By Peter Sproule, CFP, CLU, CHS, Investment Advisor and Rosanna Palmieri, CEA, Investment Advisor
Key Details
- Election Year: 2024 is the year of elections, with 8 of the 10 most populous countries voting, accounting for almost 2 billion people. Most notably, Brazil, India, Russia, Pakistan, Mexico and of course, the US, have had or have elections upcoming. With varying degrees of fair and transparent democratic elections, the geo-political impacts are present, nonetheless, and political turmoil appears to be the most significant risk to markets.
- Canada: Canada’s economic growth and supply surplus has been propped up by record immigration over the last 3 years. With slower immigration expected in 2025 as well as weakened consumers, the weakening of CAD to USD, and low investment, Canada is clearly on a recessionary path and more rate cuts are anticipated.
- US: All eyes are on US economic data, specifically unemployment, wage growth, and industrial output as a guide for the Federal Reserve’s next action on interest rates. With a slowing GDP and wage growth, the expectation of rate cuts in 2024 is back on the table.
- International: Global opportunities are easing on the back of cooling inflation and more supportive monetary policy. Europe’s markets appear to have stabilised, with London regaining prominence in European financial markets with a slew of new public offerings and mergers.
- Emerging: Emerging markets are showing life in spite of the largest contributor, China, struggling with a real estate debt crisis and loss of consumer confidence, saw it’s economy contract with of GDP growth at the bottom of the world (0.2% YTD at the end of June). This is having some ripple effect in the broader global economy, with some heralding it as helping ease global inflation with lower demand, while others concern over the short-term prospects for China’s recovery.
Global Outlook
| Country/Region | Year-Over-Year Inflation | Quarter-End Unemployment | YTD Return of Prominent Stock Index | |||
| 2024 Q1 | 2024 Q2 | 2024 Q1 | 2024 Q2 | 2024 Q1 | 2024 Q2 | |
| Canada
(TSX/S&P) |
2.9% | 2.7% | 6.1% | 6.4% | 6.62% | 4.38% |
| US (S&P) | 3.5% | 3.0% | 3.8% | 4.10% | 9.25% | 14.4% |
| MSCI Europe | 2.4% | 2.5% | 6.5% | 6.5% | 6.42% | 3.72% |
| MSCI Emerging Markets | Not available | Not available | Not available | Not available | 1.52% | 6.11% |
| China (Shanghai Composite) | 0.1% | 0.2% | 5.2% | 5.0% | 2.46% | -0.25% |
| FTSE TMX Canada Bond Universe Total Return | -1.37% | -0.38% | ||||
|
Note: All returns are reported in local currency and at period-end. Sources: Statistics Canada, Trading Economics, Eurostat, US Bureau of Labour and Statistics, Statistica. |
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Charts
Interest rates
Interest rates and bond yields walk hand-in-hand, and they’re important indicator for both the economy today and expectations of where it may be headed.
Commentary: Borrows with variable rates can expect lower interest rates in the coming year, with consistent rate cuts expected to continue for the foreseeable future. In the US, interest rates are painting similar rate cut, however, a stronger US dollar and economy appears to keep rates higher for longer. A small spread between the 5 year and 10 year bond rates in both Canada and the US suggest slow economic growth over the next decade.
| Interest Rates | 2023 | 2024 | 2025 | |||||||||
| Canada | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 |
| Overnight Target Rate | 4.50 | 4.75 | 5.00 | 5.00 | 5.00 | 4.75 | 4.50 | 4.25 | 3.75 | 3.25 | 3.00 | 2.75 |
| 3-mth T-bill Rate | 4.34 | 4.90 | 5.07 | 5.04 | 4.99 | 4.63 | 4.38 | 4.00 | 3.50 | 3.13 | 2.88 | 2.63 |
| 5-yr Govt. Bond Yield | 3.02 | 3.68 | 4.25 | 3.17 | 3.51 | 3.45 | 3.45 | 3.25 | 3.05 | 2.90 | 2.75 | 2.65 |
| 10-yr Govt. Bond Yield | 2.90 | 3.26 | 4.03 | 3.10 | 3.45 | 3.40 | 3.40 | 3.30 | 3.20 | 3.05 | 2.95 | 2.85 |
| US | ||||||||||||
| Fed Funds Target Rate | 5.00 | 5.25 | 5.50 | 5.50 | 5.50 | 5.50 | 5.50 | 5.25 | 5.00 | 4.50 | 4.00 | 3.50 |
| 3-mth T-Bill Rate | 4.68 | 5.17 | 5.32 | 5.20 | 5.23 | 5.25 | 5.25 | 5.05 | 4.65 | 4.15 | 3.65 | 3.15 |
| 5 yr Govt. Bond Yield | 3.60 | 4.13 | 4.60 | 3.84 | 4.21 | 4.30 | 4.30 | 4.10 | 3.85 | 3.60 | 3.40 | 3.20 |
| 10 yr Govt. bond Yield | 3.48 | 3.81 | 4.59 | 3.88 | 4.20 | 4.30 | 4.30 | 4.15 | 3.95 | 3.75 | 3.60 | 3.45 |
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Note: Light gray figures represent past quarters and black figure represent forecasted pricing. F: Forecast by TD Economics, June 2024. All forecasts are end-of-period. Source: Bloomberg, Bank of Canada, Federal Reserve, TD Economics. |
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Commodity Prices
The price of commodity futures – the contracts used to trade physical resources listed below – can show us what may be ahead in terms of inflation, expectations around money supply, and even the economic output of certain economies.
Commentary: Energy futures appear stable, with normal seasonal demands at play. Importantly, the expected monetary loosening – the lowering of interest rates and increase in money supply – doesn’t appear to have a negative impact on the purchasing power of the US, with gold and silver expected to moderate in the near-term.
| Commodity | 2023 | 2024 | 2025 | |||||||||
| Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | |
| Crude Oil (WTI, $US/bbl) | 76 | 74 | 82 | 78 | 77 | 80 | 82 | 80 | 78 | 78 | 78 | 76 |
| Natural Gas ($US/MMBtu) | 2.66 | 2.16 | 2.59 | 2.75 | 2.23 | 2.30 | 2.60 | 2.80 | 3.00 | 3.10 | 3.10 | 3.20 |
| Gold ($US/troy oz.) | 1889 | 1977 | 1928 | 1977 | 2072 | 2325 | 2350 | 2350 | 2350 | 2325 | 2275 | 2175 |
| Silver ($US/troy oz.) | 22.56 | 24.19 | 23.58 | 23.27 | 23.37 | 29.00 | 31.00 | 31.00 | 31.00 | 30.00 | 29.00 | 28.00 |
| Copper (cents/lb) | 405 | 384 | 379 | 371 | 383 | 440 | 445 | 450 | 445 | 435 | 435 | 430 |
| Nickel ($US/lb) | 11.81 | 10.13 | 9.23 | 7.81 | 7.52 | 8.36 | 8.15 | 7.95 | 7.70 | 7.70 | 7.70 | 7.70 |
| Aluminum (cents/lb) | 109 | 103 | 98 | 99 | 100 | 110 | 108 | 110 | 112 | 112 | 115 | 115 |
| Wheat ($US/bu) | 7.32 | 6.50 | 5.76 | 5.89 | 5.87 | 6.10 | 6.30 | 6.20 | 6.00 | 6.00 | 6.00 | 6. |
| Note: Light gray figures represent past quarters and black figure represent forecasted pricing.
F: Forecast by TD Economics, June 2024. All forecasts are period averages. Source: Bloomberg, TD Economics, USDA (Haver) |
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US Election
With November fast approaching, there has been no shortage of drama on the campaign trail this year. A common question we receive in election years – especially in the US – is, “What does the outcome of the election mean for my portfolio?”. While the answer of this question relies on the content of your unique portfolio and risk tolerance, we can expect more short-term volatility in US stock markets. This can present a buying opportunity for investors, but this needs to be done in the context of the business being invested in and how the policy platform may affect that business, not the whim of a headline. As it turns out, there’s little difference between who’s in the White House or Congress and the Senate, so long as neither party controls all three.
Past performance is not indicative of future results and results are not guaranteed. Data excludes 2001-2002 due to Senator Jeffords changing parties in 2001. Calendar year performance from 1933 through 2022. Source: Fidelity US, Strategas Research Partners, as of Nov. 5, 2023.
Final Thoughts
As investment advisors, our job is to assess our clients’ objectives and risk tolerance, designing portfolios and strategies that align with broader market opportunities. This requires cutting through the noise of the 24-hour news cycle. News can influence markets in various ways, making it crucial to understand information relevancy. Not all news impacts portfolios, especially from a long-term perspective.
Election years often bring market volatility, particularly if there is an upset. The impact of this volatility varies by investment strategy. Long-term investors focused on growing businesses may see little effect, while short-term investors exposed to volatile assets might face challenges.
At Momentum Wealth of Aligned Capital Partners, we maintain a shortlist of long-term opportunities. Market timing is generally unproductive, so we evaluate ideas based on historical relative valuation and current market context. Sometimes, an asset may appear valuable historically but may not align with current market conditions.
For instance, in 2022 and 2023, many recommended investing in Chinese stocks due to low valuations. However, we avoided these due to geopolitical risks associated with a centralized Communist government. This uncertainty outweighed potential gains, helping us avoid significant client losses.
Current Shortlist:
North American Dividend Stocks
As interest rates moderate, the yield on new government and high-quality corporate bonds typically does too. Investors often return to dividend-paying stocks, which have recently been undervalued due to higher bond yields.
US Small Cap Stocks
In 2023, we invested in mid-cap US stocks, anticipating benefits from artificial intelligence and automation investments. We expect this trend to extend to small caps as interest rates decrease and global growth resumes.
Private Credit & Real Estate
We are monitoring the credit environment as lending conditions tighten. While the Canadian market for private credit and residential REITs is promising, we prefer to see more economic stabilization before increasing positions. For high-net-worth individuals, these can also provide a tax-efficient income with lower volatility.
In summary, our focus remains on long-term opportunities, ensuring our clients’ portfolios are well-positioned to navigate both current and future market conditions.
Peter Sproule is an investment advisor with Aligned Capital Partners Inc. (“ACPI”). The opinions expressed are those of the author and not necessarily those of ACPI. This material is provided for general information and the opinions expressed and information provided herein are subject to change without notice. Every effort has been made to compile this material from reliable sources however no warranty can be made as to its accuracy or completeness. Before acting on the information presented, please seek professional financial advice based on your personal circumstances. ACPI is a full-service investment dealer and a member of the Canadian Investor Protection Fund (“CIPF”) and the Canadian Investment Regulatory Organization (“CIRO”). Investment services are provided through ACPI or Momentum Wealth an approved trade name of ACPI. Only investment-related products and services are offered through ACPI/(or) Momentum Wealth and covered by the CIPF. Financial planning and insurance services are provided through Momentum Financial Services Inc. Momentum Financial Services Inc. is an independent company separate and distinct from ACPI/Momentum Wealth.”
