The Storm Before the Calm
Market turmoil is nothing new, and is always followed by a robust recovery
In just over a decade, we’ve seen four instances of severe market turmoil:
1. The Great Financial Crisis (2008–2009) A global credit and liquidity crisis triggered in part by the collapse of U.S. mortgage-backed securities.
2. European sovereign debt crisis (2011) Widespread concerns that Greece, Italy, Portugal, Spain and Ireland could all default on their government bonds.
3. Oil crash of 2015–2016 An unexpected, severe drop in oil prices.
4. Q4 2018 interest rate panic A series of U.S. Federal Reserve rate hikes that the market viewed as unjustified by economic conditions.
While each had its own set of unique causes and consequences, they all share one thing in common: they were followed by dramatic rebounds.
There is no reason to believe the current crisis will be any different. Naturally, it’s difficult to think this way in the midst of extreme downward volatility – the seemingly endless stream of bad news and pessimism is difficult to tune out. But we will get through this, and when we do, investors who held firm to their long-term plans will likely be rewarded, while those who rushed for the exits in fear – thereby locking in losses in a declining market – may wish they had hung on just a little longer to see things turn around.
The data tells the tale
The data tables below show what happened across a variety of asset classes after the last four market crises. There is some variance depending on asset class and the nature of the crisis, but again, the story is uniform in the only important respect: the markets recovered what they lost and grew nicely from there.
It bears repeating: the current situation is dire, to be sure, but it’s nothing new, and as has happened in every past instance of market turmoil, we believe we will see a recovery and continued growth beyond previous highs. Always remember that in difficult times like this, your greatest support is the guidance and experience of your financial advisor, and your great asset is your trust in the long-term plan you’ve built together.
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Definition of terms: Cumulative return – The total amount an investment has gained or lost over a specified period of time. US Equities represented by S&P 500 TR, Canadian Equities represented by S&P/TSX Composite TR, Emerging Market Equities represented by MSCI EM GR LCL, EAFE Equities represented by MSCI EAFE GR LCL, Canadian Bonds represented by FTSE Canada Universe Bond, Global Bonds represented by BBgBarc Global Aggregate TR USD, US Bonds represented by BBgBarc US Agg Bond TR USD, High Yield Bonds represented by ICE BofA US High Yield TR USD, Emerging Market Bonds represented by JPM EMBI Global TR USD, Floating Rate/Senior Loans represented by Credit Suisse Leveraged Loan USD. MSCI Inc. makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products Nothing in this document should be considered as investment advice. Always consult with your investment advisor prior to making an investment decision. Commissions, trailing commissions, management fees, brokerage fees and expenses all may be associated with mutual fund investments, including investments in exchange-traded series of mutual funds. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. iA Wealth and the iA Wealth logo are trademarks of Industrial Alliance Insurance and Financial Services Inc. and are used under license.