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%