The first five months of 2022 have been “exhausting” from a financial point of view, but the co-chief Investment Strategist at Manulife Investment Management believes the odds of a recession this year are low.
Macan Nia told the LIMRA and LOMA Canada conference that recessions in developed markets are often caused by multiple interest rate hikes in a year. At the beginning of 2022, the markets were expecting that the U.S. Federal Reserve would raise rates two to three times this year. But in very short order, that estimate rose to eight to nine times.
“The markets are worried that if they [the Fed] actually do this, it will cause a recession. It’s too much too soon,” he said, noting that markets went down close to 20 per cent during the first five months of the year.
But Nia said the reality is that markets probably peaked in the summer of last year and since then they’ve been losing steam. “But,” he said, “weakening does not mean recession and I think that’s important for investors.”
In the United States in particular, he said there is a high level of inflation, but labour markets, housing starts, manufacturing and other leading indicators are doing well and do not highlight that a recession is near, he said. As well, he said cash balances for both consumers and corporations are positive in Canada and the U.S.
Nia told advisors to tell clients that markets are generally up 80 per cent of the time and they should take advantage of when those times come. “Those are great odds… but the ride is never smooth. But that’s where the opportunities arise.”
Positive markets last even longer as clients’ time horizons grow, he noted.
“In any one-year period over the last 50 years markets are up close to 76 per cent of the time. Go three years and that 76 goes up to 85.”
