Market Waves: Your Playbook for Profitable Moves
| August 2024 |
| Market Waves: Your Playbook for Profitable Moves |
| I hope you’re all having a wonderful summer, enjoying time with friends, family, and the sunshine!In this edition of our newsletter, we’re diving into the current market environment. As I was putting this together, it became clear that many of the themes and sentiments we’ve discussed before are resurfacing. The market’s recent turbulence serves as a reminder of the importance of staying informed and prepared, no matter the season. Market Whiplash: Here’s the Scoop Last week, the markets took a wild ride. It started with the Federal Reserve hinting at possible interest rate cuts for next year. Then came the disappointing U.S. jobs report—only 114,000 new jobs instead of the expected 175,000—which set off recession alarms.Global markets responded with panic. Japan’s Nikkei index nosedived over 12% in a single day—the worst drop since 1987’s “Black Monday”—before rebounding nearly 10% the next day. In North America and Europe, the S&P 500, S&P/TSX, and MSCI Europe all took significant hits, dropping around 6%, 4%, and 6%, respectively. The VIX, often called the market’s “fear gauge,” spiked, and bond yields dipped as investors braced for slower global growth. The S&P 500 had been cruising, with expectations of a smooth economic recovery. But as warned, bad news could trigger a selloff, and that’s exactly what happened. Since COVID-19, more traders have been betting on low volatility, but when the market got rocky, these bets backfired, worsening the situation. The VIX shooting up to 30 for the first time since October 2022 shows just how rattled everyone is. What’s Your Move?Expect more market twists and turns in the near term. But here’s the thing—don’t panic. Even with the recent selloff, global markets are still showing solid gains for the year. Market corrections are normal and notoriously hard to predict. Historically, the S&P 500 drops about 14% each year on average, yet it ends up in the green 75% of the time, with an average return of around 10%.Volatile times can actually present great opportunities for long-term investors. Since 1990, whenever the VIX spiked above 30, the S&P 500 has averaged a whopping 22% return in the following 12 months.This situation also reminds us why bonds should have a spot in your portfolio, especially as economies slow and interest rates dip. High-quality bonds can act as a safety net when stocks get shaky. If you’re playing the long game, now might be a prime time to scoop up some quality assets at a discount.As Warren Buffett wisely put it, “Be fearful when others are greedy, and greedy when others are fearful.” Canadian Real Estate vs. Stocks: The Surprising TruthMany Canadian investors believe real estate is the king of returns, and it’s easy to see why—Canadian real estate has been on fire for decades. Over the last 10 and 20 years, the Teranet-National Bank Home Price Index, which tracks house prices in major Canadian cities, has risen by 6.2% and 6.5% annually. But here’s the kicker: during that same time, the S&P 500 delivered returns of 12.8% over 10 years and 10.3% over 20 years, while the S&P/TSX Composite Index returned 7.0% over 10 years and 7.9% over 20 years.So, while real estate has done well, stocks have actually outpaced it in the long run. Sure, stocks might be a bit more of a roller coaster, but they tend to come out ahead over time.This shows that diversifying your portfolio with both stocks and real estate could be the smartest move for maximizing returns while managing risk.As Oscar Wilde once said, “A cynic is someone who knows the price of everything and the value of nothing.” As smart investors, it’s crucial to recognize the value in both real estate and stocks. Thank you for your continued trust and confidence, it is a pleasure to work with you, David Dodgson The Maccabee Financial Team |
