Your Financial Review of January 2022

Cathy Duval |

2021 Highlights

The underlying economic conditions remain good by historical standards and corporate-profit growth has been stellar in 2021. However, the backdrop is shifting and enthusiasm for the recovery has diminished. Moderating growth, the new Omicron virus variant and fading monetary stimulus have agitated financial markets.



With demand for consumer goods bolstered by generous fiscal measures on the one hand, and a pandemic that has continued to complicate the day-to-day operations of many ports and factories on the other, supply chain issues have proliferated like never before in 2021. Microprocessor shortages, soaring shipping costs, rising energy prices are all trends that, although they have stabilized for the most part recently, are likely to linger for a few more months, especially if the pandemic keeps getting worse, notably in Asia.


Ultimate consequence of these imbalances? Multi-decade highs for inflation in many countries such as the United States where the Consumer Price Index (CPI) was up 6.8% on a year-over-year basis in November 2021 – a 39-year record. During the same period, Canada's CPI Index posted a 4.7% year-over-year increase.


Other inflationary factors such as a tight labour market and rising housing costs will likely prove to be more persistent, keeping inflation above central banks’ 2% target.


Market Review as of December 31, 2021


Fixed Income


  • Fear surrounding the wave of new COVID-19 cases and ensuing restrictions weighed on Canadian bond rates in December, leading to quarterly gains of 1.5% for bondholders. Despite these year-end gains, the return on the Canadian bond market (FTSE CA Universe) ended the year in a negative zone (-2.5%), posting its first negative annual performance since 2013.




  • American equities (S&P 500) finished the year at the top of the list with a total return of 28.7% *, followed by the Canadian market (S&P/TSX Composite) with a gain of 25.1% and the international equity markets (MSCI EAFE) * with 11.8% *. As for the emerging markets (MSCI EM), they posted a loss of 2.2% * in 2021.


  • The full picture for 2021 was indeed excellent for North American equities, propelled by earnings growth that exceeded the expectations of most investors. However, the environment proved to be more challenging for emerging markets, dampened by the uncertainty surrounding the economic and regulatory backdrop in China.


* The returns of the S&P 500, MSCI EAFE and MSCI EM are expressed in US currency.
* The MSCI EAFE Index is a stock market index that is designed to measure the equity market performance of developed markets outside of the U.S. & Canada.



Oil and Gold


  • After a 21% drop in November, WTI oil prices (US$/barrel) * rebounded 13.6% in December, thus closing 2021 at $ 75.21 (+ 55.8%).


  • Gold prices (US$/ounce) fell by 4% in 2021 despite rising 3.5% in the last quarter of the year as inflation hit a record level in the United States.


* West Texas Intermediate (WTI) Crude oil is the North American standard for oil pricing.




  • The loonie lost ground throughout the month of December as the CAD/USD pair fell 1.1% to trade at 1.26$ Canadian to 1$ US as of December 31. Nonetheless, the Canadian dollar ended the year almost unchanged against the greenback (-0.8%).


Investment Outlook


The new year should see the economic cycle converge to a more sustainable pace as the imbalances between supply and demand exacerbated by the pandemic begin to wind down, paving the way for a first interest rate hike, initially for the Bank of Canada followed by the Federal Reserve. This backdrop remains supportive for risk assets (equities), although we should expect returns closer to historical averages and more volatility after an especially profitable period.


The main risk factor will likely be the evolution of major central banks’ narratives (e.g., Tightening of monetary policy) toward inflationary pressures with rapidly changing dynamics.


While places with higher vaccine coverage (such as Canada) weathered the Delta wave relatively well, the arrival of the Omicron variant in December brought new highs in cases. Therefore, we will be monitoring developments closely to quantify the impact on economic growth and corporate profits. The performance of the Chinese economy and the regulatory risks it faces will also be a risk factor to watch closely.


In short, we are maintaining our preference for equity markets over fixed-income securities. Geographically, we favour North American stocks, which offer diversified exposure to all sectors of the economy; this is an important advantage given the level of uncertainty and, above all, the pace at which things are evolving.


If you would like more details regarding our outlook and our portfolio positioning, we will be happy to schedule a call at your convenience.


As we begin the year, we want to let you know that we are deeply committed to building lasting, trusting relationships. Our ability to ensure customer satisfaction is paramount and our core values guide the advice we provide on a daily basis.


The Duval group wishes you an excellent year filled with health, resilience and happiness!


Cordial greetings,


Cathy and Sounda

514 871-3474


Disclaimer: I have written this commentary to provide you with my thoughts on various investment solutions and considerations that may be relevant to your investment portfolio. This commentary reflects my opinion only and may not reflect those of National Bank Financial Group. In expressing these opinions, I try to apply my judgment and professional experience to the best of my ability from the perspective of a person called upon to follow a wide range of investments. Therefore, this report represents my informed opinion and not a research analysis produced by the Research Department of National Bank Financial. National Bank Financial is an indirect wholly owned subsidiary of National Bank of Canada. National Bank of Canada is a public company listed on the Toronto Stock Exchange (NA: TSX). National Bank Financial is a member of the Canadian Investor Protection Fund (CIPF).