Montreal, July 15, 2024
The second quarter of 2024 provided mixed numbers as the Canadian stock market, the S&P/TSX, saw a decline of -1.4%, but both the US market via the S&P500 rose 4.16% and the MSCI World Index returned 2.78%. Canadian economic data was weaker that our neighbors to the south, hence the weaker performance.
As we entered the second quarter of 2024, there was apprehension and fear in the US that the Federal Reserve was concentrating too much on inflation numbers, as they had yet to fall below 3% year-to date, dampening hopes for a reduction of interest rates. Economists are also focusing attention on wage growth and employment numbers. Although there is sign of wage pressure, the job numbers are faltering somewhat.
As the graph below illustrates, the pressure in mounting for the Federal Reserve Board to act.
Here in Canada, inflation has been under 3% since the beginning of the year and employment as well as wage statistics were less favorable for the economy that lead to the first rate reduction in 5 years.
The other backdrop for stocks was strong quarterly corporate earnings, providing investors incentive to stay the course with the understanding that the new market mantra of ‘higher for longer’, referring to high interest rates, is the new norm. The interest rate cut gave the Canadian markets some incentive, however short-lived in early June. There is expectation in Canada for another rate cut in July given weak economic data. The immediate worry is that the Canadian Dollar further drops in value versus the Greenback, as the Monetary policy of each country diverges.
Heading into third quarter 2024, we will continue to focus on the economic data released and substantial geopolitical events shaping different economic relationships throughout the world.
To date there remains some uncertainty, yet markets remain cautiously optimistic.
