Lexicon Financial Group Weekly Update

Monday, February 7, 2022


Looking Back

Depending on where you live and what groundhog you follow, you’re either preparing for six more weeks of winter or an early spring. On the other hand, investors are most certainly looking for a bit of a reprieve after the January decline in the markets.

In the US, the benchmark S&P500 index was off -5.3% for the month. Canadian markets fared a bit better, with the S&P/TSX only down -0.6%. Much of the pullback in equities can be traced to technology stocks, which experienced a -9.0% pull back in January as measured by the US-based NASDAQ index.

Geopolitical issues did not help here. In Europe, tensions continue to rise between Ukraine and Russia. World leaders continue to press for a diplomatic solution to the rising tensions. In incursion by Russia into the Ukraine would almost certainly rattle confidence in the markets.

A bad January hasn’t necessarily been an indicator of a bad year. The S&P 500 has fallen 3% or more in January on six occasions in the past 20 years, three of which were more than 5% declines. On three of those occasions, the index was back in positive territory for the year by the end of February. In 2016, the S&P 500 was back in positive territory by March while in 2009, it took until May. The only time it did not turn positive was in 2008. (1) That said, it is worth remembering that past performance is no guarantee of future results.

 

Looking Deeper

Of course, long-term investors should not worry about the absolute performance of any asset class over a short-time period. And while the S&P500 in the United States did pull back in January 2022, it comes after strong performance in 2021 when it experienced 9 positive months out of twelve.

Of note is the performance of the index in March of 2020, which was when the economy was beginning to shut down as a result of the global pandemic. The market experienced a -12.5% decline, but was followed the next month by a 12.7% gain. (2)

Of course “this time it is different”, so nobody is anticipating an immediate and rapid rebound.

 

Looking Close

We recently wrote about Netflix, and how it experienced a short and sudden drop in their share price. Well, last Thursday the same thing happened for Meta (formerly known as Facebook). On February 3, the technology giant’s stock plummeted after it announced its first ever fall in the number of users, wiping an estimated $250 billion of market value off the board. This is the largest single day slide in market value for a U.S. public company.

Sheryl Sandberg, Chief Operating Officer for Meta, attributed some of their slowing advertising growth down to recent changes implemented by Apple that allowed users to ask “not to be tracked” when opening third-party apps.

Meta is still a major and dominant player, and has significant resources at its disposal to reinvigorate its user base, including a short-form video platform that takes aim at TikTok, as well as its social virtual reality platform “Horizon”.

But let’s put some of this in context. The decline in Meta means that it is now trading at its lowest level since July 2020. Early investors have done remarkably well by owning the stock directly. Those that bought in the last 18 months find themselves down.

 

Further Reading

Markets & Investing – Raymond James

What Meta's $251 billion market cap rout teaches about investing

Is Russia preparing to invade Ukraine and what does Putin want?

 

Further Listening

Raymond James Ltd. Head of Investment Strategy, Nadeem Kassam discusses recent market volatility, what investors should do during times like these, and he provides insight on how he is combatting the many headwinds – including Russia/Ukraine, the ongoing pandemic and inflation.

The opinions expressed are those of Craig Swistun and not necessarily those of Raymond James Investment Counsel which is a subsidiary of Raymond James Ltd. Statistics and factual data and other information presented are from sources believed to be reliable but their accuracy cannot be guaranteed. It is furnished on the basis and understanding that Raymond James is to be under no liability whatsoever in respect thereof. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. Raymond James advisors are not tax advisors and we recommend that clients seek independent advice from a professional advisor on tax-related matters.

 

  1. U.S. Stocks Had a Terrible January. History Offers Plenty of Comfort, Barron’s, January 31, 2022.
  2. Data provided by Factset showing the price return of S&P500 for Calendar years from 2017-2021 and the month of January and February 2022 in its respective local currency.

 

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