Should Investors Worry About Stock Market Fluctuations?

Since the start of the year, the Dow Jones has fallen by 9.25%, the SP 500 by 13%, and the Nasdaq by 21.5%. The tech-heavy index also had its worst day since 2020 on Thursday with a 5% drop.

Are soaring inflation, rising interest rates and lingering problems in supply chains pointing to a stock market crisis?

Three experts invited to the show Facts first alternate between optimism and pessimism on the issue. However, they agree on one point: “rebalancing” your portfolio could be wise in the current situation.

A “long-term” crisis

Georges Ugeux, former international vice-president of the New York Stock Exchange, evokes a perfect storm for the global economy – a tornado from which it will be difficult to recover.

If we look at the impact of the war in Ukraine, the very high and very badly managed inflation and the rise in interest rates, it is clear that we are heading towards a difficult period to manage, because we are going to to take into account the impact that these different elements have on each other.

The one who is today president of the firm Galileo Global Advisors asserts that the current situation is even more worrying than the financial crisis of 2008 insofar as it is a crisis more global.

Whether in energy or because of supply problems, inflation is felt around the world. A consequence that Georges Ugeux attributes to the decisions of central banks and Western governments.

According to the expert, central banks erred during the pandemic by keeping interest rates too low for too long, which had the effect of boosting demand for goods and services, without a corresponding increase in supply.

Georges Ugeux qualifies the interest rate increases as requiredbut D’insufficientsince war and supply chains are phenomena that fall outside the areas of intervention central banks.

The public authorities which would have the power to intervene have relatively limited leeway, he recalls. The investment banker accuses states of spending too much money, too fast during the pandemic.

” Of course, [les gouvernements] are going to take emergency measures, but it is time to ask questions about the completely irresponsible way in which States have spent and used the debt. »

He judges inevitable the ensuing stock market correction, after a decade of stock market growth.

Governments, he said, lived on a cloud believing that this growth would continue. It is now quite the opposite that could happen, according to Georges Ugeux, who predicts a long-term crisis .

This is why the latter not sure if now is the right time to enter the markets.

As for those who already have investments, he recommends that they consult their advisor to avoid having assets too speculative. Now is definitely the time to have a good balance between stocks and bonds.

A conjuncture rather than a storm

If they tend to agree with this recommendation, Jean-René Ouellet and Fabien Major do not share Georges Ugeux’s gloomy prognosis on the state of the economy, at least not in the Canadian context.

Mr. Ouellet, who is an investment strategist at Desjardins, tempers the latter’s fears about the rising cost of living. If commodity inflation is expected to still some time left goods inflation should return to target level as Canadians use up their excess savings, he said.

He also notes that the stock markets have indeed suffered shocks over the past ten years. To claim otherwise, as Georges Ugeux suggests, is tantamount to put your head in the sand.

You have to remember that in 2018, we had an American president who put up tariff barriers against everyone, especially against China, Germany and other European countries, we had an SNP 500 that was failing […] It is an inherent part of the markets to face shocks.

” We had shocks, there will be other shocks, that’s for sure. »

Fabien Major, Financial Wealth Advisor at Assante, agrees.

It is inaccurate to say that there has been continuous growth for 10 years, he says, citing as an example the Canadian recession caused by the fall in the barrel of oil in 2015 or the contraction of the economy caused by the pandemic in 2020.

Both analysts believe that Canada’s economic problems are more ad hoc than structural.

Definitely, there is conjunctureadmits Mr. Major.But [pour] a perfect storm, there would probably have to be more unemployment, there would probably have to be higher interest rates, and there would have to be no profitability within companies. But this is not the case.

Jean-René Ouellet second this analysis, citing as an example the unemployment rate in Quebec, which reached a historic low in April.

There has hardly ever been a recession without job losses [or] currently almost no employer we speak with is willing to fire an employee.

He adds that the profitability of Canadian companies has been revised upwards since the start of the year, despite the perfect storm mentioned by Georges Ugeux. And if it’s true that Ottawa ran up deficits astronomical during the pandemic, the performance of the Canadian economy means that the weight of [sa] debt does not increase.

Despite economic difficulties, Jean-René Ouellet believes that we must remain calm.

He recognizes that the stock market corrections of around 12 to 20% recently observed are likely to worry investors with a more cautious profile, he recommends that investors remain balanced and diversified in their portfolio, and above all manage [leurs] performance expectations.

He points to interest rate hikes that generate better returns on bonds.

The money I invested in bonds at less than 1% at the start of the year, I can now invest it at 3.5%, 4%.

It’s not exciting, but it’s more interesting.