February 2022 Update - A day in the market

Yesterday was an interesting day in the stock market. Meta Platforms, the company formerly known as Facebook, reported mixed financial results, with user base growth slowing to a crawl and revenue projected to be lower than expected. As a result, the stock lost 25% in one day. That’s $200 billion USD, the equivalent of McDonald’s worth, erased. Meanwhile, Amazon jumped today by almost the same dollar amount. It’s hard to imagine such huge and widely followed companies being re-evaluated so dramatically by investors so quickly. Time will tell whether either reaction is correct or not, but it shows that the stock market reacts sometimes very wildly.


January was a down month for most assets, with stocks and bonds generally falling for the month. There was somewhat of an uptick at the end of the month that stopped it from being worse. The S&P 500 index of US companies dropped around 5.2% while TSX index of Canadian stocks retreated 0.4% for January; bonds in both countries fell over 2%. But the economic backdrop remains positive. The US economy added over 400,000 jobs last month. While the unemployment rate rose, that is mostly due to more people looking for jobs. The OECD’s Composite Leading Indicators numbers, which are available near the middle of the month, should also paint a reasonably positive picture. With no immediate sign of a recession, I believe that being invested in stocks and risky assets remains the best positioning, even though volatility will likely stay high as we have just seen.


I did make a couple of tweaks to my portfolio views. After several readings and analyses, I think having dedicated exposure to global real estate stocks and to gold bullion in a portfolio makes sense, so I started incorporating them in my framework and suggestions. Either asset class should provide some protection against inflation, while real estate has the added benefit of contributing income and capital appreciation during good economic times. Gold, on the other hand, is less tied to the movement of either stocks or bonds, so it should be used when a bit more safety is required. My portfolio samples below reflect these additions.




Sample portfolio for a Canadian investor

Asset class

ETF ticker

Weight

Canadian stocks

VCN

7.50%

US stocks

VUN

37.50%

Foreign stocks

VIU

30.00%

US corporate bonds

ZSU

2.50%

Canadian corporate bonds

XSH

2.50%

Global high yield bonds

MHYB

10.00%

Emerging markets bonds

ZEF

5.00%

Global real estate

TGRE

5.00%

Canadian mortgage-backed bonds

ZMBS

0.00%

Canadian government bonds

CLF

0.00%

Global government bonds

XGGB

0.00%

Gold

KILO

0.00%



Sample portfolio for a US investor

Asset class

ETF ticker

Weight

US stocks

SCHX

37.50%

Non-US stocks

SCHF

37.50%

US corporate bonds

SPIB

2.50%

Non-US corporate bonds

PICB

2.50%

US high yield bonds

SPHY

5.00%

Non-US high yield bonds

IHY

5.00%

Emerging markets bonds

VWOB

5.00%

Global real estate

REET

5.00%

US mortgage-backed bonds

MBB

0.00%

US government bonds

VGSH

0.00%

Non-US government bonds

BWZ

0.00%

Gold

GLDM

0.00%