Omicron, Inflation and the Impact on Our Investment Strategy

This article is from the Independent Accountants’ Investment Counsel Inc. (IAIC)

After bouncing off new all-time highs in early November, the past two weeks saw  markets make a U-turn back towards late September levels on news of a new Covid-19  variant and indications from the US Fed that inflation may persist.  

With the early reports of the new Omicron variant spreading to Canada and around the  world, the markets were reminded that we have not yet put Covid behind us. The  uncertainty about Omicron’s transmissibility and severity, and whether current vaccines  will be effective against it, has shaken markets, at least temporarily. 

Persistent inflation continues to be a concern for the markets, as treasury-bond yields  and the US dollar surge higher. U.S. Federal Reserve Chair Jerome Powell said earlier  this week that if inflation proves not to be transient the Fed will have to prepare to end  its bond-buying program ahead of schedule next year. This action would normally mean  interest rates will rise. Fears of higher interest rates, combined with the Omicron variant  news, resulted in the S&P 500 experiencing one of the biggest bouts of volatility it has  seen in over a year.  

On other fronts, the price of oil has been correcting over the past several weeks as the  US seeks to release oil stockpiles and China is also said to be tapping into emergency  reserves. Closer to home, the Bank of Canada warned there is a risk of a sudden price  drop in housing prices as Canadians continue to look to purchase homes before interest  rates rise. 

Further volatility ensued following the recent scandal involving Bridging Finance. As a  result of this, we thought it prudent to remind you that IAIC does not have any direct  exposure to private debt or private debt funds. For our debt instruments, we purchase  investment-grade corporate, government bonds, or GIC’s in client portfolios.

Source: Factset 

S&P 500 over the past 6 months is still up over that period, despite recent volatility.  

The future is impossible to predict and these recent events are reminders that investors  should avoid reacting emotionally to daily news updates. As investment managers, we  remain focused, stick with quality investments that can ride out economic uncertainties,  and resist deviating from our long-term investment strategy. 

We focus on valuation, fundamentals and facts. We assess the impact of new  information and events on the value of our core names and their long-term prospects.  We do not believe the intrinsic values of great businesses are fluctuating nearly as 

much as their stock prices have recently. We continue to scan the markets for additional  opportunities to grow our core pick list of ideas. It is markets like these that can create  dislocations between price and value, and as a result, new opportunities can emerge.

IAIC Disclosures 

This material has been prepared by Independent Accountants’ Investment Counsel Inc. (IAIC). The information presented herein, including forecast  financial information, should not be considered as advice or a recommendation to investors and does not consider a client’s particular investment  objectives or financial situation. Before acting on any information you should consider the appropriateness of the information and consult your portfolio manager. 

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