In this week’s economic update, we are sharing content focused on the U.S. election presidential candidate policy differences, as well as diving into the U.S. equities results to-date from the third quarter.
For some, today’s election can feel like an anxious or stressful time of the year. We are sharing a useful article from RBC Wealth Management that has some helpful principles to keep in mind today to help remove emotion from your investment outlook.
We are also proud to be highlighting our sponsorship and participation in two incredible charity events supporting two long standing community partners of our team: the Children’s Foundation Guelph Wellington, and the Milton District Hospital Foundation. Thank you to everyone who came to these events and donated generously – you are helping to make our communities brighter, healthier and happier.
Economic Update
Global equity markets have drifted lower recently, with North American equity markets retreating from highs. In the U.S., central bank policy easing is expected to continue, but investors have tempered their expectations for how quickly rates will fall amid resilient economic data. This, in addition to shifting election odds, has led to rising bond yields. Below, we provide some quick thoughts on the upcoming elections and discuss some takeaways from the earnings season.
U.S. Elections – checks and balances
U.S. elections are today. We understand the scrutiny being placed on the presidential candidates and their policies but are mindful of the checks and balances that are built into the U.S. government structure that may constrain the next president from pushing through all of their proposed policies. This was discussed in our firm’s comprehensive report from September.
Mixed U.S. equity results, largest stocks having outsized impact
The U.S. equity market’s third-quarter earnings season has now passed the halfway mark. Overall, results have been mixed, with the blended earnings growth rate – combining actual results reported thus far and estimates for upcoming announcements – standing at nearly 3.5%. That is the slowest pace of earnings growth in over a year. Once again, the six largest U.S. stocks, all technology-related, have had an out-sized impact. Without these companies, the earnings growth rate for the market would be nearly flat.
Increased scrutiny on mega cap technology stocks
Despite contributing most of the earnings growth for yet another quarter, the elevated valuations of the mega cap technology stocks have left investors with lofty expectations for current and future quarterly results. A couple of companies managed to deliver against these expectations and saw stock gains as a result, while others saw their stock prices fall in response to increased scrutiny around rising levels of capital expenditures tied to artificial intelligence.
Interest rates, AI, and inflation
Meanwhile, company management commentary across sectors has provided some helpful colour on the operating environment. On the consumer front, a range of financial and consumer businesses continued to characterize the consumer as reasonably stable and resilient despite high interest rates. Some companies expressed optimism about potential tailwinds from lower interest rates, though they were cautious in suggesting that any significant relief will take time. With respect to artificial intelligence (AI), many companies acknowledged strong demand for the required infrastructure to power this technology, like data centers, cloud storage, computing power, and chips, but cautioned that generative AI remains in its early days and that major use cases will take time to materialize. Interestingly, while headline inflation continues to moderate, companies continue to highlight challenges with respect to costs. Lastly, China was referred to as being weak though there is hope that stimulus measures could lead to improvement.
Summary
In recent months, sectors outside of technology – such as utilities, real estate, and financials for example, have contributed more meaningfully to U.S. stock market gains. This has been encouraging to see and it suggests investors may be anticipating a reacceleration in earnings growth for stocks across these sectors in the coming quarters. In fact, earnings growth is projected to be nearly 15% next year, far higher than it has been over the past few years. More importantly, it is expected to be fueled by a range of different sectors. We believe this could mark an important and healthy development, should it occur, as it would suggest a broadening in growth with more companies and industries benefitting, providing a constructive backdrop for investors and their portfolios.
Key things to know about the U.S. Election – four principles to keep in mind
Today, the United States is headed to the polls – although it might take a while for the full results of the election to become known.
Over the years, investors can often apply their political anxieties to their views about prospects for the stock market and economy. This article from RBC Wealth Management (published in March 2024) does a great job of outlining the four key principles to keep in mind as we head into the next few weeks post-elections.
You can read the article by clicking here.
Once Upon a Time Gala, in support of the Children’s Foundation Guelph Wellington
On October 26th, our team was proud to be presenting sponsors for the Children’s Foundation Guelph Wellington’s Once Upon a Time Gala. This year’s focus was on food security, and the Foundation’s mission to ensure that children and youth get the nutrition they need at school and at home. The event was incredible – not only was the Gala an amazing experience, the generosity of the donors meant the Foundation raised over $184,600 that will contribute towards a happily ever after for thousands of local children and youth.
We feel a deep responsibility to give our time, talent and resources to the regions we serve – and help create a brighter, healthier and happier future. Earlier this year, our team had the privilege of volunteering with the Keep Kids Fed program and were deeply touched by the challenges being faced by children in our community. We’re proud to be partners with the Foundation on this amazing event (and throughout the year), and we’d like to thank all of the donors, sponsors, and volunteers who helped make the night such a great success.
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Decades of Caring, in support of the Milton District Hospital Foundation
Also on October 26th, our team was proud to be Gold Sponsors for the Milton District Hospital Foundation’s Gift of Health Gala. Held at the Burlington Convention Centre, this year’s gala was themed for “Decades of Caring”, highlighting the 65th anniversary of the Milton District Hospital.
Fundraising was focused on equipping the hospital with the critical imaging equipment and CT scanner required to help ensure timely and accurate diagnoses and treatments – and ultimately making a material difference in patient care.
This year, the Foundation raised over $800,000 – thank you so much of all of those who gave so generously, to everyone who attended the Gala, the other sponsors of the event, and to all the team members at the Foundation who made the evening such a great success.
We are proud to be long-time supports of the Foundation and their critical role in making Milton’s future brighter, healthier, and happier.
As always, we are available to connect with you personally. Please don’t hesitate to contact us at 519-822-2024 or elineskyschuett@rbc.com.