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Stock markets have been beset by a host of anxieties in recent weeks, which have heightened volatility and contributed to sustained selling pressure that culminated with broad losses for the week and for the month on most of the major indexes.
Top of the worry list for investors is whether central banks’ newfound religion on fighting inflation will lead to a recession. Alrealdy the U.S. economy has contracted, with a decline of 1.4% in gross domestic product in the first quarter of the year. The commonly accepted measure of a recession is two consecutive quarters of declining growth. It seems unlikely that the U.S. Federal Reserve Board will soften its monetary policy anytime soon, as the the all-items consumer price index rose to 8.5% in March. The Federal Funds rate was set at 0.25%-0.50% in March, and consensus expectations are for a more aggressive tightening policy in coming months, as Fed Chair Jerome Powell said last week that a half percentage point hike is “on the table” for May. Historically, a string of rate hikes has often resulted in recession and a stock market correction or bear market as investors reevaluate future earnings expectations downward, revaluing stock prices in the process.
The leading edge of this process may already be happening, as some of the bigger names among the mega-cap technology stocks are seeing some unaccustomed red ink. Shares of Amazon.com Inc. saw a 13% decline on Friday as it posted its first quarterly loss in seven years. Netflix Inc. has seen its share price plummet from a high to about US$699 last November to a current US$199, a 72% erosion in value, as subscribers abandon the streaming service in droves. Even mighty Apple Inc. took a hit this month as worries about its operations and supply-chain problems in China, which is in the grip of a draconian government-imposed Covid lockdown, outweighed the company’s solid first-quarter sales and profit numbers, which met or exceeded estimates.
Additional fear factors include the continuing Russian war against Ukraine and heightened tensions throughout Eastern Europe as Russian President Vladimir Putin has now cut off gas supplies to both Poland and Bulgaria. Some see this as a direct threat to other NATO members that rely on Russian gas imports, primarly Germany. Rising inflation, China’s Covid lockdowns, and surging energy prices (as tighter sanctions hit Russian oil exports) have all contributed to selling pressure on U.S. markets through April.
The S&P 500 Composite Index lost 3.6% on the week, for a 9.1% loss in April. The index is down 13.3% year to date and is in correction territory. Similarly, the Nasdaq Composite Index took the blows from selloffs in the mega-cap tech stocks, retreating 3.9% on the week for a total loss of 13.5% on the month. The Nasdaq is down 21.2% year to date, and is down 23% from its November high, putting it into bear market territory.
In Canada, it’s a somewhat different story, as first-quarter growth has surprised to the upside, with the economy posting 4.5% year-over-year GDP growth in February, with some forecaters predicting as much as 5.6% growth for Canada’s GDP in the first quarter. And with headline inflation raging at a 5.7% annual rate in March, this also gives the Bank of Canada much more of a cushion to raise its target overnight bank rate by 50 basis points from its current 1.0% level at its next policy-setting meeting.
Toronto’s stock benchmark, the S&P/TSX Composite Index followed its U.S. counterparts into the red for the week, losing 2.2% on the week for a 5.5% loss in the month. Significantly, the index is down only 2.2% year to date, reflecting the heavier weighting of energy and materials, as well as financial issues in the index, sectors that have held up better than technology, which has been such a key influence on U.S. market activity. Crude oil, which has played such a significant role in supporting the S&P/TSX was up 2.3% on the week, up another 3.8% in April, cementing a 38.4% year-to-date advance. Gold, meanwhile, retreated 1.8% on the week and is down 2.9% on the month, for a marginal 1.5% year-to-date gain.
* Invesco launches two new global balanced funds. Invesco Canada Ltd. on April 25 launched two new mutual funds, expanding the firm's global balanced mutual fund line-up:
* IFIC announces fund statistics for March. The Investment Funds Institute of Canada (IFIC) on April 22 announced investment fund net sales and net assets for March 2022.
Mutual fund assets totalled $2.002 trillion at the end of March 2022. Assets increased by $4.1 billion or 0.2% compared to February 2022. Mutual funds recorded net sales of $0.9 billion in March 2022.
ETF assets totalled $324.7 billion at the end of March 2022. Assets increased by $7.5 billion or 2.4% compared to February 2022. ETFs recorded net sales of $4.6 billion in March 2022.
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