With inflation reaching 7.7 per cent in May, the highest in 40 years, recessionary fears are running rampant.
The May figure, up from 6.8 per cent in April, was due to broad-based price increases, with gasoline leading the way. Add ongoing COVID lockdowns and supply chain disruptions to the picture, as well as geopolitical turmoil from Russia’s invasion of Ukraine. It’s no wonder that investors are unsure about when prices will peak, economic growth will pare back, and portfolio changes may be in order.
J.P. Morgan expects the Bank of Canada to raise its benchmark rate by 0.75 per cent in July to 2.25 per cent, but it isn’t ruling out a full per cent hike.
The forecast comes as Canadian banks, the most significant component of the TSX, dropped by over 20 per cent from February’s record high on worries about decreased profits moving forward. One driver of reduced profits may be rebuilding loan loss provisions, which are a prime necessity as rising prices and rising rates hamper post-pandemic reopening momentum.
One sector where consumers are likely to feel the pain is housing, which, according to RBC, required 54 per cent of pre-tax household income to cover all property-related costs in Q1 2022, with the bank expecting its estimate to worsen over the short term. The figure stands at an astounding 74.9 per cent in Toronto, up 5.5 per cent from Q4 2021 and up 16.7 per cent from Q1 2021.
Another is commodities, where prices are dropping as of late due to uncertain future demand accelerated by Russia-Ukraine and China’s stringent COVID lockdown policy. Copper hit a 16-month low on Thursday, wheat is down almost 20 per cent for the month, while WTI dropped from US$120 earlier this month to around US$107, as investors balance the threat of a global economic slowdown with summer driving trends and higher-than-normal prices due to disrupted supply.
Whether or not the Bank of Canada triggers a recession, the takeaway for The Market Herald Canada’s investor community is to stay true to timeless investing principles to quell the possibility of sleepless nights.
Portfolio risk checkup: Your investment time horizon, financial goals and psychological makeup should be the ultimate determiners of your asset allocation. This may mean higher exposure to fixed income, which is offering more attractive yields as rates rise, to preserve capital for near-term spending. Conversely, you may have decades in the market ahead of you, which may call for an abundance of risk assets such as equities to maximize your long-term return. Wherever you fall on the spectrum, the key is to formulate a plan you can stick with regardless of market conditions.
Normalizing volatility: It’s important to internalize how odd the 2010s were in terms of offering largely uninterrupted returns. Canada has experienced five recessions since 1970 and a dozen since 1929, with each lasting on average between three to nine months as spending and investment declined, sentiment eventually improved, and markets resumed their overall trajectory up and to the right. This doesn’t even account for the dozens of downturns that fell short of the technical definition of a recession, which is two straight quarters of declining GDP.
This is to say that, despite umpteen instances of temporary turmoil, the TSX has managed to return approximately 9.6 per cent over the last 50 years ending December 31, 2021, which is sufficient evidence to stay invested and turn your disciplined plan of dollar-cost averaging into fulfilled financial goals.
Being greedy when others are fearful: Finally, besides maximizing your time in the market, any active or passive investor will be best served by taking advantage of depressed asset prices, especially if those assets are quality businesses trading below a conservative estimate of their intrinsic value. In practice, this requires allocating toward value when neighbours, family and the financial media are the most cautious about you doing so, such as at the present moment, with the reasonable expectation that the global capitalist system will eventually readjust and rebound like it always has.
With a firmer foundation in place to weather trying economic times, let us now turn to the top 5 stories keeping our readers engaged over the past week.
Empower Clinics (CSE:CBDT) launches Medisure brand in the U.S.
Empower Clinics has rebranded its medical diagnostics laboratory business in the U.S. to Medisure Laboratory.
The new brand marks the company’s evolution toward providing access to the largest hospital networks with laboratory services in Texas, the cruise ship industry, as well as film and TV productions.
Chairman and CEO Steven McAuley sat down with Sabrina Cuthbert to speak about the update.
Empower Clinics (CBDT) closed up by 37.5 per cent over the past week trading at $0.11 per share.
Eat Well Group (CSE:EWG) reports Q1 2022 results
Eat Well grew its assets by 8.6 per cent for the quarter from $59,627,414 to $64,769,938 as of February 28, 2022.
Its cash position also improved from $545,976 to $5,552,018.
President and CEO Marc Aneed spoke with Sabrina Cuthbert about the results and the company’s future outlook.
Eat Well Group (EWG) closed up by 4.76 per cent over the past week trading at $0.22 per share.
Tocvan Ventures (CSE:TOC) restarts drilling at its Pilar Au-Ag Project
Tocvan Ventures has restarted drilling at its Pilar Project in Sonora, Mexico.
Resumed phase III drilling will focus on priority exploration targets including potential parallel trends and trend extensions.
CEO Brodie Sutherland joined Sabrina Cuthbert to discuss the company’s return to the field.
Tocvan Ventures (TOC) closed down by 5.49 per cent over the past week trading at $0.86 per share.
Mullen Group (TSX:MTL) declares monthly dividend
Mullen’s Board of Directors declared a monthly dividend of $0.06 per common share.
The dividend is payable to shareholders of record as of June 30, 2022, and will be paid on July 15, 2022.
Senior Corporate Officer Joanna K. Scott sat down with Sabrina Cuthbert to discuss the news.
Mullen Group (MTL) closed up by 3.03 per cent over the past week trading at $11.55 per share.
EasTower Wireless (TSXV:ESTW) signs agreement with leading tower operator
EasTower Wireless has signed a master service agreement with one of the largest tower operators in the world.
The client has also invited the company to support its mandates in the Tennessee markets of Nashville, Louisville and Knoxville.
President and CEO Vlado Hreljanovic spoke with Sabrina Cuthbert about the new business.
EasTower Wireless (ESTW) closed down by 30.77 per cent over the past week trading at $0.045 per share.
Tune in next Friday afternoon to dive into the week’s top trending stories on The Market Herald Canada.