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How to navigate the current turbulent stock market

Jun 2, 2023 | News, Canada, Featured, Wealth Strategies

ARE WE IN A RECESSION AND WHAT DOES IT MEAN FOR INVESTORS?

During periods of great volatility in the stock markets, as seen in 2022, many investors incur «paper losses». And trying to make up for stock market losses through «market timing» can be costly, impulsive and misguided.

First off, to determine whether you have a gain or a loss, you need to start from a specified price level – usual the price paid when first purchased, or the average cost base for the position. This is your reference point. Often investors will look at the annual change in price of a position, together with any dividends paid, to determine whether in that year there was a gain or loss.

Many investors get caught up in the difference between the current value of position and the «peak value» of the position since they have held it – and put all of their focus on that. This is when an investor may be «counting their chickens before they hatch» and if there is a negative move in market values for the position, begin feeling that they may have «lost» on the position. In reality, this may not be the case at all. Your reference point for determining gains and losses is important.

Dow Jones Industrial Average and Nasdaq Composite. Source: Google

The second level of measurement of performance is to compare the change in value for a position with the change in value for the general market – over the same time frame. This will determine «relative performance» of the position held.

Many investors compare their position or portfolios to the Dow Jones Industrial Average index. But, as Jason Zweig pointed in his column in the Wall Street Journal, in 2023, the Dow is not a good measure to judge the market’s performance. This index year-to-date is down 0.13%, while the broader S&P 500 has gained almost 10%. That’s the widest year-to-date performance gap between the two indexes on record since 1945, according to Bespoke Investment Group.

If an investor compares their portfolio performance to the Dow Industrial Average index, it could distort their understanding of relative performance.
The Dow’s is designed differently than say the S&P 500 Index or the Nasdaq l 00 Index. The Dow’s 30 stocks are not weighted by their market value, where bigger companies are weighted more, as they are in the S&P 500. Instead, stocks with higher share prices (not market value) take up a heavier weight in the Dow.

While this year’s stock market performance has been bumpy, even where performance has been strong in a sector, it can be driven by a select group of few stocks. For instance, the technology heavy Nasdaq Composite index is up almost 25% year-to-date while the smaller FANG+ subsector (Facebook, Apple, Netfilx, Google and a couple others) is up 52% – generating the bulk of the Nasdaq Composite gains.

The other distinctive part of today’s market is large cap value equities which have been performing poorly. The Vanguard Value ETF, which consists of large cap value equities, is down 1.31 % year to date.

If you’re frustrated that your portfolio may not be showing the kind of positive results you may be expecting, don’t lose hope! Very often sectors or styles that are performing better now, may underperform the sectors and styles of your portfolio in the following 6 months or 1 year. If you are feeling overwhelmed, you are not alone. The real test of portfolio performance is time-in-the-market, not timing-the-market.

The Ukrainian Credit Union’s Wealth Strategies Group is ready to help you navigate the turbulent markets of today. Let us select the best investment portfolio according to your risk/return profile and bring you a peace of mind about your financial future.

Michael Zienchuk, MBA, CIM
Investment Advisor, Credential Securities Inc.
Manager, Wealth Strategies Group
Ukrainian Credit Union
416-763-5575 x204
[email protected]
www.ukrainiancu.com

Mutual funds and other securities are offered through Credential Securities Inc. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Unless otherwise stated, mutual funds and other securities are not insured nor guaranteed, their values change frequently, and past performance may not be repeated. The information contained in this article was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This article is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell any mutual funds and other securities. The views expressed are those of the author and not necessarily those of Credential Securities Inc. Credential is a registered mark owned by Credential Financial Inc. and is used under license. Credential Securities Inc. is a Member of the Canadian Investor Protection Fund.

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