2022 Recap

2022 was a very challenging year. Stock, Fixed Income, and Real Estate markets were all down considerably. In the US, the S&P 500, the broadest benchmark for stocks, was down over 18% - the worst year since 2008. In Canada, the stock market was down approx. 6%. The declines were driven primarily by the significant rise in interest rates – which central banks increased in response to higher-than-expected inflation. In late summer, inflation reached above 8% and 9%, in Canada and the US, respectively.

Inflation

We think it is helpful to review the history of inflation. In Canada, since 1946, inflation has averaged around 3.75%. This includes the period of double-digit inflation during the 1970s-1980s. Then, from 1991 to 2021 (30 years!) inflation averaged 2%. Inflation appears to have peaked in the second half of 2022. While there is still uncertainty regarding the path of inflation, our view is that it will continue to stay above the central bankers’ 2% target through 2023 and beyond.

Plan for 2023

As was the case in 2022, we think that inflation and interest rates will be the key financial market drivers. Unemployment rates, geopolitical issues and corporate profitability will also be closely watched. As discussed in our October letter, due to higher interest rates, the acronym TINA (There Is No Alternative) to stocks, is no longer relevant. With short-term bonds paying 5%+, there continue to be alternatives to stocks. We are content to hold these bonds in balanced portfolios as we navigate these challenging times.

Pearlstein Wealth Update

As some of you may know, both Carmen and Alicia will be growing their families this spring! We are very excited for both of them! We are also very excited to announce our newest team member, Sanam Kahlon. Sanam joined us this month from another group at RBC. He is looking forward to the opportunity to meet many of you in the near future!

Wishing everyone a happy and healthy 2023!

Pearlstein Wealth