The downturn in the markets this week could benefit from some context.
The TSX is down 7.5 per cent over the past month, just behind U.S. losses of 7.4 per cent and Emerging Markets losses of 7.13 per cent. Developed International Markets are weathering the pessimism with slightly more resilience down only 5.2 per cent since mid-April.
If we move back to the past six months, the TSX is down just over 7 per cent due to heavy commodities exposure, while the U.S. and Developed International are down around 15 per cent, with Emerging Markets shouldering losses of 19.35 per cent.
The essential question here, of course, is how this could be happening to equities in an environment where supply chains are supposedly normalizing after the worst of the COVID pandemic. Shouldn’t the reopening of the world’s industrial complex bode well for public businesses as factories come back online and vaccinated customers venture outside in search of products and services? Are equities in store for a black swan-type event in the near future, lacking any clearer explanation?
The reasonable answer is no and the justifications to stay in the market over the long term are many:
- Quantitative tightening: The Bank of Canada and the U.S. Fed are in the process of lightening their balance sheets after loading up on treasuries, corporate bonds and mortgage-backed securities to flood the market with capital during the beginning of the pandemic. The effect of this, alongside rising interest rates to combat inflation, is a decrease in risk appetite and downward pressure on equities, especially those of companies that rely on favourable borrowing costs to grow
- Supply chain woes: While we have undoubtedly come a long way since the initial fearful days of the pandemic, the virus and its many mutations are still taking lives around the world and causing shipping inefficiencies that end up raising consumer prices. This is a surmountable situation for firms established enough to command pricing power but is weighing on those without enough capital to reroute their goods to market
- Russia’s invasion of Ukraine: Over the past two months, we have been witness to how the ongoing and unprovoked war has taken tens of thousands of innocent lives and driven certain commodity prices to all-time highs, among them oil, wheat and fertilizer. Once we consider how essential oil is to run the global economy, it is no surprise that markets are feeling widespread pain as firms have no option but to absorb the extra energy costs
- Stimulus and quantitative easing: While central banks in North America and abroad are currently focused on taking capital out of their overheating economies, they spent the early phase of the pandemic buying financial assets and issuing stimulus funds to citizens to ensure they could meet their basic needs. The effect of this stimulus – coupled with the momentum of post-pandemic reopening – began to foster inflation to its presently elevated levels, which cuts into companies’ bottom lines and affects stock prices
The net result of these factors has been to nudge investors toward companies with solid fundamentals and punish those whose performance depended too heavily on idealistic expectations. Examples on the downside include year-to-date trends in Netflix, Peloton, Shopify and Robinhood, while the upside shows how value stocks, which have suffered mightily over the past decade, are having their moment in the spotlight.
This is to say that recent market pessimism, though unsettling, is both explainable and completely normal. Just like in past crises, certain investors have let their fear get the best of them and sold at a discount, while other more steely investors are stepping in to take ownership of the shares at attractive prices.
The key point to remember, if one is to place fear to one side and weather this downturn, is that, although it may feel like it, markets are not going to zero. A simple look back into history supports this claim, as stocks have found their way back up after much worse than the present moment, including The Great Depression, World Wars I and II, and the 2008 housing crisis.
After over a decade of uninterrupted returns, we are being tested as investors with a tense period for our portfolios where there is likely much more red than black on the screen. But rest assured that, once valuations normalize, prosperous times will return, only to be followed by the next crisis and the next recovery ad infinitum as good businesses continue to produce value for shareholders.
With these timeless investing lessons in mind, let us turn to the top 5 stories keeping our readers busy over the past week.
Saturn Oil & Gas (TSXV:SOIL) reports record production in Q1 2022
Highlights include record production averaging 7,499 boe/d, up from 233 boe/d in Q1 2021, an increase of 3,118 per cent.
Saturn also generated record adjusted fund flows of C$13.5M compared to $0.1M in Q1 2021.
Kevin Smith, VP of Corporate Development, sat down with Coreena Robertson to discuss the results.
Saturn Oil & Gas (SOIL) is down by 3.96 per cent over the past week trading at $2.67 per share as of 1:00 pm EST.
Trillion Energy (CSE:TCF) provides SASB drilling program update
The company has made significant advances in its SASB drilling program, which is scheduled to commence in July.
Production will likely coincide with historically high natural gas prices.
CEO Art Halleran spoke with Coreena Robertson about the news.
Trillion Energy (TCF) is down by 2.86 per cent over the past week trading at $0.34 per share as of 12:48 pm EST.
Siyata Mobile (NASDAQ:SYTA) delivers FirstNet-ready SD7 devices
Siyata has announced that its SD7 ruggedized device is now certified and approved for use on FirstNet.
FirstNet, a public safety communications platform, allows first responders to communicate with one another regardless of the situation.
Daniel Kim, VP of Corporate Development, sat down with Folake Ekwubiri to discuss the news.
Siyata (SYTA) is down by 4.55 per cent over the past week trading at US$1.04 per share as of 1:16 pm EST.
Collective Mining (TSXV:CNL) announces additional assay results from the Olympus Target
Collective has unveiled high-grade gold and silver channel samples from the Olympus Target at the Guayabales Project in Colombia.
The company believes it has discovered a vein and a broad mineralized system.
Executive Chairman Ari Sussman joined Coreena Robertson to discuss the results.
Collective Mining (CNL) is down by 8.57 per cent over the past week trading at $3.20 per share as of 1:04 pm EST.
Blackrock Silver (TSXV:BRC) begins Tonopah West expansion & step-out program
Blackrock has commenced a fully funded 10,000 m drill program on its Tonopah West Project in Nevada.
The project’s mineral resource estimate establishes it as one of the highest-grade undeveloped silver deposits in the world.
President and CEO Andrew Pollard sat down with Folake Ekwubiri to discuss the exploration initiative.
Blackrock Silver (BRC) is down by 4.11 per cent over the past week trading at $0.70 per share as of 1:00 pm EST.
Join us next Friday afternoon for a look into a new investing topic and the week’s top trending stories on The Market Herald Canada.