"Many equity indices suffered a correction, bond yields climbed sharply; however, market volatility creates opportunity." - Philip Petursson

The five key drivers of performance in
Q1 2022

What a difference three months can make. The first quarter of 2022 was a stark contrast to the way markets ended 2021. Many equity indices went through a correction, bond yields climbed sharply (meaning bond prices fell), while central banks began raising rates.

Perhaps the most shocking event in the quarter was the invasion of Ukraine by Russia, which is first and foremost a humanitarian tragedy. The devastation by Russia against Ukraine was also a key catalyst to the volatility in equity, fixed income and commodity markets.

Despite this weaker start to the year, the equity outlook for the rest of 2022 has improved. Equity valuations are more attractive following the first quarter decline. Corrections are a part of a normal functioning equity market. While uncomfortable, corrections outside of a recession have historically presented an attractive entry point for investors.

Canadian equities

The S&P/TSX Composite Index advanced during the quarter largely due to the energy sector. The price of crude gained 33% during the quarter, owing to tighter global supply and geo-political risk. The information technology sector lagged as tech stocks were weighed down by the rising rate environment.

U.S. equities

Excluding the bear market of 2020, the S&P 500 Index suffered its first correction since 2018. Despite being down as much as -13% during the quarter, the S&P 500 Index managed to regain more than half the losses by quarter end. Not surprisingly, the most expensive stocks were the hardest hit. The NASDAQ Composite Index saw greater downside by as much as -21% with the higher valuation tech stocks being marked down in the face of higher interest rates. By the end of the quarter only the energy and industrials sectors managed gains.

International equities

International equity markets fell during the quarter, on weaker growth in China and the increased risk and disruptions from the war in Ukraine. Weaker Chinese stock performance, in part due to the partial lockdown of Shanghai, weighed on the emerging market index. Europe, with its reliance on Ukraine and Russia for its energy imports, was negatively impacted by the war.

Fixed income

Bond markets were down during the quarter as higher inflation drove yields higher along with central bank expectations. Canadian, and global fixed income benchmarks were down sharply as yields rose. U.S. high yield and investment grade corporate bonds fell as well during the quarter. The Bank of Canada, U.S. Federal Reserve and Bank of England each raised their respective benchmark rate during the quarter, while signalling a series of increases for 2022 in a bid to tamp down inflation.

Economic outlook

For the remainder of 2022, growth is very likely to moderate from the rapid pace of 2021 to a more normalized environment. North America shows decent economic momentum within the manufacturing, housing and labour markets. But Europe is at risk of a recession stemming from the Ukraine war, while China’s lock downs have slowed growth.

Yet overall, aside from the uncertainty of geo-political risk, the outlook for the remainder of 2022 looks promising.

This commentary is published by IG Wealth Management. It represents the views of our Portfolio Managers and is provided as a general source of information. It is not intended to provide investment advice or as an endorsement of any investment. Some of the securities mentioned may be owned by IG Wealth Management or its mutual funds, or by portfolios managed by our external advisors. Every effort has been made to ensure that the material contained in the commentary is accurate at the time of publication, however, IG Wealth Management cannot guarantee the accuracy or the completeness of such material and accepts no responsibility for any loss arising from any use of or reliance on the information contained herein. Commissions, fees and expenses may be associated with mutual fund investments. Read the prospectus before investing. Mutual funds are not guaranteed, values change frequently, and past performance may not be repeated.

This commentary may contain forward-looking information which reflect our or third party current expectations or forecasts of future events. Forward-looking information is inherently subject to, among other things, risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed herein. These risks, uncertainties and assumptions include, without limitation, general economic, political and market factors, interest and foreign exchange rates, the volatility of equity and capital markets, business competition, technological change, changes in government regulations, changes in tax laws, unexpected judicial or regulatory proceedings and catastrophic events. Please consider these and other factors carefully and not place undue reliance on forward-looking information. The forward-looking information contained herein is current only as of 03/31/2022. There should be no expectation that such information will in all circumstances be updated, supplemented or revised whether as a result of new information, changing circumstances, future events or otherwise.

© Investors Group Inc. 2022.

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