Caldwell Wealth & Estate Advisory Ltd. | Investment Focus | Issue 17 | Keep Looking Long Term - Caldwell Wealth & Estate Advisory Ltd.

Investment Focus | Issue 17 | Keep Looking Long Term

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October 23, 2023
  • Investment Focus - update

It’s fair to say that everyone is happy to see September end, at least from an investing standpoint. It was a month full of market volatility due to stickier inflation data and the U.S. Federal Reserve’s commitment to higher-for-longer interest rates. The markets had been expecting central banks to already be discussing rate cuts, but that hasn’t been the case. On top of that, September tends to be one of the worst months historically for the stock market, and this year was no different.

Near the end of September, the markets were looking toward the risk of a government shutdown, that ended up being kicked down the road.

It’s been a disappointing past two years, especially for Canadian equities and fixed income. Although the major US indices are way up this year, they still haven’t recovered their losses from 2022. Also, if you remove the top 7 stocks in the S&P500, the other 493 stocks are barely positive on the year. The returns have been heavily focused on a few tech companies with ties to Artificial Intelligence.

2023 October-Index returns

Why Have We Had Two Bad Years in a Row?

The year is not over yet and traditionally November and December are positive months in the market. However, investment performance has been disappointing the past 21 months. Inflation was stickier than predicted and required more interest rate increases this year. Until rates peak and we start getting rate decreases, returns will likely continue to be muted.
Although two years of negative returns is uncommon, corrections (although painful) are normal. Since 1980, the S&P 500 index has fallen an average of 14.3% in any given year but is positive 74% of the time with an average return of 10%. (See the chart below.)

2023 October-SP 500 Index returns 1980-current

Although markets haven’t been great these past two years, they are overwhelmingly positive more often than negative. Although it comes down to a coin flip daily, over the long term, the S&P500 generates positive returns more than negative ones.

2023 October-SP 500 returns last 50 years

When Will Rate Cuts Happen?

Based on recent data and analyst consensus we are likely at the peak of the tightening cycle for Canada with the first rate cut expected in the spring of 2024.

2023 October-Forecasted Central Bank Rates

Is a Recession Coming?

Whether it’s a soft landing or hard landing, most of the risk signals are tilted towards the downside, signalling a recession is in the works.  This does not mean we should be getting out of the market.  By the time a recession is actually called, the market has usually started its recovery.

2023 October-risk signals

GIC Rates are High. Should I Sell My Fixed Income and Buy GICs?

Now would not be the time to sell your fixed income.  It would be like selling your house when the market has bottomed.  Once rates stabilize (which appears to be soon), there is no longer downward pressure on bond prices (which is what caused their under-performance for the past 21 months).  When rates decline, bond prices will go up leading to gains in fixed income.  In addition, bonds outperform GICs nearly 80% of the time and it’s rare to have two consecutive down years for bonds.  Our recommendation is to stick with fixed income as 2024 is looking like a good year for that asset class.

2023 October-Bonds versus GICs

It’s rare to have 2 consecutive y ears of negative returns for bonds.

2023 October-US Treasury and US Credit Index

What should we do?

If you are taking money out of your investments currently or in the next few years, talk to us about incorporating a cash wedge strategy in your portfolio.  If you are more than a few years away from withdrawing from your investments, stay the course as usual.  The worst thing you can do is try to time the market or make decisions based on emotions.  Investing is not a short-term endeavour.  There are dozens of reasons every year to be scared of investing.  If we acted on all of them, we would never be invested.


Director, Wealth & Planning Services
Dan Lambert, CFP, CIM, BBA, CHS, RIS
Director, Wealth Planning Services | Caldwell Wealth & Estate Advisory Ltd
Investment Advisor | Credential Securities

Along with helping people prepare for their financial futures through solid financial planning, Dan curates and manages the investment options for the firm.

Read Dan's full bio »

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