U.S. and Canadian Stocks Rally after Tumbling on Rate and Geopolitical Concerns

Investors entered 2022 with great optimism, with the Nasdaq, Dow Jones Industrial Average, S&P 500, and TSX all trading at, or near, record levels. By all accounts, it looked like the Santa Clause Rally would dovetail in nicely with the January Effect—a theory that stocks go up for most of the first month of a year. That clearly didn’t happen.

Why Is There So Much Volatility with Stocks?

Over the opening weeks of 2022, all of the major North American indices took a big hit, with concerns about higher interest rates in Canada and the U.S., inflation, the pandemic, earnings season, and geopolitical tensions in Ukraine and Taiwan, weighing down stocks.

By January 24, the S&P 500, Nasdaq, and Dow Jones had fallen into correction territory, which is defined as a 10% drop from its most recent peak. At their lowest points, the S&P 500 was down 12% from its most recent peak, with the Nasdaq down 19%, and the Down Jones off 10%.

The TSX was not immune to the market mayhem, but it faired a little better, down just 8.6% from it’s November peak. Over the following days, North American stocks staged a comeback, but are still deep in the red.

Does this rebound point to brighter days? It’s too early to tell. But the sell-off is actually a positive sign. On one hand, investor volatility has led to indiscriminate selling, which typically points to a near-term bottom or support. At the same time, the kind of selling we’re seeing points to a window of opportunity for risk tolerant investors.

Which Stocks Have Been Hit Hardest by the Sell-Off?

Not usurpingly, the stock market sell-off has affected stocks differently. In 2021, growth stocks (which includes tech) were ripping higher while value stocks (financial, consumer defensive) remained unloved.

With interest rates expected to rise significantly over the coming quarters and the Bank of Canada saying the economy is running at capacity, tech stocks have tanked and investors are paying more attention to value stocks.

Since November, nine of the top 10 performing stocks on the TSX, which includes total returns and dividends, are resource companies, including Vermillion Energy Inc and Osisko Mining Inc. Meanwhile, six of the 10 worst-performing stocks are tech or innovation stocks, including Bay Street darlings like Shopify Inc., Ballard Power Systems, and Lightspeed Commerce Inc.

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