Stock market corrections are common, Nia said: since 1980, the S&P 500 index has fallen by 14.3%, on average, in any given calendar year. But the index has been positive 78% of those years with an average return of 10.3%.
And markets have been quite resilient during, or immediately after, difficult times. Amid the global financial crisis in 2008, the S&P 500 registered a calendar year return of -38%. However, in 2009 and 2010, the index posted returns of 23% and 13%, respectively.
Now, leading economic indicators are pointing toward a possible recession in Q1 2023.
“We think that if we get a recession, it will be mild,” Nia said, because strong employment rates and positive consumer spending in the U.S. and Canada could cushion the impact of a recession.
Canada’s unemployment rate was 5.4% in August, having hit its lowest level since 1976 in June. The U.S. unemployment rate in August was even lower at 3.7%.
With rising rates and down markets likely in the months ahead, there is a prime buying opportunity for investors, especially when it comes to fixed income, Nia said.
“With inflation, interest rates going up, it’s been a rough go,” he said, speaking before the Bank of Canada’s decision on Wednesday to raise rates by 75 basis points. “But what has that provided us as fixed-income investors moving forward, especially for new dollars? Higher yield.”
Nia said investment-grade credit has yields between 4% and 5% now, compared with 1.5% at the start of the pandemic.
“It’s been a tough year for bonds [and fixed income]. But I believe that has set up the runway for the next couple of years of great returns,” he said.
