Here are a few areas that investors could be thankful for in a tough year (emphasis on few):
Canadian equities: When we sketched out the inflationary tightening playbook earlier in this cycle, the TSX (and especially the quality dividend-paying names) flashed as a good place to hide. But when you get used to the perennial underperformance of Canadian stocks, it becomes somewhat of a believe-it-when-you-see-it situation. Well, we’ve now seen it. The Canadian index is down a modest 4.4% on the year, or closer to flat on a total return basis. That compares to the 15.5% decline in the S&P 500. As it stands now, this is on track to be the biggest relative outperformance by the TSX in 17 years.
Energy stocks: The early-year surge in oil prices helped the sector at a time when most others were getting knocked down by Fed tightening. While WTI has backed seriously off its high—trading below $80 this week from above $120 in the summer—the sector is still holding onto gains on both sides of the border. Canadian energy stocks are now up 34% on the year, while the U.S. group is up a massive 66%.
Cash and GICs. Say what? With your typical 60/40 stock/bond portfolio getting hammered this year in historic fashion, there really hasn’t been anywhere else to hide. But, for the first time in ages, there is a compelling option out there thanks to Fed and BoC rate hikes. In Canada, for example, one-year GICs are now readily available with a yield at or slightly above 5%—you probably have to go back to 2007 to find such an offer. And, fully-accessible cash accounts are yielding in the 3%-to-4% range. Now if only inflation wasn't eroding all of it.
|Table 1 - Market Performance|
|Source: BMO Economics, Bloomberg|