US equities
Continuing the march forward
Corrections are normal.
Stock market corrections are very common and very difficult to predict. Since 1980, the S&P 500 index has fallen an average of 14.3% in any given calendar year but is positive 78% of the time with an average return of 10.3%
S&P 500—Calendar Year and Max Intra Year Returns
1980 – current
Source: Manulife Investment Management, Bloomberg, as of December 31, 2020.
Lack of volatility is not normal.
It was not until the last day of the quarter that the S&P 500 had its first 5% pullback from its most recent peak. It is a rare occurrence to not have a minimum 5% pullback during a calendar year as there is an average of at least two such pullbacks per calendar year.
S&P 500 Price Index drawdowns greater than 5%
(2015–current)
Source: Manulife Investment Management, Bloomberg. As of September 30, 2021
Pullbacks provide opportunities.
Outside of recessions, history would suggest that when the market falls more than 5% from its 52-week high, that the 1-year forward return will be positive. Investors should take advantages of pullbacks when they present themselves during non-recessionary periods.
S&P 500 Price Index 1-year forward returns after selloffs from 52-week peak
(1990 - current)
Source: Manulife Investment Management, Bloomberg, as of September 30, 2021
Earnings are likely to drive returns.
The U.S. ISM purchasing managers’ index (PMI) shows that the momentum in manufacturing activity is still in place on a month-over-month basis. Historically, the ISM PMI leads S&P 500 Index earnings growth by six months. We believe that the manufacturing activity will keep earnings growth strong on a YOY basis into 2022.
ISM Manufacturing PMI vs. S&P 500 Index Earnings Growth YoY (advanced 6 months)
2000 - Current
Source: Manulife Investment Management, Bloomberg, as of September 30, 2021
Manulife Investment Management’s sample strategy
Canadian equities • Favour a selective approach to Canadian equities. • Consider diversifying business risks, not just sectors.
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US Equities • Look for opportunities to take advantage of market dislocations. • Consider dollar‑cost averaging into equities. |
International developed market equities • Consider less constrained strategies that can seek out opportunities wherever they may present themselves. |
Emerging Market equities Opportunities may exist within the emerging markets, specifically in the Asia ex‑Japan region. |
Fixed Income • Favour flexible strategies that can seize opportunities wherever they may be. •Consider using different types of bonds for different objectives, whether it is downside protection or enhanced yield. •Be mindful of the potential currency impact on global allocations.
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Source: Manulife Investment Management as of December 31, 2020. For illustration purposes only. Performance histories are not indicative of future returns. The information in this document does not replace or supersede KYC (know your client) suitability, needs analysis or any other regulatory requirements. Clients should seek the advice of professionals before making any investment decisions.