Covid fear won’t drive markets in 2022-23: report

By Katie Keir | December 15, 2021 | Last updated on December 6, 2023
3 min read

Markets will likely be less fearful of Covid-19 in 2022, focusing instead on “reverberating shocks” like rising inflation, finds a new outlook report from Toronto-based Mackenzie Investments.

In a report released today, the firm conceded the pandemic hasn’t yet disappeared. However, “we believe that each successive variant outbreak will have a diminishing impact on capital markets,” Mackenzie said in the report.

Instead, the key economic issues to watch for 2022 are inflation, which is “a significant factor for all asset classes”; how central banks, which are in “a difficult position,” decide to act; and China’s growth, which in turn will drive global growth.

“The three of them were chosen from a long list,” said Brent Joyce, investment strategist with Mackenzie Investments and one of the report’s authors, in an interview.

The report predicted that “inflation will reset at a level higher than the sub-2% range of the last decade,” but that “global deflationary forces, productivity gains, and fading medium-term transitory factors are expected to keep inflation from spiralling out of control.”

But if central banks misstep, Joyce said, no investor will be spared.

“Commodities, currencies, stocks and bonds will react not only to what central banks do,” he said, but also to concerns around what they may do or what they’re signalling.

Unlike its peers, however, China’s central bank will likely continue to be accommodative. Joyce also noted that China is expected to overcome issues like labour market and supply-chain snarls in the medium term. Yet Chinese equities markets are trading at a discount even while the country is trending toward sustainable, improved growth, the report said.

Joyce recommended that investors take a balanced approach to investing in general, “curbing enthusiasm” and “not getting carried away” with transitory news. He said it’s best to adopt a 12- to 24-month outlook and a neutral view as trends develop.

Market expectations

Mackenzie Investments estimates that earnings for the S&P/TSX composite index will grow by 88.5% in 2021 and by 6.6% in 2022, but decrease by 6.1% for 2023. Those estimates are +46.2%, +8.3% and +9.3%, respectively, for the S&P 500.

“We see capital markets driven more by the fundamentals of earnings, inflation, interest rates and sentiment, versus a singular focus on case counts and R0 stats of the past,” the report said.

Generally speaking, the firm is positive on Canadian equities for 2022 (especially banks and energy companies), holds moderate expectations for U.S. stocks, and is constructive on most global markets despite potential risk.

“Canadian banks have fared much better than their global counterparts because we haven’t had as punitive of an interest rate policy here in Canada as in, for example, Japan and Europe,” Joyce said. “And we’ve had 10 years of that [accommodating environment].”

For energy companies, the report said that higher commodity prices have helped these firms generate cash flow and repair their financials — even as inflation has put pressure on company margins generally.

Still, Joyce said energy players must adopt environmental, social and governance (ESG) practices for future-proofing.

“If you’re an energy company that’s simply in the fossil-fuel extraction game and you think that it’s all you’ll do, and if you’re not going to take ESG seriously, then you’re persona non grata to your bondholders and shareholders, and to investment companies,” he said.

Earlier this month, the BlackRock Investment Institute forecast that Canadian investors should expect a second consecutive year of equities gains and negative returns for bonds, while Fitch trimmed its global GDP forecast for 2021 by 0.3 percentage points to 5.7%.

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Katie Keir

Katie is special projects editor for and has worked with the team since 2010. In 2012, she was named Best New Journalist by the Canadian Business Media Awards. Reach her at