Q2 2023 Capital Markets – Recap

Hello all,

Global equity markets can be very simple one minute and then very complex the next. They often go in unexpected directions after an economic event. Then later the same event will cause them to go in the opposite direction. If you like predictability, global equities can leave you spinning.

In 2022, even a brief whisper of an interest rate hike sent markets tumbling. When a rate hike happened, there was another tumble. It was a double whammy. 2023 is a very different animal. The same logic and math do not apply. The recent rate hike in Canada, that was twice the percentage as planned (+.5%), had Canadian equity markets go up shortly after. Huh? That does not seem right. Every business or economic textbook will tell you there is an inverse relationship between stock markets and interest rates.

In every major rebound since the 2003 tech bubble, I have been on the front lines. Each time the initial rebound is doubted as a rebound. We are a skeptical species and even more so when it comes to money. This may or may not be the beginning, but at some point, the next bull market will start. The pandemic rebound came quickly, only about 4 months after starting. There was similar sentiment – there is no way markets can do well…there is a pandemic! In 2020, markets had their best year since charging out of the 2008 financial crisis.

The same feelings and emotions are evoked during each rebound. Doubt. This is because it is difficult for the human brain to reconcile that the best returns come just after the worst returns. We all know this, history has proven it, but there is a disconnect between knowledge and implementation. The most salient explanation I have ever heard is, reported economic data is backward-looking (what happened) and stock markets are forward-looking (what is going to happen) Making future portfolio and financial decisions using only backward-looking data has proven to be disastrous for most.

Yes, markets and portfolios are positive year-to-date, but do not pour the champagne yet! Even if this 7-month portfolio lift is the sign of better things to come, it is never a smooth ride back to the top. There are numerous known economic issues to be worked through and, like always, it is prudent to expect the unexpected. Quite often the factors that set back markets arise from what we do not see coming.

A major factor, maybe even the largest factor, in maximizing portfolio returns is to not miss out on the large positive days in markets. In a recent issue of our firm’s newsletter, The Financialist, I delve deep into the subject of how one can maximize their long-term returns. I take an alternative approach in this case study. With so much emphasis on what to do to improve returns, I wanted to look at the single biggest factor that erodes portfolio growth – missing returns. (Article – Winning by not Losing)

If you would like to connect for a full review or a quick call to discuss your financial plans, you can reach Sum, Kayla or myself anytime. You can also schedule a convenient time directly in my calendar using our online meeting scheduling tool. 

Kind Regards,

Christian

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