Investment update

Weekly insight into the marketplace.

June 13 to 17, 2022

Inflation and economic-growth concerns shook the major markets

U.S. and Canadian stocks continued to trade lower on Monday, with the shock of May’s record-high U.S. inflation lingering over markets. The S&P 500 dropped 3.9% and entered bear-market territory, closing 22% down from its most recent record high, on January 3. The rout continued Tuesday, with stocks extending the slide and U.S. Treasury yields climbing to levels not seen in more than a decade. Anticipating the U.S. Federal Reserve’s (the Fed’s) interest-rate announcement mid-week, investors’ inflation concerns were compounded by increasing expectations for an aggressive rate hike (which happened Wednesday) that could trigger a recession. The Fed’s decision on Wednesday (details included below) removed some of the uncertainty and sparked a brief rally; momentum stalled, however, as markets digested the potential impact of the decision on overall economic growth. Tech stocks, which typically perform poorly after an interest-rate hike, led another day of significant declines on Thursday. Stocks ended mixed on Friday, but it was still one of the worst weeks for markets since the early days of the pandemic.

The Fed raised its policy interest rate by 0.75%

Despite downplaying the possibility of raising its key short-term rate by more than 0.50% (following its last decision, in May), the Fed increased it by 0.75% – the biggest increase since 1994 – on Wednesday. This was intended to rein in inflation. While not a complete surprise, especially after the latest U.S.-inflation reading showed an 8.6% rise in May (a figure that Fed Chair Jerome Powell called “eye catching”), investors didn’t take it as the prevailing possibility until Monday’s market sell-off. In his press conference following the decision, Powell said that “The next meeting could well be a decision between 50 and 75 basis points.” He added, “I don’t expect rate increases of this size to be common.” By year’s end, the Fed is predicting an inflation rate of 5.2%, as measured by the Personal Consumption Expenditures Index, which is the bank’s preferred gauge for inflation.

The crypto sector came under pressure

Cryptocurrencies and crypto stock generated headlines throughout the week, with Bitcoin prices dropping 15% on Monday (and 30% this month). This marked an 18-month low and a seventh consecutive day of negative performance. Conditions for the crypto sector were significant enough that major crypto exchange Celsius put a hold on withdrawals, citing “extreme market conditions.” This follows last month’s collapse of the Terra blockchain. Another prominent crypto exchange, Coinbase, announced that it was laying off 18% of its staff. In a blog post, the exchange’s president, Brian Armstrong, stated: “We appear to be entering a recession. A recession could lead to another crypto winter, and could last for an extended period.” This came after news, earlier in the week, that was also laying off 5% of its staff. Read “Decrypting cryptocurrency” for more information on this digital-asset class.

The stock and bond market
Index Close Week YTD
S&P/TSX Composite 18,930.48 -6.63% -10.80%
Dow Jones Industrial Average 29,888.78 -4.79% -17.75%
S&P 500 Index 3,674.84 -5.79% -22.90%
NASDAQ Composite 10,798.35 -4.78% -30.98%
10-year Canadian Bond Yield 3.41% 0.05% 1.98%
10year US Treasury Yield 3.23% 0.07% 1.72%
WTI Crude Oil US$/barrel $110.48 -8.29% 46.43%
Canadian Dollar US$ 0.7675 -1.88% -3.01%
Bank of Canada Prime Rate 3.70%

*Weekly performance ending June 17, 2022. Source: Refinitiv.

Key take-away

History shows that financial markets recover and trend upwards. While that’s easy to lose sight of when markets fall, like they did last week, remember that periods of uncertainty have happened before. Having an investment plan that’s geared toward your individual goals and objectives – and sticking to it – is the best defense against inevitable market downturns. Strategies for navigating market volatility are available on our Market View page, and a Co-operators financial representative is always here to help.

What’s ahead

Canadian inflation data (June 22): Canada’s annual inflation rate rose 6.8% in April, to its the highest level since January 1991. As in the U.S., inflation data has become the most-watched economic indicator for investors and economists. The Bank of Canada has already raised its key overnight interest rate three times this year, with more increases expected. Determining how fast inflation is rising will inform the bank’s decision on the degree and timing of any future rate increases.

Circle these dates

July 1 Canadian markets closed for Canada Day

July 4 U.S. markets closed for Independence Day

July 26 to 27 U.S. Federal Reserve meetings and statement

Get further analysis from our network of fund managers:

Fidelity: Is winter coming for the stock market?

Franklin Templeton: Turbulence ahead

Mackenzie: 2022 Mid-Year Outlook Report

Invesco: The U.S. Federal Reserve charts an aggressive approach in search of a ‘soft landing’

SEI: Big moves and prowling bears. What should you do?

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