A few topics our newsletter touches on this month:
- Our Thoughts: Forward Outlook 2023 - Focus on Getting Paid
- Reminder: TFSA & RRSP Contributions
- Other Links: Disruptors podcast, Global Insight (monthly)
Our Thoughts: Forward Outlook 2023 Focus on Getting Paid
To start the year, we want to take the opportunity below to summarize some key thoughts that have been discussed in our firm’s flagship investment publication: The Global Insight 2023 Outlook. As always, it is worth a read.
As mentioned in the feature article, a U.S. (and global) recession is likely on the way. Historically, recessions eventually arise after interest rates move into restrictive territory, which is the case today. The likelihood of one occurring over the next year is high given the signals emitted by key leading indicators. The exact timing may be harder to assess, but our firm’s view is that an economic contraction should arrive in North America around mid-year.
There are short and long-term takeaways to keep in mind. In the short-run, recessions, particularly those in the U.S., have typically coincided with “weaker markets”. And so, investors should expect further bouts of stock market volatility next year. Moreover, negative news and weak sentiment can become pervasive during these kinds of periods, so it often requires a level of discipline and longer-term thinking.
Fortunately, when reflecting on the long-term, there are a few simple but important lessons. First, market weakness often occurs in advance of a recession (which largely explains 2022 markets). Secondly, recessions on average don’t last too long, and the mere anticipation of a recovery is often all that is needed to begin a new bull market. Moreover, as time passes, any investment impact from recessions tends to be widely overshadowed by the gains that follow thereafter. Overall, recessions have generally presented themselves as mere blips on the longer-term upward trajectory of stock markets.
Despite the backdrop, a silver lining has emerged in fixed income. While bond returns have been historically weak over the past year, it’s important for investors to focus instead on forward looking prospects. Bond yields are now at highs not seen in well over a decade. As a result, the return expectations from fixed income going forward are meaningfully higher than they have been in quite some time. Importantly, their diversification properties and ability to add ballast to portfolios may re-emerge as an important benefit for portfolios with the arrival of recession-like conditions.
The year 2023 should bring its fair share of challenges. Nevertheless, we remain confident in our portfolio management approach which continues to lean on maintaining an asset allocation that is aligned with your financial plan, rebalancing accordingly, and consistently reviewing all positions to assess quality and appropriateness. We expect income will be an important source of returns in the year ahead, and seek to explore opportunities in areas like fixed income and dividend oriented equities a.k.a. focus on getting paid while we wait.
By the numbers (December): The TSX was down 4.9% while the S&P 500 was down 5.8% (down 4.8% in Canadian dollars). The Europe, Australia & Far East index (EAFE) was up 1%, while the Emerging Markets index was down 0.6%. The tech-heavy NASDAQ was down 7.8% in Canadian dollars. The Canadian bond universe was down 1.3%.
By the numbers (2022 calendar year): The TSX was down 5.8% while the S&P 500 was down 18.1% (down 12.2% in Canadian dollars). The Europe, Australia & Far East index (EAFE) was down 10.8% while the Emerging Markets index was down 16.8%. The Canadian bond universe was also down 11.4% due to significant rate hikes since Spring 2022.
Reminder: RRSP & TFSA Contribution Room
Please let us know if you are planning on making a contribution and indicate whether it will come by cheque/online transfer or if you want us to move money between your DS accounts. Key figures and dates to know before making your contributions:
- New TFSA contribution room for 2023 has increased to $6,500. Contributions by cheque should be made payable to RBC Dominion Securities.
- Cumulative TFSA maximum contribution limit for an individual (if over 18 as of 2009) is $88,000.
- Personal RRSP and TFSA contribution limits can be found on your Notice of Assessment from the Canada Revenue Agency (or online through your MyCRA account).
- Maximum RRSP contribution limit for 2022 is 18% of earned income to a maximum of $29,210 less any pension adjustment. For the new year of 2023, the maximum will be $30,780.
- 2022 RRSP contributions must be made by Wednesday, March 1st, 2023.
Other Interesting Listening/Reading
- Disruptors (Season 5) - A dynamic ~30 min RBC podcast co-hosted by John Stackhouse and Trinh Theresa Do about reimagining Canada’s economy in a time of unprecedented change.
- To check out our Global Insight Monthly for December find the link here.
Regards,
Mark, Peter, Sarah, Corinne and Nathalie
Gallivan Wealth Management
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