Your 2023 Investing Outlook Part II: The Video Edition

Good morning. The numbers are in and — surprise, surprise — 2022 was terrible. The bellwether S&P 500 fell 19.4 per cent on the year, its worst year since 2008 and fourth-worst since it started in 1957. The blue-chip Dow Jones industrial average dropped 8.8 per cent, while the Nasdaq and Russell 2000 growth-oriented indexes plummeted 33 and 21.6 per cent, respectively.

The good news for Canadians is that we tend to have a strong home bias when it comes to investing and the S&P/TSX composite was only down 8.66 per cent in 2022, better than all four of the major American indexes, though its 5.22 per cent slump in December was bettered by the Dow. A major reason for Canada’s outperformance is its lack of technology stocks and the outsized positive effect of energy companies, which increased their dividends and share buyback activity so their stocks held up well. 

That’s one reason why many expect Canada to outperform the United States again in 2023. Portfolio manager Martin Pelletier also believes the energy sector is still one to watch even though oil prices dropped to US$70 near the end of the year because of “severe” supply constraints. “The Chinese economy is starting up, that’s going to be a surge in demand, maybe up to three million barrels a day,” he tells the Financial Post’s Larysa Harypyn in a video interview. “You have a supply situation where global inventories are at record low levels.”

In addition to China’s reopening, Ninepoint Partners LP partner Eric Nuttall tells Harypyn that the Strategic Petroleum Reserve release has ended and the European Union embargo on Russian crude is taking hold, all of which leads him to believe oil will once again top US$100 in 2023.

Overall, however, Pelletier thinks there’s probably a little bit more downside than upside for equities in the months to come, because the market hasn’t yet priced in a recession judging by analysts’ expected earnings growth numbers. As ballast for your portfolio, he’s a big fan of structured notes and is also looking at long-term bonds and Treasuries for the longer-duration trade instead of the tech space, which could further sell off if those recessionary risks ever come into play. 

“The widely held belief is that the place to be in a recession is to be invested in companies, whether that’s in stocks or in bonds, that are better suited to withstand that and to not be invested in companies whose profits are largely dependent on a vibrant economy,” says portfolio manager David Kaufman. “People won’t give up their cellphones in a recession, but they might give up their subscriptions to Netflix.”

Kaufman tells Harypyn we could be in for another “painful year” if inflation continues to stay high and central banks keep raising rates to try to keep it under control, so investors should be prepared for lacklustre returns. Protecting capital trumps trying to make money at this point, he adds.

There seem to be more bearish observers than bullish. Economist David Rosenberg says 2023’s market results will depend on how the lagging effects of all those central bank rate hikes affect the economy, specifically home prices, consumer confidence, spending and net worth, and corporate results. “This will still be a very challenging year for the equity market,” he tells Harypyn. “Corporate earnings have never gone up in a recession, so I think there’s another down leg in the coming six to 12 months.”

If you really need a bullish view, the Bank of America Corp.’s sell-side indicator, which aggregates Wall Street strategists’ asset allocation views, fell 33 basis points in December and is now 1.5 percentage points from the level that’s historically tied to a good buying opportunity. “One reason we are more constructive on equities in 2023 is the big drop in sentiment during 2022,” the bank’s strategists say. “It has been a bullish signal when Wall Street strategists were extremely bearish, and vice versa.”  

That sounds a lot like Warren Buffett, who once said investors should be “fearful when others are greedy, and greedy when others are fearful.” But, to paraphrase another tidbit, the tide still seems to be going out, so don’t get caught without your bathing suit.

Andy Holloway, editor of the FPI and Financial Post Magazine, and senior features editor of the Financial Post. If you have any quips, queries or comments, get in touch at [email protected].

Here’s how investors can turn last year’s mistakes into their future advantage

The medical profession is known for steadily building on past successes and failures. The investment world, not so much. But Financial Post columnist Tom Bradley, ever the optimist, believes investors can entrench the many lessons they hopefully learned last year into their knowledge bank. After all, you’re guaranteed to need them again soon enough.

PAY ATTENTION TO HISTORY

Commodities trading boom raises fear of big losses among retail investors

Retail investor interest in commodity futures and the largest commodity-focused investment funds surged in 2022 as prices rose while equities and bonds tanked. But some market participants and analysts fear retail traders are unwittingly wading into a highly volatile market dominated by specialized players.

BOOM, THERE IT IS

8 big stocks you’ll want to watch in 2023

Watching market barometers such as, say, Walmart Inc. for the health of the mass consumer, and JPMorgan Chase & Co. for financial stability, is a good idea, but not very interesting. The Financial Times’ Robert Armstrong has a bit more fun with his list of stocks to watch, from Meta Platforms Inc.’s transition into a value play to the consumer appetite for Chipotle Mexican Grill Inc.’s pricier fast food in a recession.

KEEP AN EYE ON THESE

FP 500 — The most authoritative survey of corporate Canada: The 2022 FP 500 is the only national ranking of the country’s public, private and Crown corporations, making it an indispensable research tool with vital data on Canada’s top companies across all sectors. Order your copy here.

Iconic retailer Reitmans looks to the next generation

Having emerged from 19 months of bankruptcy protection, Reitmans Canada Ltd. is hoping it can grab consumer attention with its mid-priced clothing. Chief executive Stephen Reitman is getting some help from his daughters to do just that, and it seems to be working so far. The family-controlled company’s revenues in the first nine months of its fiscal year rose almost 25 per cent from a year earlier and its stock has nearly tripled in the past six months.

SHOPAHOLICS TO THE RESCUE

Jay Powell is making it up as he goes along to justify tightening at any cost

The United States Federal Reserve, and other central banks, have been raising rates to combat what they perceive is persistent inflation. But economist David Rosenberg takes Jay Powell to task for using and then abandoning various metrics to find any reason to keep on tightening. He says it’s not about the economy or consumer inflation; it’s about asset inflation and financial conditions. In short, it’s all about taking the punch bowl away.

PUNCH BUGGY

That’s the amount Bed Bath & Beyond Inc.’s stock fell on Thursday after the home goods seller announced it might not be able to continue as a going concern, bringing another United States retail chain to the precipice of bankruptcy. The Union, N.J.-based company said it is pursuing myriad strategic alternatives, including restructuring debt, selling assets or filing for bankruptcy-court protection, but “these measures may not be successful.”

Bullshift: How optimism bias threatens your investments and finances

Unwarranted optimism can be detrimental to the health of your finances and investment portfolio, but we unknowingly take risks every day by entrusting both to advisers who are biased, but don’t know it. Certified financial planner John De Goey‘s new book, Bullshift: How Optimism Bias Threatens Your Finances, explores the hidden relationship between bias and the financial markets and what we can do about it. 

BURNING WITH OPTIMISM’S FLAME

FP Answers will return next week. In the meantime, if you have an investing or personal finance question, hit us up at [email protected].

Massive TFSA recontribution mistake puts taxpayer in CRA’s crosshairs

A tax-free savings account is pretty simple, but there are some nuances that can land taxpayers in trouble if they don’t follow the rules, especially around recontributions and transfers. Tax expert Jamie Golombek details one man’s plight after an “honest mistake” caused a massive 2020 overcontribution in the eyes of the Canada Revenue Agency to the tune of $112,000.

IGNORANCE IS NO DEFENCE

Why you need to reconsider your TFSA investing strategies in 2023

Tax-free savings accounts have been a go-to savings vehicle for millions, but some significant changes in the market, including rising interest rates and debt levels, mean investors and savers may want to reconsider how they use these accounts in 2023. Certified financial planner Jason Heath explores the four main strategies that may require a rethink.

NO LONGER A SLAM DUNK

Bad news for Tesla Inc. shareholders: The sagging electric-vehicle maker is set to pay more for the lithium it needs after Piedmont Lithium Inc. amended their deal to a variable price from a fixed one in the face of a relentless price rally for the metal. Analysts have also cut their share-price forecasts for Tesla after it missed expectations for car deliveries last quarter.

Good news for Canadian oil fans: The oilsands may be the “last barrel standing” as the world shifts away from fossil fuels, says a C.D. Howe Institute report, because producers will survive as long as the price of Western Canadian Select remains above $40 per barrel, while conventional producers elsewhere require higher prices.

Bad news for Apple Inc. shareholders: The iPhone maker’s market value on Tuesday dropped below US$2 trillion for the first time since June amid fears that production problems in China ruined holiday sales. Apple briefly hit a market value of US$3 trillion a year ago.

Good news for future pensioners: Markets had a rough 2022, but 79 per cent of Canadian defined-benefit pension plans ended the year in a surplus position on a solvency basis compared to 61 per cent at the end of 2021, according to the latest Mercer Pension Health Pulse. 

Bad news for consumer discretionary stocks: More than a third of Canadians say they’ve cancelled a major purchase because of higher prices, according to a survey by Nanos Research Group, underscoring the financial pressure households are feeling because of high inflation and rising interest rates.

Good news if, um, well, there isn’t any, so on to more …

Bad news if you like getting in on IPOs: Canadian companies undertook 112 initial public offerings in 2022 with a total value of $1.82 billion, down 85 per cent from 2021’s record $12 billion in deals. It was also a dismal year for equity and equity-linked sales in 2022, with 403 deals totalling $19.3 billion, down 66 per cent from 2021’s record tally of $56 billion.

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