionprivee.ca\/wp-content\/uploads\/TSX-01-12-2007-to-30-06-2009-anglais-1536x1291-1.png\" alt=\"\" width=\"1536\" height=\"1291\" srcset=\"https:\/\/garandgestionprivee.ca\/wp-content\/uploads\/TSX-01-12-2007-to-30-06-2009-anglais-1536x1291-1.png 1536w, https:\/\/garandgestionprivee.ca\/wp-content\/uploads\/TSX-01-12-2007-to-30-06-2009-anglais-1536x1291-1-300x252.png 300w, https:\/\/garandgestionprivee.ca\/wp-content\/uploads\/TSX-01-12-2007-to-30-06-2009-anglais-1536x1291-1-1024x861.png 1024w, https:\/\/garandgestionprivee.ca\/wp-content\/uploads\/TSX-01-12-2007-to-30-06-2009-anglais-1536x1291-1-768x646.png 768w\" sizes=\"(max-width: 1536px) 100vw, 1536px\" \/><figcaption class=\"wp-element-caption\"><strong>S&amp;P\/TSX<\/strong><\/figcaption><\/figure>\n<\/div>\n<\/div>\n<p>It is very clear that most of the decline had already occurred before the official announcement of the recession, both in the United States and in Canada. In both cases, the markets were up shortly after.<\/p>\n<p>Obviously, the past is not always a guarantee of the future, but it still describes well how the stock market works in general. This year is no exception. The decline since the beginning of 2022 takes into account part of the current recession risk, so the official announcement would not mean a new drastic decline in the financial markets since they have already been reacting in anticipation of this possibility for several months now. Such an announcement could still bring volatility in the short term.<\/p>\n<p>Now on whether or not we will have a recession, I think the chances of avoiding it are getting slimmer and slimmer as things progress. It&#8217;s not set in stone yet, but let&#8217;s just say the mix is ready. A recession isn&#8217;t necessarily a bad thing. On the contrary, it can sometimes be beneficial to allow a kind of &#8220;reset&#8221; and establish a solid foundation for the future.<\/p>\n<p class=\"has-medium-font-size\"><strong><u>Inflation and interest rate hikes<\/u><\/strong><\/p>\n<p>Interest rate hikes in order to calm inflation are starting to take effect and we are seeing inflation on goods decrease. This decline could increase rapidly in the future as well. On the services side, inflation seems more entrenched and will be more difficult to dislodge. On the other hand, interest rate hikes take time to be reflected in the economy and they act with a delay. This is why at its meeting at the end of October, the Bank of Canada decided to raise its interest rate by 0.50% rather than the 0.75% that was expected (<a href=\"https:\/\/www.finance-investissement.com\/nouvelles\/economie-et-recherche\/la-bdc-augmente-son-taux-directeur\/\" target=\"_blank\" rel=\"noreferrer noopener\">article<\/a>). This shows a sign of caution by the Bank, which is starting to see impacts on the Canadian economy, particularly on the real estate sector.<\/p>\n<p>The U.S. Central Bank (Fed), for its part, maintained a hawkish tone on its future strategy on interest rates in its announcement last week. The Fed chairman mentioned, among other things, that the final interest rate could be higher than they had anticipated, but he also hinted that less aggressive hikes are being considered for their next meetings. Markets did not react well to this mixed good and bad news, giving more importance to the portion on the higher terminal rate than to the part on the smaller hikes to come. I believe that Jerome Powell, the chairman of the Fed, could not afford to sound too conciliatory during his speech since the impacts would have been against what he is trying to do. An overly dovish tone could have pushed markets higher, loosening financial conditions and breathing new life into the inflation they are desperately trying to control.<\/p>\n<p>Higher interest rates will slow down the economy, that&#8217;s for sure, but the stated goal of central banks is not to create a recession. However, the Fed has hinted on a few occasions that its primary objective is to control inflation, even if the economy suffers in the process. We are currently seeing a sharp slowdown in certain sectors of the economy, such as technology, which are more sensitive to interest rates and have benefited from lower rates for many years. Layoffs are now more and more frequent (<a href=\"https:\/\/www.cnn.com\/2022\/11\/07\/investing\/premarket-stocks-trading\/index.html\" target=\"_blank\" rel=\"noreferrer noopener\">CNN).<\/a> Despite this, the unemployment rate in both Canada and the United States remains near historic lows. There are currently nearly two jobs available for every person looking for a job in the United States and this is one of the things that central banks are trying to address. They don&#8217;t necessarily want people to lose their jobs, but they want to bring back a balance between open jobs and people looking for jobs to calm the rise in wages. Will they do that without causing a recession? Feasible, but unlikely in my opinion. I would add that not all recessions are the same and that a recession that is shallower than the last ones we have experienced is definitely in the cards. So recession or not? Your prediction is as good as mine.<\/p>\n<p class=\"has-medium-font-size\"><strong><u>U.S. Midterm Elections<\/u><\/strong><\/p>\n<p>A quick note on the U.S. midterm elections taking place today, November 8, 2022. While it&#8217;s a polarizing topic these days, the ruling party has had little influence on the stock markets historically. In the past, the ruling president&#8217;s party has struggled more in the midterm elections. The Democrats currently hold the House of Representatives and the Senate, but it would not be surprising to see the Republicans reclaim one or even both houses. Notwithstanding the result, although it may bring volatility in the short term, the long-term impact should be moderate.<\/p>\n<figure class=\"wp-block-image aligncenter size-large\"><img decoding=\"async\" class=\"alignnone wp-image-2348 size-full\" src=\"https:\/\/garandgestionprivee.ca\/wp-content\/uploads\/Dow-vs-congress-1.jpg\" alt=\"\" width=\"1280\" height=\"720\" srcset=\"https:\/\/garandgestionprivee.ca\/wp-content\/uploads\/Dow-vs-congress-1.jpg 1280w, https:\/\/garandgestionprivee.ca\/wp-content\/uploads\/Dow-vs-congress-1-300x169.jpg 300w, https:\/\/garandgestionprivee.ca\/wp-content\/uploads\/Dow-vs-congress-1-1024x576.jpg 1024w, https:\/\/garandgestionprivee.ca\/wp-content\/uploads\/Dow-vs-congress-1-768x432.jpg 768w\" sizes=\"(max-width: 1280px) 100vw, 1280px\" \/><figcaption class=\"wp-element-caption\">Source: Brian Levitt, Invesco<\/figcaption><\/figure>\n<p>Do not hesitate to share your opinions\/comments with me.<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Markets rebound in October despite recession fears. Central banks are adjusting their tone, a sign of an ongoing slowdown. <\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[1],"tags":[],"class_list":["post-2028","post","type-post","status-publish","format-standard","hentry","category-non-classe"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.1.1 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>October 2022: Markets Recovering and Thoughts on the Coming Recession - Garand Gestion Priv\u00e9e<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/garandgestionprivee.ca\/en\/october-2022-markets-recovering-and-thoughts-on-the-coming-recession\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"October 2022: Markets Recovering and Thoughts on the Coming Recession - Garand Gestion Priv\u00e9e\" \/>\n<meta property=\"og:description\" content=\"Markets rebound in October despite recession fears. 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