"It is not the strongest of the species that survives, nor the most intelligent. It is the one most adaptable to change"
We’ll get to our destination but there will be pit stops along the way
Many of us have fond memories of piling into the car and embarking on a road trip to a desired destination. There were often ‘pit stops’ along the way—those that we anticipated, like stopping for meals or gas, and those that were unexpected, like road construction or a flat tire. Despite these short-term setbacks, we would inevitably reach our destination.
The investment landscape and our lives during the past couple of years have looked a bit like that of a road trip, complete with detours and bumps along the way. Last March marked the one-year anniversary of the pandemic, and global markets continued their recovery through 2021 fueled by vaccine rollouts, economic reopening, and strong consumer demand. In the second half of the year, rising inflation and supply chain issues made headlines, and in the last weeks of December, COVID-19 cases soared once again due to the Omicron variant.
As we settle into a new year with the realization that it will take some time yet for the world to get a handle on the pandemic and facing the possibility of rising interest rates, it’s natural to feel nervous about the state of things. But the growth and inflationary environment remains favourable for us as investors.
Growth likely past peak but remains resilient. Global growth and earnings likely peaked during the summer of 2021. Although economic activity is expected to slow and will face continued challenges including supply chain disruptions, overall, the global manufacturing environment remains in a resilient position. Companies are predicting that production will be higher a year from now and historically, a strong manufacturing sector provides a healthy environment for earnings.
Inflation enduring but softer. The Consumer Price Index (CPI), which measures changes in prices over time, is currently at 6.8%. It’s expected to decrease but will likely remain above 3% through the summer. Inflation will continue to be a concern throughout 2022 but receive nowhere near the level of attention it’s receiving today.
Stock markets enter the “normalization” phase. In this next stage of post-recession recovery, earnings growth will slow but remain strong. Growth in the 10-15% range is very possible for U.S. equities while S&P/TSX earnings are expected to come down from recent elevated levels but remain attractive through the first half of 2022. Based on year-over-year earnings growth, returns in the upper single digits/low double digits are likely for the S&P 500 Index.
What do we need to do? Throughout the pandemic a smart strategy has been to avoid overreacting to daily news and to continue to invest in strong, high-quality companies that are well positioned for the continued recovery. That approach is still wise today. A correction in the near term is entirely possible but we need to take these ‘pit stops’ in stride and focus on the road ahead to make sure we arrive at our destination.
NEW ON-LINE FEATURE! Share on-line account information using the new Family Access
This is a new way for you to share account information with trusted family members on Manulife online access. It enables you to share views of each other’s account details, including the value of current holdings and activities.
Getting started is simple. When you invite a family member, they will receive an email with a personal invitation link. Following the instruction, they will accept the connection and have the option to share view-only access to their own accounts if they choose.
Here are some resources to help you access this new feature:
- Family access overview (video)
- Send an invite on Family access (PDF)
- Accept an invite on Family access (PDF)
As always, if you have any questions or comments, please don’t hesitate to reach out.