I had an appointment with one of my doctors the other day. After we finished discussing my health, he asked me about where to invest now. Clearly, he is an intelligent and well-educated person, but he is at a loss to understand where the markets are going.
The day before, I received a call from a friend. She was visiting a family member who wanted to ask me a question. Could she put her on the line? The question was almost exactly the same as the one from the doctor: what the heck is happening and what does it mean for my money?
I did a straw poll among my social media followers on what they are doing with their money right now. Nothing scientific, just a small opinion sample. The question was as follows.
With interest rates rising and inflation at its highest level in many years, are you more or less likely to consider investing in:
- GICs
- Stocks
- ETFs
- High-interest savings accounts
The response indicated the deep confusion gripping investors right now. A total of 37.1 per cent of respondents said they are more likely to choose GICs. Exactly the same percentage opted for stocks.
Assuming this is anywhere near reflective of the general investing population, this suggests an almost even split between aggressive and conservative investors. The conservatives are worried and want to put their money somewhere safe, even if the returns fall short of inflation. Those in the aggressive camp appear to be of the view that the stock market is near its bottom – or in fact may have passed it.
The market’s performance in September and October gives some cause for optimism. September, which is historically the worst month for stocks, came through as advertised. The TSX was down 4.6 per cent for the month. The S&P 500 lost 9.3 per cent.
Then came October, traditionally the most feared month because of its association with the crash of 1929. No worries this year, however. The TSX rebounded by 5.3 per cent, recovering all of September’s lost ground and then some. The S&P 500 gained 8 per cent.
What will the rest of the year bring? Historically, November and December have been good for stocks, according to Yardini Research, which publishes reports that track the performance of the S&P 500 on a monthly basis since 1928. In fact, December is tied with April as the second-best performing month on average (July is No. 1).
Of course, that doesn’t mean stocks can’t lose ground in November-December. But they are less likely to do so.
The historical results boost the case for the bullish investors who selected stocks in my mini poll. But I’m unconvinced. On Wednesday, the U.S. Federal Reserve Board raised its key rate by another three-quarters of a percentage point, and chair Jerome Powell suggested in his press conference that investors may be getting ahead of themselves by anticipating a pause in rate hikes.
CNBC quoted Yung-Yu Ma, chief investment strategist at BMO Wealth Management, as saying: “Chairman Powell made it clear that his bias is to err on the side of overtightening rather than undertightening in order to avoid the risk of inflation becoming entrenched.”
The S&P 500 lost more than 100 points in the two hours of trading after the Fed decision was announced.
Here at home, Finance Minister Chrystia Freeland told us on Thursday that growth next year, if there’s any at all, will be a paltry 0.7 per cent. A recession, albeit mild, is a distinct possibility.
I think there is still too much uncertainty in the economy to do more than nibble around the edges of the stock market with any new money you have available. My suggestion (conservative, I know) is to put any investable cash into a six-month GIC and review the situation when it matures. The best six-month rate I could find last week was 3.75 per cent (annualized) at Tangerine Bank.
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Gordon Pape