State of the Markets & Some Interesting Charts

Markets have had quite a rocky start to 2022. Since basically the first trading day of the year, there has been a strong downtrend with markets quickly entering correction territory (drawdown of 5%). Adam Watson wrote a great note for some more context around corrections: Market Corrections: Anomaly or Reality?

However, there’s hope for March that both the weather and markets will be “in like a lion, out like a lamb”. Over March Break, markets quietly put together a strong week alongside some sunshine and warm weather on St. Patrick’s Day.

What's behind the market correction? As you're no doubt aware, there’s no shortage of concerning headlines around the world. Let's take a look at some of the key narratives in markets alongside some charts that provide a bit of historical context.

Headlines, in a way, are what mislead you, because bad news is a headline, and gradual improvement is not. - Bill Gates

Markets Are Down and Could Go Down Further
1. This is possible. However, as the below table illustrates, corrections have usually set the stage for stronger, above average returns in the future.
2. Lesson: Mean reversion works both ways: strong performance will eventually weaken, just as weak performance will eventually strengthen.

_{Source: National Bank CIO Office. Data via Refinitiv.}

War & Geopolitical Conflict in Ukraine
1. Below is a table showing what military actions have historically meant for markets.
2. This is (thankfully) a small sample size and the economic and market environments surrounding each conflict vary widely, so take this with a grain of salt.
3. Lesson: Devastating events such as the one being witnessed in Ukraine are a very unfortunate part of life. This table shows that markets do eventually recovery from the initial shock, as unsettling as it is.

_{Source: National Bank Investments “Crossing the Rubicon”.}

The Bank of Canada & US Fed Have Both Started To Raise Interest Rates To Fight Inflation
1. Why are markets skittish on rate hikes? There’s often a lot of uncertainty around them and it will not be different this time.
2. Four less talked about reasons why:
  1. We had very few of them in our history making it a less predictable experience.
  2. Entire generations of new investors never really had to live with any as adults.
  3. The media hype around them have never been louder.
  4. Nobody can predict what their impact it will truly have on inflation and on the markets.

_Source

While there's a lot of information included in these charts, they exclude perhaps the most important data point: the "sleep at night" factor. If you're experiencing any disruptions there please get in touch as our team is always available to chat further about your specific situation.

As a closing thought, always remember everything seems bigger up close!

_Source:_{Let The Market Worry For You - The Irrelevant Investor}