Skip to main content

The first quarter is in the books and, judging by the results, investors are uncertain about the present and worried about the future.

It’s not surprising. The first three months of 2022 have given us a lot to digest. War in Ukraine. The rapid rise of inflation. Sky-high oil prices. Central bank tightening. A flattening yield curve. A pandemic that doesn’t want to quit despite the best efforts of governments to ignore it. No wonder people are nervous.

The S&P 500 dipped into correction territory at one point during the quarter. It rallied but was still down almost 5 per cent for the period after another sell-off on March 31. The Dow also was down more than 10 per cent at one point, before finishing the quarter lower by 4.6 per cent. Nasdaq was the hardest hit, ending the quarter down 9.1 per cent. It was the worst three months for the major U.S. indexes since the start of the pandemic in the first quarter of 2020.

The S&P/TSX Composite Index fared better, ending the first quarter with a gain of 3.1 per cent. Energy stocks were the main contributors, with the S&P/TSX Capped Energy Index advancing 36.2 per cent. Gold and mining stocks also contributed, with the S&P/TSX Global Mining Index posting an advance of 22.5 per cent. Financials, the largest sector on the TSX, finished slightly above break-even at 1.4 per cent. As in the United States, information technology stocks were hammered, dropping 20.7 per cent.

Bonds offered no refuge from stock-market volatility. The FTSE Canada Universe Bond Index was down almost 7 per cent in the quarter. FTSE’s Long-Term Bond Index dropped 11.7 per cent and the Real Return Index lost 9.3 per cent. Even short-term bonds lost ground, slipping about 3 per cent.

So, what happens now? I expect financial stocks to perform better over the rest of the year. They started the year slowly, consolidating the strong gains made in December. But rising interest rates favour banks and insurance companies. That will show up on the bottom lines as the year progresses and will likely spark more dividend hikes.

Conversely, gains in the energy sector will almost certainly slow. We’ve seen a one-year advance of about 90 per cent in the S&P/TSX Capped Energy Index. That is obviously not sustainable. I’m not looking for a plunge in energy stocks, just a levelling off.

Gold has had a strong run, and spot prices for the precious metal have been extremely volatile. But gold funds and stocks should continue to do well as long as uncertainty remains high.

If you’re looking for turnaround potential, try the S&P 500 Information Technology index. It was down 8.6 per cent in the first quarter, but the quality stocks it contains are almost certain to recover. The Invesco S&P 500 Equal Weight Technology ETF (RYT-A) is one option to consider.

As for bonds, forget them for now. Their time will come around in due course.

Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters. For more information and details on how to subscribe, go to www.buildingwealth.ca/subscribe

Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.