Markets are down. The Nasdaq is in bear territory and the S&P is in correction territory (at the time of writing). This is the direct result of the Russian invasion of Ukraine. Not surprisingly, investors are nervous about what will happen to their wealth. I’ve certainly been getting calls from clients unsure about what to do. Here’s what I’ve been telling them: Don’t panic. This too shall pass. The world has weathered terrible events in the past and come out the other side. We will again.
In my 25-year career as an investment advisor, investors faced Y2K, a worldwide financial collapse, and a global pandemic. In each case, downturns were followed by rebounds and even better returns. Russia’s war against the Ukraine is wrong and creating a tragic humanitarian crisis, but in terms of the markets, investors should view it as a temporary event – because it is. Yes, markets are down – for now – but they are not going to collapse. You are not going to lose all your money. Your wealth may drop for a period of time, but once the war is over, regardless of the outcome, stability will be restored and returns will tick up, in my opinion. For those fearing a global nuclear war, then market performance won’t matter.
Uncertainty causes markets to fall. Even before Russia invaded Ukraine, the markets were experiencing volatility because the central banks in Canada and the U.S. announced they would be increasing interest rates and reducing stimulus support. Higher interest rates are the primary tool to curb inflation, which is at record highs in both countries. While this made some investors nervous, it’s important to understand that the fact the Bank of Canada and the Federal Reserve are raising interest rates means the economies in both countries are strong.
Statistics Canada’s labour report for February showed just how strong. Unemployment had fallen below pre-Covid 19 levels for the first time since the start of the pandemic, down to 5.5%.1 The Office of the Parliamentary Budget Officer projects an economic rebound and robust performance in the second half of 2022.2 All of this is good for the markets and those benefits will be realized once the war and geopolitical tensions end.
Energy prices are high now because demand is greater than supply. Worldwide sanctions against Russia, a major global producer of oil and natural gas, mean Canada, the U.S. and Europe are looking for other suppliers and working to become more energy self-sufficient – a positive going forward. When the Russia-Ukraine situation becomes more stable, those prices, which are also driving up inflation, will drop, in my opinion.
For investors, the current downturn in the market is an opportunity to buy good-value stocks at a deep discount. This is called buying the dip and it’s exactly what I’m doing. Specifically, there are great deals in the technology sector that would not have happened otherwise. This will help position you for when the markets start to climb again.
My best advice: Stay calm. Understand what’s driving the current market downturn. Talk to your advisor about buying opportunities. If you’re still worried, remember what history has taught us: World events can cause markets to fall, rebound – often very quickly – and then go even higher than they were before the event. I think what we are experiencing today will play out in much the same way.
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