Geopolitical escalation in February has materially increased the risk of further aggravating the energy and commodity crisis developing over the past 2 years. After weeks of rising tensions, Russia launched a full-scale invasion of Ukraine on February 24th. The U.S., in cooperation with its Western allies, has responded by imposing sanctions against Russia, prompting significant shifts in global markets. Resulting higher commodity prices, especially in food and energy, will exacerbate inflation in the U.S. and other developed economies, slowing economic growth, and leading to stagflation. In February, we have maintained out current outlook of three months of inflation followed by 9 months of growth for the U.S. economy. We will revisit this outlook as events evolve.

China’s annual inflation rate fell to 0.9% in January 2022 from 1.5% a month earlier. This was the lowest reading since last September, as the cost of food dropped the most in four months.1 The Euro Area economy expanded 4.6% year-on-year in the last three months of 2021.2 The annual inflation rate in the Euro Area edged higher to a fresh record high of 5.1% in January of 2022. Energy continues to record the biggest price increase.3 The unemployment rate in the Euro Area fell to 7% in December of 2021. Among the biggest economies in the Eurozone, declines in the jobless rate were seen in Spain (13% vs 13.4% in November), Italy (9% vs 9.1%) and France (7.4% vs 7.5%).4

The American economy expanded an annualized 6.9% in Q4 2021, higher than the 2.3% in Q3.5 The annual inflation rate in the U.S. accelerated to 7.5% in January of 2022, the highest since February of 1982, as soaring energy costs, labour shortages, and supply disruptions coupled with strong demand weighed on the number.6 The U.S. unemployment rate edged up to 4.0% in January of 2022, little changed from December’s new pandemic low.7 The U.S. trade gap in both goods and services rose 27% to hit $859 billion in 2021, an annual record as imports grew faster than exports. The imports surged 20.5% or $576.5 billion last year, as Americans purchased more foreign products and strong demand pushed up the prices. Exports were up 18.5% or $394.1 billion.8 Canada’s headline inflation rate accelerated to 5.1% in January of 2022, remaining the highest since September 1991. COVID-19 pandemic-related challenges continued to weigh on supply chains, and energy prices remained elevated.9 The unemployment rate in Canada rose to 6.5% in January of 2022 from an upwardly revised 6% in December of 2021.10

Anxiety about impending rate hikes as well as a tapering in asset purchases by the Fed to combat inflation led to the worst monthly performance for U.S. equities since March 2020, with the S&P 500 down 5.2% in January. Smaller caps performed even worse, with the S&P MidCap 400 down 7.2% and the S&P SmallCap 600 down 7.3%. Energy was the only sector to post a gain in January, up a staggering 19.1%, boosted by the continued rise in oil prices. In Canada, The S&P/TSX Composite was down 0.4%. Energy posted a 12.5% gain. The S&P Europe 350 started 2022 on the back foot, finishing January down 3.0% and giving back its gains since the end of November 2021. The U.K. was the sole country to make a significant positive contribution, while the Netherlands and Switzerland were the largest detractors; each pulled back the overall return by -1%. Energy and Financials stood out among pan-European sectors, rising 13.5% and 4.4%, respectively, while consistent with global trends, Information Technology was the main laggard, plunging 12.9%.

In February, we adjusted our Asset Allocation across all models. Total exposure to small and mid-cap equities was replaced with exposure to gold. This reflects the safe haven status of gold in times of uncertainty, including war and inflation. We are monitoring large cap U.S. equity exposure as we weigh the impact of multiple factors including Fed tightening, the impact of the pandemic, and geopolitics involving Russia-Ukraine against a strong earnings season. U.S. fiscal spending that will fund local governments in the pending infrastructure bill supports our exposure to short-term treasuries and municipal bond exposure in the U.S. We believe that U.S. rate increases in 2022 will be done cautiously so as not to risk causing a recession.

The reality of what could turn out to be the biggest conflagration in Europe since the Second World War has been reflected immediately in global equity markets and pressures have broadened across sectors. The base effects and volatility generated by the pandemic are still affecting the data, and additional supply side issues that had begun to normalize are reversing. From U.S.–China decoupling to the shift to a low-carbon economy to the rise of technologies, we are not going back to the 1990s, when cheap goods were the zero-inflation offset for the rising cost of housing, as well as education and healthcare. Our approach to portfolio management is nimble, opportunistic, and deliberate in identifying asset classes that are best placed to generate returns in a new world order. Our focus is on protecting portfolios from downside risk, and we believe that our investment process is working to achieve that goal.


Deborah Frame, President and CIO


1 Trading Economics. China Inflation. February 16, 2022.

2 Trading Economics. Europe GDP Growth. February 15, 2022.

3 Trading Economics. Europe Inflation. February 2, 2022.

4 Trading Economics. Europe Unemployment Rate: Eurostat. February 1, 2022.

5 Trading Economics. U.S. GDP Growth. January 27, 2022.

6 Trading Economics. U.S. Inflation. February 10, 2022.

7 Trading Economics. U.S. Unemployment: U.S. Bureau of Labor Statistics. February 4, 2022.

8 Trading Economics. U.S. Trade Gap: Bureau of Economic Analysis. February 8, 2022.

9 Trading Economics. Canada Inflation. February 16, 2022.

10 Trading Economics. Canada Unemployment: Statistics Canada. February 4, 2022.


Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. January 31, 2022. Index performance is based on total returns and expressed in the local currency of the index.