04 March, 2022

Weekly Update - Volatility hits markets

Investors, already worried about rising interest rates, slowing growth and higher inflation, started the week by selling off stocks that could be sideswiped by sanctions against Russia for its belligerence against Ukraine.

 

Volatility continued over the course of the week, as stocks fluctuated between losses and gains as traders sold down equities amidst worries that the uptick in energy prices will likely spill into already high inflation readings.

 

On the other hand, energy stocks gained as global commodity markets surged to multi-decade highs after traders backed away from Russia, sparking anxiety that supply will fall short in everything from wheat to natural gas. Oil neared $120 a barrel, aluminum hit a fresh record and wheat rose to the highest since 2008.

 

On Wednesday, the Bank of Canada raised its overnight lending rate by a quarter point to 0.50%, marking the first time the central bank has raised rates since 2018, while highlighting how Russia's attack on Ukraine could weigh on global growth and lift commodity prices further.

 

The Bank noted the situation in Ukraine is a “major new source of uncertainty” that will lead to higher inflation, supply disruptions and impact consumer confidence, all of which will weigh on global growth.

 

Bank officials cited strong recent economic growth in Canada, resilient household spending despite the surge of the Omicron Covid-19 variant and inflation figures that are “well above” the Bank's target of 2.0% in the decision to raise rates. Markets are pricing in as many as six increases in borrowing costs over the next 12 months.

 

As markets continue to react and adjust to changing conditions, a continued focus on your long-term goals remains the best course of action. Investing through a well-diversified portfolio has historically provided the best experience through a combination of goals-based returns and reduced volatility over time.

 

  • Short-Term View: Despite a respite on Wednesday, markets were down for the week with volatility increasing due to the Russian invasion of Ukraine.
  • Longer-Term Thinking: Sticking to your long-term plan through periods of volatility is central to investment success.
  • Logic Over Emotion: Perspective is key. Focus on long-term goals and timeframes.

Our Experts Say...

 

“While our hearts go out to the people of Ukraine, our long-term thinking and our positioning in the portfolios isn’t changed by this situation. Previous major military and geopolitical events ranging from the Suez Canal crisis to the Crimea annexation have had little discernable impact on economic variables such as inflation, policy rates, etc., over the following six months.”

 

Corrado Tiralongo

Chief Investment Officer

IPC Portfolio Services

 

 

Over the past 10 years, markets are positive. Perspective is key. Markets do react to short-term increases in volatility – see the grey lines below – but the long-term trend is upward in the blue and red lines.

 

Source: Morningstar Direct. Growth of $100,000 shown. Total returns from Jan. 13, 2012 to Mar. 3, 2022, 2022 in local currency. Volatility is illustrated by the rolling 5-day minimum and maximum percentage change for each of the indices shown.