Sustained Volatility

Hello Everyone,

We have seen the worst start to a new year since 1980 and virtually all asset classes have seen negative activity.

In our last letter, we spoke about the start of the Russian invasion of Ukraine and the effects it would have on the market. What we foresaw has largely been accurate and the only thing we did not see coming was Russia’s willingness and stubbornness to take heavy losses to sustain a prolonged conflict. The conflict is not the sole reason for the volatility we are seeing but since it has drawn out it is one of the contributing factors.

The market weakness can be attributed to the existence of

  1. Inflation and rising interest rates
  2. Covid related lockdowns in China contributing to more supply chain issues.
  3. The continued conflict in Ukraine and its potential impact on the global economy.

All of these issues are culminating into a fear of recession looming in people’s minds.

But, not everything is bad. The economy and employment remain very strong and company earnings are largely increasing. As it stands now we do not think we will see a recession in the short term. But, due to these offsetting factors we are in a push pull environment where market strength is met with selling pressure and fear. We think that until one of these negative factors we listed is showing signs of improvement we will continue to see increased volatility.

During this volatility the declines have not been uniform across the entire market. We have seen the majority of the declines in companies that have the weakest balance sheets and in companies that are marginally profitable or not profitable at all. Many of these kinds of companies are down by half or more in many cases.

We continue to feel extremely confident in our Smart Income approach to our portfolios which emphasizes buying and holding high quality companies that are profitable, pay dividends, and have strong balance sheets. These companies in particular have declined much less than the more aggressive investments, and many are now at very attractive entry points.

Usually the market is most volatile before things turn and we are monitoring to see if this recent violent volatility is a sign that the bottom is near.

If you have any questions about your specific situation feel free to reach out and we can walk through your specific situation together.

Tchabushnig Wealth Group.

This communication has been prepared by Alan Tchabushnig and expresses the opinions of the authors and not necessarily those of Raymond James Ltd. (RJL). Statistics, factual data and other information are from sources RJL believes to be reliable but their accuracy cannot be guaranteed. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. It is intended for distribution only in those jurisdictions where RJL and the author are registered. Securities-related products and services are offered through Raymond James Ltd., member - Canadian Investor Protection Fund. Insurance products and services are offered through Raymond James Financial Planning Ltd., which is not a member - Canadian Investor Protection Fund.