AHHHH, investment returns! July 4, 2023 Sign Up | View online IN THIS ISSUE Welcome to TLDR’s guide to what happened (and why and how) in Q2 2023. We think it’s a great way to catch up. Don’t worry, the FOMO Index will be back next week. — The Editors Q2 REPORT CARD Apr. 1 — Jun. 30 S&P 500: +8.3% (+15.9% YTD) TSX: +0.3% (+4 YTD) Nasdaq: +12.8% (+31.7% YTD) Bitcoin: +4.6% (+79.4% YTD) Biggest Canadian Gainer: Shopify +32% (+82% YTD)* Biggest Canadian Loser: Nutrien -20.9% (-19.6% YTD)* Winningest Sector: Information Technology +18.8% (+51.6% YTD) Five Most-Traded Wealthsimple Stocks: $TSLA, $SHOP, $SQQQ, $HND, $HNU** *Universe: TSX 60 **Based on DIY Wealthsimple customer trades by notional value bought or sold. THE BIG IMPORTANT STORY STOCKS 2023: The Year of FOMM (Fear of Making Money) By Jared Sullivan Stocks have boomed this year. Yet many DIY investors have sprinted from markets — and missed out on big returns. What spooked them? | Illustration: Cari Vander Yacht If you can remember anything about January of this year, it’s probably that everything felt bad. Interest rates were up. Recession alarm bells were blaring. Succession was ending soon. And pros like Mike Wilson, Morgan Stanley’s chief investment officer, were going around predicting that the stock market might drop another 20% in 2023. And that was after the S&P 500 and TSX had just nosedived by 19% and 8.5%, respectively, in 2022. The economic situation felt so grim that Wall Street’s yearly outlook, as tracked by Bloomberg, was the bleakest it had been in almost a quarter of a century. Investors felt more chipper after the dot-com bust, 9/11, and the ’08 financial crisis. The backdrop to all this sourness was that the markets had just endured a dizzying few years. Between mid-February and late March 2020, the S&P 500 spiralled down by more than 30% as COVID swept the world. And on the heels of this downturn followed a frothy, stimulus-fuelled rally (remember the $GME frenzy?) that sent the S&P up by more than 100% by November 2021. Was the whiplash over? Of course not. That rally met an abrupt, painful end in late 2021, when central bankers vowed to raise economy-slowing interest rates to control soaring inflation. Which a lot of folks assumed would crush the economy. But that, to the shock of many, isn’t what happened. Yes, stocks fell sharply in 2022, costing individual traders some US$350 billion. But as interest rates rose in 2023, the labour market held strong. Corporate earnings came in far better than anticipated. AI sparked tons of optimism about the future. And, most important and surprising of all, inflation fell sharply without the economy skidding into a recession. At least, it hasn’t yet. As the economic sky cleared, institutional investors, ecstatic with relief, plowed money back into markets, pushing up stocks globally by about 13% since January 1st of this year and kicking off a new rally. The tech-heavy Nasdaq has soared by an even more impressive 32%. (The light-on-tech TSX, up by only 4% YTD, is something of an outlier.) But, as pros piled into stocks, many individual investors — average folks like you and me — refused to uncover their eyes and see that things looked … good. DIY trading activity was anemic throughout the spring and early summer. These so-called retail investors didn’t have FOMO, or fear of missing out. They feared, so they missed out. So: why? Why did DIY investors sit out the rally? Bad vibes. That’s the most obvious answer. This rally just feels different, especially compared to the frothy one of 2021. And inflation bears most of the blame. Millennials and Gen Xers had heard Boomers talk about how terrible those ’70s price spikes were. But hearing about inflation and experiencing it are different things. We learned that it’s hard to feel optimistic about anything, really, if your paycheque isn’t keeping up with rising prices or if rate hikes might force you to sell your home. Amplifying people’s discomfort, the economy had just gone through a huge adjustment, with millions of people being fired and rehired during COVID. Bad vibes on top of bad vibes. The next shoe was going to drop at any moment. You could feel it. So people stopped investing. According to IFIC data, Canadians bought $7 billion in mutual funds from January through May of last year. But, over the same period this year, they sold $9 billion worth of mutual funds — a $16 billion swing. Here’s the wrinkle in the story The reasons why DIY investors missed or were late to the spring rally were novel, but that they failed to capitalize on it was not. Retail traders, spooked by brisk declines in their portfolios, often sell off their assets at the bottom of the market and remain on the sidelines as stocks climb back up. They did that very thing in 2001, 2008, and 2020. And it cost them. The S&P 500 has tended to fall by 41% during bear markets, according to a recent paper, while it has typically risen by 162% during bull markets. Which helps to explain why families tend to lose more money panic selling during downturns than if they’d stayed invested: they often delay reinvesting and miss rallies. So, if you’re wondering: OK, what now? Is the rally running out of juice, or is it just getting started? No one knows. No one ever knows. That’s sort of the point of this entire essay. Inflation surprised investors this year. Next time, it’ll be something else. To avoid making a costly blunder, successful long-term investors — Warren Buffett being the most famous among them — advise staying in the market and steadily investing through good times and terrible ones. Because boring, steady, diversified investing usually wins in the end. This year only reinforced the point: stay the course when bad vibes abound — and they will abound sooner or later — and don’t look away when other investors avert their eyes. FROM OUR SPONSOR 🧮 THE QUARTER IN NUMBERS 🧮 1: Interest-rate hike in Q2. 42%: Drop in Canada’s inflation rate since January. 6.5%: Average five-year-fixed-mortgage rate in Canada. 4.8%: Average five-year-fixed-mortgage rate two years ago. 18.4%: Average drop in gasoline prices since last May. 9%: Increase in grocery prices since last May. $729K: Average cost of a Canadian home in May. $612K: Average cost of a Canadian home in January. 292K: New immigrants to Canada in the latest quarter (a new record). 4K: Estimated Canadian tech and media layoffs since April 1. 5.2%: Canada’s unemployment rate in May. 5.1%: Canada’s unemployment rate in May of last year. ✨ VIBE CHECK ✨ An unscientific, mostly feels-based assessment of what’s hot and what’s, well, less hot. By Stacey Woods 🔥 🥶 🍼 Daycare at work Employers are getting desperate enough to give people the one thing they actually need. 🍾 Drinking at work All those kids running around will definitely kill your buzz. 📋 Coaches Turns out employees would rather have a “coach” than a boss tell them to drop and give them 20 TPS reports. 👔 Middle managers Companies like Meta, Twitter, and Shopify are flattening the centre of the workforce, at least until they can hire some people to figure out what it does. 👚 Barbiecore Everyone’s wearing pink this summer because, at our core, we just want to look like hot plastic dolls, apparently. 👠 Actual Barbie …but we do not actually want to play with Barbies, which aren’t selling, despite a recent Gen Z makeover. 🧳 Relocation benefits Job postings that offer money to move are way up since the odds of you coming to the office are higher if you’re both in the same time zone. 🚗 Super commuting The number of people who drive long hours to and from work is lower than ever, which is good news for everyone but the podcast industry. 💪 Billionaires flexing their strength CEOs are challenging each other to cage fights because why just show off your wealth when you can show off your muscles too? 🧢 Billionaires stealthing their wealth And that trend where billionaires weren’t flaunting their wealth? You didn’t really think they’d do that, did you? 🏅 QUESTIONABLE ACCOMPLISHMENTS 🏅 📧 Best Email-Related Implosion: Frank, the student-loan platform that (allegedly) invented nearly all of its 4.25 million clients — something that JPMorgan discovered only after it acquired the company, for US$175 million, and sent emails to its new clients … and got mostly bounce-backs in response. ✈️ Best Passenger Pisser-Offer: Flair, the discount carrier that generates more passenger complaints than any other Canadian airline, owing to last-minute cancellations, lost bags, etc. The airline racked up (an almost impressive, to be honest) 20.9 complaints to the Canadian Transport Agency per 100 flights this year. 🥫 Best We-Could-Have-Told-You-That Study: Competition Bureau’s “Canada Needs More Grocery Competition,” which found — and you won’t believe this — that food prices would be lower if Canadians had more supermarket options. One potential fix? Loosen ownership rules to let foreign-owned discount chains (e.g., Aldi) set up shop. 🤕 Best Injury-Causing Sport: Pickleball, the not-tennis-but-sort-of rec activity your parents are obsessed with. Pickleball injuries are expected to cost the U.S. health-care system nearly US$400 million this year. No word on the sprains and strains of Canada’s 1.37 million players. 👗 Best III-Advised PR Junket: The all-expenses-paid trip that fashion influencers took to a factory run by mega-fast-fashion company Shein — which has faced allegations of forced-labour abuses and human-rights violations — so they could post about how nice and ethical and totally non-abusive the working conditions are. —Sarah Rieger LIKE TLDR? 🤝 The first five million people to click this link can share it with a friend for free. (You can share it with enemies, too, but only if you're ready for them to love you.) This week’s newsletter contributors: Sarah Rieger (news writer), Mohini Taylor (senior specialist, lifecycle marketing) Ambrose Martos (fact checker), Ciara Rickard (copy editor), Nikki Holmes (copy editor), Sara Black McCulloch (fact checker), Jared Sullivan (senior editor), Kat Angus (managing editor), and Devin Friedman (editor-in-chief). Wealthsimple Media Inc. 80 Spadina Ave Suite 400 Toronto, ON, M5V 2J4 Replies to this email address are not monitored. Have questions? Visit our Help Centre or submit a request to our Client Support team. VIEW IN BROWSER PRIVACY POLICY UNSUBSCRIBE TLDR is offered by Wealthsimple Media Inc. and is for informational purposes only. Any views expressed are those of the individual author and/or of Wealthsimple Media Inc., not of Wealthsimple Financial Corp or any of its other subsidiaries or affiliates. The content in TLDR is not investment advice, a recommendation to buy or sell assets or securities, nor any other kind of professional advice. 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