2022 STOCK MARKET CORRECTION
We’ve opened this year with a bout of volatility. As I am writing this, the S&P500 is down -10% January 1st to January 24th which brushes the textbook definition of a market correction in the intraday. The 2 causes of this correction are interest rate hikes and conflict in Ukraine. Regarding interest rate hikes, it’s frustrating that this conversation has blown up because market participants have known that interest rates were going to need to be raised ever since they dropped them in 2019.
The US Federal Reserve and Bank of Canada have both done a good job of warning market participants of the rate hikes but now they may have to raise rates 0.5% in March when a 0.25% hike has been standard in recent years.
This is because they sat on their hands when they could have been doing even smaller rate hikes like 0.1% or 0.125% at a time 6 and 3 months ago… See the attached chart for how markets acted in past rate hike cycles. Seperately, Russia is putting preassure on Ukraine similar to how China is putting preassure on Taiwan. These conflicts are a complete wild card, but I don’t suspect it will escalate into a major conflict. As was the case in the cold-war, the only thing major conflict would assure is mutual devastation, and it seems all parties are aware of that.
How the S&P 500 performs in Fed rate-hike cyclesSource: Trust Advisory Services
Growth/Tech vs Value/Quality
You may have noticed that some of the companies being hit hardest are the ones that fall under the categories of DIY stocks, meme stocks, and tech stocks. These companies are ones with extremely stretched pirce:earnings ratios (PE.)
When a company has high PE, investors are paying for future revenue and when current revenue becomes less risky, which is what happens when interest rates are increased, the value of those future potential earnings lessens which means the high PE stocks become cheaper.
The tech-bulls argument against this is that those tech companies will simply charge more in the future, to which the question becomes… “Can consumers afford that?” See attached 6-month chart of Nasdaq vs DOW.
Investia Annual fee
Investia is reducing its annual nominee fee to $50 per client (per SIN # or business #.) Which is good for nominee account holders! The downside is it’s extending this fee to include client-name accounts. This means that starting in July, all clients will incur an annual $50 fee regardless on the type of account you have. This fee is being implemented to cover costs associated with the recent and ongoing technological improvements to the platform including Investia App, Wealthview, nominee improvements, ETF access, etc.
Some of these improvements can aid portfolio-performance, like the switch to nominee by providing easy access to new investment vehicles which may increase performance and/or reduce MER’s. Some of the improvements are purely peripheral like the app and Wealthview. Another positive thing about this change is that it reinforces the independence of our model. We aren’t incentivized by Investia to recommend specific investments or strategies. For perspective, this $50 will adjust a client rate of return by -0.025% on a $200k portfolio but makes all the difference in the technology we are able to deliver.
Additionally, that difference can be very easily made up if you elect to have your money in nominee accounts. The performance enhancement from going fee-based alone is +0.1% to +0.45% as a result of reduced MER’s and often without even changing your investments.
If you have any questions at all, are wanting to switch to nominee, or have any complaints about this change please call us at 250-716-7000 or e-mail firstname.lastname@example.org and we’ll do everything we can to keep you happy!
We hope everyone is doing very well! Covid conditions continue to improve, even Bonnie Henry is saying that the pandemic is becoming ‘endemic,’ which means essentially, we might be able to start treating COVID like a regular flu.A quick reminder as well to top up TFSA’s and RRSP’s for those doing those! Best wishes everyone, we look forward to seeing you soon.
If you check the market daily, it will be up 52.8% of the time. Monthly, 63%. Quarterly 68%. Annually, 77.8%. and if you check the market in any 20 year period, it’s never been down.
Beware of little expenses; a small leak will sink a great ship.
DISCLAIMER: This newsletter contains general information only and is intended for informational and educational purposes provided to the clients of Anne Marie Dryden & Hans Bischoff. While information contained in this newsletter is believed to be reliable and accurate at the time of printing, Anne Marie Dryden & Hans Bischoff do not guarantee, represent or warrant that the information contained in this newsletter is accurate, complete, reliable, verified or error-free. This newsletter should not be taken or relied upon as providing legal, accounting or tax advice. You should obtain your own personal and independent professional advice, from your lawyer and/or accountant, to take into account your particular circumstances. Commissions, trailing commissions, management fees and expenses all may be associated with ETF & mutual fund investments. The indicated rates of return are the historical annual compounded total returns including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any security holder that would have reduced returns. ETF’s & Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Please read the prospectus before investing. The views expressed in this message are not necessarily the views of Investia Financial. Exchange traded funds, mutual funds and exempt market products are offered through Investia Financial Services Inc.