As we approach year end, I wanted to provide an update on the third quarter of 2024, highlighting your portfolio’s strong performance and sharing our thoughts on developments south of the border.
In the third quarter, your portfolio’s returns were largely driven by equities during an unusual rally ahead of the U.S. election. A key development during this time was the U.S. Federal Reserve’s first interest rate cut of this cycle, joining the Bank of Canada and other central banks already reducing rates as inflation recedes. This policy shift has provided relief to households and businesses that have been navigating higher interest rates. While the future path of inflation and rates remains uncertain, it’s clear that we are now on the easing side of this cycle.

Equity market performance broadened during the quarter, with interest rate sensitive sectors such as real estate, utilities and financials pushing several indices to all-time highs. However, the information technology sector lagged as investors reassessed valuations for companies benefiting from AI spending. Our strategy continues to focus on investing in quality businesses at reasonable prices that have the potential to capitalize on the growing adoption of AI over time.

Ahead of the U.S. election, we elected to take profits in your portfolio, capturing gains near market highs. This strategy provided flexibility to redeploy funds into the market post-election. The shifting political landscape in the U.S. has created opportunities to reposition your portfolio while remaining cautious. For example, smaller and midsized companies, which have faced challenges over the past few years, are poised for growth with the possibility of lower taxes and reduced regulation. We’ve increased investments in these areas while carefully monitoring the potential impact of proposed U.S. tariffs on international trade. According to RBC Capital Markets, such tariffs could reduce Canadian economic growth by 0.2%, however your portfolio is well diversified geographically.  For example, only 13% of Alimentation Couch Tard’s revenue comes from within Canada, helping to mitigate risk.
From an economic perspective, market strength reflects optimism for a soft landing in the U.S., avoiding a recession. While stocks are not necessarily “cheap” at present, we anticipate robust corporate earnings growth through 2025, which we believe will be the primary driver of portfolio returns in the coming year.

As always, our team remains dedicated to navigating these dynamic markets, ensuring your portfolio is well positioned for both current opportunities and long-term growth. Should you have any questions or wish to discuss this update further, please do not hesitate to reach out.

Thank you for your continued trust in our team.