Progress against inflation has ignited both bond and stock prices as the need for additional tightening of monetary policy diminishes. While the threat of recession in early 2024 remains as the full force of prior central banks’ rate hikes feeds through the economy, the next cycle is moving into view. We believe that capital markets are transitioning to reflect a return to optimal inflation and firming growth later this year, and doing so with a backdrop of generally attractive valuation levels.
While a recession seems to have been avoided in 2023, the economy will likely slow through the first half of 2024 before recovering later in the year. Savings that were built up during the pandemic are being depleted, government spending is set to slow and geopolitical frictions are intense. The main headwind to the global economy, though, is that interest rates surged to their highest level in 16 years by mid-2023. If they remain elevated, higher borrowing costs could discourage business and consumer spending, while making debt-servicing more difficult.
Despite their strong finish to 2023, markets are likely to continue to be challenging in 2024 as investors assess the impact of a slowing economy on companies’ earnings and growth prospects. The economy in Canada is in a more difficult position than the U.S., with the latter just beginning to show signs of slowing. The upcoming U.S. presidential election is also likely to create more distractions for investors this year.
But many of these developments will be just that – short-term distractions. With so much in flux, we continue to encourage clients to remain focused on what they can control, not on what they can’t. This includes accessing our wealth planning services to support and enhance your long-term, wealth-building efforts, including retirement, estate and tax planning. In combination with our expertise in portfolio management, we will continue to help ensure you successfully navigate through whatever challenges may lie ahead.
Thank you for your continued trust in us as the stewards of your wealth. I wish you and your family a very happy new year, and much good health and happiness in the year ahead.
Regards,
Vijay Parmar
President
RBC PH&N Investment Counsel
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