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June 20, 2022 | Bear Market Update

Danielle Park

Portfolio Manager and President of Venable Park Investment Counsel ( Ms Park is a financial analyst, attorney, finance author and regular guest on North American media. She is also the author of the best-selling myth-busting book "Juggling Dynamite: An insider's wisdom on money management, markets and wealth that lasts," and a popular daily financial blog:

Starting a new week with US markets unplugged today offers a moment to review the bear market progress to date. From their most recent highs:

    • S&P 500 -23%
    • Nasdaq -32%
    • Russell 2000 small caps -32%
    • TSX -14%
    • Cdn $/USD -7.8%
    • Canadian financials -17%
    • Canadian oil and gas stocks -15%
    • US oil and gas stocks 20%
    • US Banks: 32%
    • Asset manglers managers 37%
    • Consumer finance 29%
    • Canadian REITs -22%
    • industrial REITs -33%
    • office REITs: 35%
    • retail REITs 27%
    • home furnishings: 44%
    • autos 46%
    • airlines 44%
    • gambling 57%
    • retailers 37%
    • consumer electronics: 47%
    • hotels/cruise lines/resorts 34%
    • trucking 32%
    • rails 24%
    • software/services 32%
    • tech hardware 28%
    • restaurants 24%
    • Bitcoin -70%
    • copper –19%
    • aluminum 36%
    • nickel –47%
    • silver -21%
    • gold -11%
    • gold miners -27%
    • food price index –9%
    • oil (WTI) -12%
    • lumber –60%
    • steel rebar 25%
    • consumer staples –15%
    • utilities -15%
    • homebuilder stocks42%
    • hi yield bonds (JNK) -16%
    • Cdn preferred shares -13%
    • Cdn investment-grade bond index -18%
    • US 20-year bond index -33%

Theoretically, 60% equity and 40% bond benchmark accounts are -20% year to date (assuming 100% reinvestment of all income with no fees or withdrawals). In reality, many portfolios are faring worse because they came into this bear market with equity weights greater than 60%, leverage, little cash, and things like perpetual preferred shares and low-quality debt and funds (with no maturity dates) as fixed income (aka reaching for yield).

It’s worth noting that the S&P 500 has never been down this much over five months without a recession recognized within 6 to 12 months of the market peak (which was January 2022).

Recessions have always killed inflation and commodity prices. Stocks typically don’t bottom until sometime in the final third of the economic decline, when central banks are back to easing monetary conditions, the masses are liquidating in losses, and government bonds are rising sharply.

Today, a recession is not yet confirmed; most central banks are trying to tighten aggressively, cash balances are low, risk allocations are still near historic highs, and government bonds are not yet rebounding.

Remember, the average S&P 500 decline accompanying a recession has been 42% over 16 months, and the TSX has roughly tracked along for the ride. In their peak to trough decline this cycle, US stocks and corporate debt might be halfway, Canadian stocks may be a third, while government bonds are due for a renewed period of strength.

Patience, cash and investment discipline will define full-cycle outcomes, as always.

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June 20th, 2022

Posted In: Juggling Dynamite

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