Portfolio Strategy

Boxing Day Sales Arrive Early

Our view: Recent developments concerning COVID-19, in particular the Omicron variant, coupled with a major policy shift by the US Federal Reserve (FED) and ongoing pressure from tax-loss selling season, have resulted in an uptick in uncertainty and market volatility. We expect volatility to remain elevated heading into 2022 and suggest investors remain tactical and take advantage of “Boxing Day” sales before they end!

Buy 1 get 2 free: Omicron + the Powell pivot + tax-loss selling season. It’s been a remarkable year for equity investors in Canada, the US, and even across the pond in Europe, with major indices in each of these regions up +20% on a year-to-date (YTD) basis. However, as we warned in our recent Portfolio Strategy Report “Mo Money, Mo Problems”, the double-digit equity market performance this year should not be expected in the years to follow, including in 2022. Rather, we expect a more normalized return profile of high single-digit to low double-digit returns for the S&P/TSX and the S&P 500 index in 2022, and view the past year’s performance as a reflection of the extraordinary policy environment due to the COVID-19 pandemic (e.g., US$17 trillion in global fiscal stimulus, near-zero interest rates, very accommodative monetary conditions, etc.). Many of these measures/programs have ended and/or are expected to be phased-out/normalized in the years ahead. However, while tax-loss selling season has likely resulted in some downside pressure for equities, developments surrounding COVID-19, specifically Omicron, and a major pivot by the Fed, have resulted in much more volatility than investors have been accustomed to over the past year.

Keep a lookout for bargains heading into year-end and into 2022. While uncertainties remain, including the path of the economy, which continues to depend on the course of the virus, the stickiness of inflationary pressures (e.g., labour shortages, supply chain disruptions, commodity pressures, etc.), and policy normalization efforts by central bankers globally, we still view equities as the most attractive asset class on a risk/return basis versus bonds, cash, and even commodities. We suggest investors use periods of volatility (expected to continue into 2022) to remain selective and add to high-quality positions within their portfolios. We maintain the view that we are in the mid-phase of the business cycle with more runway still ahead for the markets/economy

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