The Markets
The TSX is up 0.5% for July and up 10.5% year to date.
The S&P 500 is up 1.3% in July and up 17.2% year to date.
The NASDAQ is down 0.2% in July and up 16.7% year to date.
These numbers are as of close August 29, 2024
From our Portfolio Advisory Group (as of Aug 23, 2024)
Global markets moved higher over the past couple of weeks, with the Canadian equity market rebounding to new highs and U.S. equities nearing their mid-July peak. Meanwhile, government bond yields remain near their lows for the year. After being shaken by growth concerns earlier in August, equity markets have swiftly regained confidence in the resilience of the U.S. economy and the ongoing downward trend in inflation. Below, we discuss the second-quarter earnings season, which is just wrapping up, and offer insights into the current state of the U.S. consumer.
The majority of U.S. companies have now reported earnings, and overall results have been solid. Notably, corporate earnings growth has broadened. In fact, S&P 500 earnings-per-share (EPS) growth, excluding the “Magnificent Seven” group of large-cap technology stocks, has turned positive for the first time in over a year, suggesting a reacceleration in earnings growth across a wider range of companies and sectors. Despite some high-profile disappointments amongst a few large technology stocks, and some weakness in pockets of the consumer sector, nine out of eleven sectors delivered positive earnings growth this quarter.
A weaker-than-expected U.S. jobs report in July, along with downward revisions to the number of jobs created over the past year, has brought the state of the U.S. labour market into focus in recent weeks. However, commentary from management teams this past quarter has been relatively quiet on labour-specific issues, with few mentions of layoffs. Instead, many companies highlighted an increasing focus on cost discipline. This emphasis is reflected in underlying labour market trends, with slowing employment trends primarily driven by reduced hiring rather than outright firings or layoffs. While the unemployment rate has risen from its historically low levels in 2022 and job growth has decelerated, unemployment insurance claims have remained stable, and wage growth remains reasonable compared to pre-pandemic levels. We view these trends as being consistent with cooling inflation pressures, which should allow the U.S. central bank to begin to reduce interest rates as early as next month.
As the labour market finds better balance versus a few years ago, it continues to provide a supportive backdrop for the U.S. consumer. That is particularly important because consumer spending accounts for more than two-thirds of the U.S. economy. Recent retail sales figures for July came in stronger than expected. Moreover, commentary from banks and credit card companies throughout the earnings season painted a picture of a consumer who is increasingly price-sensitive but still healthy in the grand scheme of things. This narrative was echoed by some major national retailers, who noted that customers are being selective and prioritizing essentials over discretionary items. While acknowledging that consumers may not be spending as hastily as they were just a year or two ago, these retailers suggested that consumers are not demonstrating any meaningful signs of weakness either.
In summary, the latest earnings season and ongoing economic data point to a healthy, albeit slowing, economy, labour market, and consumer base. Some slowing is not such a bad thing as it may lead to lower interest rates, potentially extending this economic cycle further. We also welcome the recent broadening of earnings growth, which may help diversify the source of future equity returns in our portfolios. Nevertheless, we remain vigilant for signs of any meaningful deterioration in the economic backdrop, particularly in the labour market. We are very mindful that elevated interest rates could still have an impact on the economy despite the increasing likelihood of rate cuts being implemented through the second half of the year.
Wealth Management
I am having lots of conversations with clients lately around Wills and Power of Attorneys/ Estate Planning. This is so important for these documents to be in place so you can convey your wishes with your assets at estate time. We have lots of resources available to assist. Some basics – have beneficiaries listed on your registered accounts, consider joint accounts with spouses if you don’t have this already, life insurance can help offset taxes at death.
Probate is required on some assets such as real estate if owned personally, non-registered accounts on a single name account; probate is a fee paid to the Province of Ontario and that fee is 1.5% on all assets that pass through probate; (registered accounts with named beneficiaries avoid probate). Federal income tax applies separately from Probate.
I have attached a simple flow chart on methods of transferring assets at estate time. Everyone’s situation is unique and I’m happy to speak with people individually.
Client events
We have a client market update event on September 19 in Ajax. Please email me if you’re interested in attending.
In the Community
Our office has a team for the RBC Race for the Kids.
This event raises money for the Family Navigation Project at Sunnybrook, an innovative program that connects young people struggling with mental illness and addiction to get the help they desperately need. The official run is held in Toronto on Saturday September 21 but our office is running/walking it on Monday September 16th at 5 pm in Whitby. If you are interested in joining our group, please email me.
If you wish to donate to this cause here is the link:
RBC Race for the Kids Toronto: Ms. Karen Robertson - RBC Race for the Kids (convio.net)
Attachments
*Estate Planning for Blended Families
*Methods of transferring assets in your Estate.
*Global Insight - Key things to know about the U.S. election
*Global Insight – No Free Rein in the Realities of the U.S. Presidential Power.
Note - our office and the TSX and the U.S. markets are closed on Monday September 2 for Labour Day.
Enjoy your long weekend.