Investments

Volatility across markets remained elevated into the second quarter of the year. High inflation and Central Bank monetary tightening continue to be the dominant drivers behind it, but rising fears of a global recession also began to weigh on markets.  

The May Consumer Price Index (“CPI”) results were a disappointment to investors, business owners, central bank governors, and all of us as individual consumers. The latest inflation reading bucked the April trend of moderating price increases, and instead rose 1% over the prior month and is 8.6% higher than last year. Both equity and fixed income market reactions were sharply negative on the news, with interest rates moving up into the mid-3%’s and the S&P 500 officially falling into a bear market. The Federal Reserve Board was compelled to move more aggressively on its rate hiking program, announcing a 75-basis point increase this week, with the potential for the same next month. Chairman Powell emphasized that they needed to stabilize inflation to maintain economic stability, even if it meant giving back some of the significant strides made in bringing down unemployment.

In recent weeks, investors have watched as we entered an extended streak of volatility in markets. This turbulence has been exacerbated by inflation in the US, and concerns that the Federal Reserve will hamper growth in an effort to bring inflation under control. In this webinar our Chief Investment Officer, Christopher Moore, and Head of Research, Wayne Yi, discuss the recent market movements and major themes impacting the markets. During the 60-minute webinar, we examine the research driving our investment strategy and answer questions from the audience.

Capital markets experienced a highly volatile start to the year as inflation, the tightening of monetary policy, and war between Russia and Ukraine stoked investor concerns.

Equity markets have entered into correction this week with the S&P 500 falling over 11% year-to-date. This is being driven by two main factors: inflation and the anticipated Fed response of a more aggressive rate-hiking and balance sheet reduction program, and more recently the intensifying conflict between Russia and Ukraine that has turned into an invasion last night. We expect markets to further sell-off on this news today as the volatility index has spiked to 37, the highest in over a year.

Equities logged another tremendous year for returns in 2021, generating over 28% on the S&P 500, with a strong fourth quarter rally of 11%. We have seen significant resiliency in the index since the ’08 Global Financial Crisis. Even if you were to have started investing at the beginning of that year, which experienced a 37% decline, you would have annualized at an impressive >12% return to date. In fact, there was only one calendar year where returns were negative after the GFC (-4.4% in 2018), and only two other years (2011 and 2015) where returns were not in the double digits. It was easy to be an investor in this cycle. But…the Fed had been highly accommodative to risk assets during this time.

The pace of sell-off in equity markets accelerated today (Monday, January 24th), down almost 4% around lunchtime, on top of the 7.7% sell-off experienced in the first three weeks of this year. This move put equities formally in a stock market correction for the S&P, which follows the earlier sell-off in small caps and growth indices.

As markets are unsettled with heightened concerns over rising costs and a slowing economy, we believe that commercial real estate can play a critical role towards diversification and stability in client portfolios.