After a painful year in the markets, a substantial market recovery in October and November came as a relief for investors and offered some important lessons heading into the new year.
Strong returns during November alone generated a 5.3% average gain in our clients’ portfolios. From the low point hit at the end of September, a substantial portion of the year’s losses were recovered in October and November.
It was another example of how fast markets can move and why it’s so important to stay invested through tough times. In that regard, it’s worth taking at look at this graph from Dimensional Fund Advisors. It shows what could have happened to your returns from U.S. stocks from 1997 to 2021 if you’d been out to the market even for a short period.
PWL’s Market Statistics for November show that the Canadian stock market snapped back 5.5% during the month to bring the 2022 return to -1%, while the U.S. market recovered 4.6% to bring its year-to-date return to -7.9%.
However, the really big news came from markets outside North America. Large and mid-cap developed international equity gained 10.6% to bring the year-to-date return to -8.3%, while emerging markets rocketed 14.1%, bringing the year-to-date return to -12.7%.
Those returns were especially notable because declines in international stocks have been a substantial drag on overall portfolio returns this year to the point where some clients questioned whether they should give up on those markets. The recent gains confirm the points I made earlier this year in support of the idea that global stocks should remain a cornerstone of your diversified portfolio.
Meanwhile, real estate investment trusts were also strong performers in November, with Canadian REITs jumping 8.4% and international REITs gaining 5.9%.
Another bright spot was the bond market where the pullback in 2022 has been as painful as it has been historically unusual. Canadian bonds gained 2.8% in November while the global bond market rose 2.5%.
Those returns clawed back some lost ground, but Canadian and international bond markets remained down by over 10% for the year. Fortunately, we buffered client portfolios from higher interest rates back in March by shortening bond maturities to decrease interest rate risk.
Of course, we have no way of knowing whether the markets will continue to rise through December or into the new year, but the recent gains have been encouraging. Overall, year-to-date portfolio returns to the end of November 2022 range from -10% to -4% depending on the risk level in the portfolio.
This is my last blog post for 2022, so I will take this opportunity to wish you all a very happy and restful holiday season and a healthy and prosperous 2023. I hope you get to spend a lot of quality time with friends and family over the holidays.
Source: PWL Capital