Commentary

Executive Summary
 

Third Quarter 

Global equity markets remained under pressure in the third quarter. The S&P/TSX Canadian index shed another 2.2% in the last three months and is down 13.1% since the beginning of year. In the US, the S&P 500 index lost another 5.3% and is down almost 25% in US $ since January. The lone positive for Canadian investors was the weakness in the Canadian dollar that muted the negative returns for US dollar denominated assets. Weighing on equity markets were Central Banks that continued to aggressively raise interest rates in response to mounting inflation, the prospect of slowing global economic growth, the dragging on of the war in Ukraine, and the outlook for a difficult winter ahead in Europe as energy costs continue to soar.

 

On the fixed income side, both the Bank of Canada (BoC) and the Federal Reserve (Fed) raised rates by 75 bps (0.75%) in September. We are witnessing the fastest tightening pace since the mid-1990s, and both Central banks have forewarned that: “interest rate will need to rise further” to contain inflation. The challenge for Central Banks is to balance properly their dual responsibility to fight inflation but to maintain financial stability at the same time. As a consequence of these rapid rise in interest rates, bond returns have been negative globally. Our fixed income portfolio, which is generally comprised of low duration corporate bonds and Guaranteed investment Certificates (GICs), has been largely insulated from this significant setback in the bond market.

 

As we head into the last quarter of 2022, we remain confident with the quality of our current equity holdings. Our Model Portfolio has exhibited good resiliency in the current context. Although it declined 1.2% in the third quarter, it continues to perform well considering the steep decline in equity markets so far in 2022. While absolute performance is negative year to date, down 5.8%, the relative performance remains quite strong when compared to North American equity markets, which are down double digits over the same period.

 

Although it is always challenging to stay the course in a down market, history and experience serves to remind us that it pays off to leave the emotional component aside and to instead focus on the fundamentals of the companies held. Clients’ investment portfolios are structured based on individual needs and objectives, with sufficient liquidity reserves to address those income needs and avoid selling assets at depressed levels. 

 

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Investment Checklist
 

1. Make 2022 RRSP contribution as soon as funds are available. The maximum is 18% of 2021’s earned income to a maximum of $29,210.

2. Make 2022 $6,000 TFSA contribution as soon as funds are available. The maximum if you have never contributed is $81,500.

3. Make $2,500 annual RESP contribution per child to benefit from the 30% combined government grants.

4. Review asset allocation to make sure it is in line with current objectives and risk tolerance and inform us of any special income need for this year.. 
 
 
The calculation of performance data set forth herein has been prepared by the author as of the date hereof and is subject to change without notice. The author makes every effort to ensure that the contents have been compiled or derived from sources believed to be reliable and contain information and opinions, which are accurate and complete. However, BMO Nesbitt Burns Inc. ("BMO NBI”) makes no representation or warranty, express or implied, in respect thereof, takes no responsibility for any errors and omissions which may be contained herein and accepts no liability whatsoever for any loss arising from any use of or reliance on this report or its contents. Information may be available to BMO NBI or its affiliates that is not reflected herein. This report is prepared solely for information purposes. Please note that past performance is not necessarily an indicator of future performance. The indicated rates of return are gross of fees or commissions. Individual results of clients' portfolios may differ from that of the model portfolio as fees may differ, and performance of specific accounts is based on specific account investiture. The noted model portfolio portfolio may not be appropriate for all investors
 

  • 11 Sources: Bank of Canada, Bloomberg, BMO Capital Markets