MARKetS REPORT – 2021 4th Quarter
MARKetS REPORT – 2021 4th Quarter
Dear friend,
I hope this email finds you in good health and spirit. I usually end my MARKetS REPORT with thanks and reminders of important events, but I thought I would mix it up a bit and start with a big THANK YOU to my clients for continuing to place their trust in me and my staff. We are here to help you and your family through both calm markets and financial uncertainty. We want to help you plan for your upcoming retirement and help you save for your child’s (or grandchild’s) education. We have also been extremely pleased that so many of you have referred your friends and loved ones to our services this year. Thank you, again, thank you!
I know that every year brings new challenges, but every year also brings another opportunity to add to your emergency / travel / disaster relief / new truck / new kitchen / extra-sweet retirement / never taxed investment account. I am talking about adding to a Tax Free Savings Account. As this is a new year, you may now add another $6000 to your TFSA. If you have missed an annual TFSA contribution since these came available in Canada in 2009 then the time to add is now. If you have not opened a TFSA here at Mandeville Private Client, call me to start one today. You could be sheltering $81,500 in an investment account where you will never pay taxes again.
For those still in the workforce, adding to your RRSP every year is perhaps the most important way of providing additional retirement income beyond your pension (if you have a pension). Please look for your RRSP contribution limit online at the CRA - My Account website or your last income tax statement from the CRA titled Notice of Assessment. If you are close to retirement then contributing the maximum allowed or at least trying to reduce this $ amount available should be your focus. The deadline to add to your RRSP for 2021 tax year is March 1, 2022.
Financial Headlines 4th Quarter 2021
The global economies continued to recover this quarter. There were of course concerns about inflation, supply chain disruptions and the omicron variant of COVID-19 before economic patterns stabilized through December. Corporate earnings in developed markets consistently beat expectations. From a regional perspective, the U.S., Europe and Canada fared better than Asia, where risks stemming from regulatory interventions in China dampened investor sentiment.
Two major international conferences took place in November. The Three Amigos summit between the U.S., Canadian and Mexican leaders was the first meeting of the three since 2016. The COP26 conference in Glasgow, U.K. saw representatives from 200 nations gather to discuss climate change.
In December one of the biggest acquisitions in Canadian banking history occurred. Bank of Montreal purchased BNP Paribas SA’s U.S. operation Bank of the West for US$16.3 billion. This is BMO’s largest ever deal, bringing it 1.8 million new customers and US$105 billion in assets. I like it when a large Canadian company can look across to our southern neighbours and write a cheque.
Also in December, the Bank of England became the first major central bank to raise interest rates, from 0.1% to 0.25%, since the pandemic struck. The bank said this was in response to inflation likely hitting 6% in early 2022, three times above its target.
In Canada, inflation headed north as well, hitting 4.7%, its highest level since 2003. The Bank of Canada noted it could be ready to start hiking rates as early as April 2022. It also announced it was ending its pandemic stimulus. In addition, the bank’s five-year mandate was renewed by the federal government. This included a new measure, to consider the labour market when making interest rate decisions and use the flexibility of its 1-3% inflation target range to support employment if necessary.
In the U.S. inflation climbed again, to 6.8%, its highest level in 40 years. The Federal Reserve Board in the US stated it expected inflation to begin cooling by the second half of 2022. It had previously projected in September a rate hike by late 2022, but this quarter hinted three raises were coming. In addition, the Fed announced it will double the pace at which it reduces its pandemic stimulus, from US$15 billion to US$30 billion a month, putting it on track to complete the program in Q1 2022.
Capital Markets
Equity markets started Q4 confidently and by the end of October, the S&P 500 Index, Nasdaq Composite and TSX Composite Index had posted their biggest monthly gains since November 2020. Markets then dipped over concern about inflation, supply chain disruptions, the omicron variant and speculation on when the Fed’s bond taper would begin. But through December the markets stabilized, with U.S. and Canadian equities ending 2021 significantly up.
The Canadian S&P/TSX Composite Index ended the 4th quarter up 6.5%, led by the Financials, Energy and Industrials sectors. In the US, the S&P 500 Index (the largest 500 public companies in the US) posted a 10.7% return in the 4th quarter led by Information Technology, Health Care, and Consumer Discretionary sectors. In global markets, the MSCI EAFE Index was also in positive territory with a 2.4% return in the last 3 months of 2021, led by the Financials, Industrial and Health Care sectors.
For the entire year of 2021, the S&P/TSX Composite Index increased 25.1%, the S&P 500 Index rose 27.6% and the MSCI EAFE Index was up 10.3%.
In bond markets, U.S. treasury yields declined slightly during the quarter on the Fed’s hawkish comments about ending its pandemic stimulus and raising rates soon to combat inflation. Eurozone bond yields slipped too after the European Central Bank revealed it would keep some stimulus and a rate hike in 2022 was unlikely, highlighting the economic recovery isn’t uniform across regions.
In foreign exchange markets, the Canadian loonie fell against the U.S. dollar as omicron cases were tallied and central banks discussed interest rates. However for the entire year, the Canadian dollar rose 0.8% to the US dollar and closed at 0.7913 CAD/USD. The Canadian dollar also rose 8.2% to the Euro and closed at 0.6956 CAD/EUR.
Oil prices also decreased but started to recover at year end as a result of declining U.S. crude and fuel inventories. WTI oil ended the year at $75.21 ($US/bbl.), up 53.6% in 2021. Natural Gas ended the year at $3.73 ($US/MMBtu), up 45.5%. Gold soared, slumped then surged again. For the year, gold as measured in US$ per ounce, closed down 3.6% to $1,829 per oz. Silver dropped 11.7% for the year, ending at $23.31 (US$/oz.).
In December 2021, the cryptocurrency Bitcoin experienced its biggest monthly drop since May 2021, and was down 19% for the month. However Bitcoin was still up from $40,957 to start 2021 and ended at $60,331 (I am quoting Bitcoin trading in $CND). If you can handle the high risk of cryptocurrency we have access to new exchange-traded crypto funds here in Canada and these investments can be a part of your investment portfolio (the high risk part!).
What we can expect now?
“I've had a lot of worries in my life, most of which never happened.” - Mark Twain
The emergency stimulus of central banks is ending so we might experience some near-term volatility as market conditions shift. While the omicron variant is concerning, it should not stop the global economy’s recovery. Economic fundamentals and corporate earnings remain healthy. Inflation will likely cool, as supply chain disruptions ease, but settle at a higher rate than we had pre-pandemic. It’s also inevitable the pace of growth will slow after the record breaking double digit returns of 2021.
Regardless of where we are in the market cycle, it’s important to take a disciplined approach to investing and stay focused on your long-term financial goals. This strategy helps you keep your emotions out of investing, typically buying high and selling low like many investors do.
We recommend you maintain a diversified mix of asset classes in your portfolio to maximize potential returns and minimize risk. Regularly reviewing and rebalancing your portfolio back to the target asset mix we created also ensures it remains aligned with your goals.
One more time
Once again, thank you for your continued trust in me and my team for the opportunity to assist you in working toward your financial goals.
Should you have any questions regarding your portfolio, or wish to set up a meeting either in person, by phone or online by Zoom, please do not hesitate to contact my office at 519-432-6744. My assistant Susan can be reached at extension 239 and I can be reached at extension 238.
Until we speak again, I hope you have a very happy, safe and healthy new year.
All the best,
Mark
Mark McConnell, BA (Econ.) DipBIS
Senior Investment Advisor, Branch Manager
Mandeville Private Client Inc. is a member of the Investment Industry Regulatory Organization of Canada and a member of the Canadian Investor Protection Fund.
Commissions, management fees and expenses all may be associated with investments in exchange traded funds (ETFs). Please read the prospectus before investing. ETFs are not guaranteed, their values change frequently and past performance may not be repeated.
This publication contains the opinion of the writer. The information contained herein was obtained from sources believed to be reliable, but no representation or warranty, express or implied, is made by the writer, Mandeville or any other person as to its accuracy, completeness or correctness. The information in this letter is derived from various sources, including CI Global Asset Management, Fidelity Investments, Google Finance, Globe and Mail, National Post, Wall Street Journal, Bloomberg, Reuters, Investment Executive, The Economist, Bank of Canada and Statistics Canada as at various dates. This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources and reasonable steps have been taken to ensure their accuracy. Market conditions may change which may impact the information contained in this document. Before acting on any of the above, please contact me for individual financial advice based on your personal circumstances.