It’s hard to believe, but the first half of the year has come to a close. While it’s been eventful, one could argue it’s been relatively dull compared to the year ago period. Interest rates are still rising, but less aggressively than last year. The rate of inflation is decelerating, rather than accelerating. And, economies have proved resilient, still largely growing despite what many had predicted at this time last year. Below, we share some takeaways on the year’s performance thus far and our thoughts going forward. We also provide a summary of our firm’s “Mid-Year Outlook”, which is hot off the press.

Global stocks and bonds are higher year-to-date, despite the near universal concerns around the interest rate backdrop. In some cases, the returns have been modest with global bonds and Canadian equities up a few percentage points for example. In other cases, like international equities, the gains are larger. The U.S. equity market has looked strong. Yet, beneath the surface, its gains have been less compelling as the technology sector has had an outsized impact, and in particular a handful of the largest household names. In some ways it hasn’t been surprising as some of these stocks were responsible for driving much of the U.S. stock market decline last year. Regardless, it’s undoubtedly been a more pleasant investing experience for investors thus far in 2023.

Our firm’s global investments team regularly produces thoughtful content to help us think about the future and assess the positioning of our clients’ portfolios. It recently produced its mid-year outlook, in which it discussed the rally in asset prices since last year’s lows. It acknowledged these trends may continue in the short-term, but also highlighted the increasing number of economic indicators that are pointing to more challenging times ahead. It remains of the view that investors should be prudent and ensure they are positioned to navigate through a more difficult backdrop in the future.

We largely share this view as we believe the substantial amount of rate hikes of the past year will eventually wear on consumers and businesses. We have taken action in portfolios for our clients over the past year that leave us feeling comfortable with their ability to handle whatever the future has in store. There have been refinements we have made: re-evaluating the quality of our portfolio holdings, the dividend yields and growth, and sector exposure for example. The biggest adjustments have been in fixed income where bonds have re-emerged as a more useful tool in helping our clients and their portfolios. The level of income that can be generated from bonds today is substantially more attractive than it’s been in years, with yields that are hundreds of basis points, or a few percent, higher. Moreover, while inflation remains a risk, we believe bonds can offer renewed diversification and protection for our portfolios in the event the economic backdrop worsens.

We want to take the opportunity to wish you and your loved ones a happy Canada Day and a great summer. We will continue to provide updates as we normally do.

Should you have any questions, please feel free to reach out.