The Markets
The TSX is up 2.1% for October and up 16.9% year to date.
The S&P 500 is up 0.9% in October and up 21.9% year to date.
The NASDAQ is up 2.3% in October and up 24% year to date.
These numbers are as of close October 31, 2024
On Oct 12, 2022, the S&P 500 closed at 3577, a two-year low. Since then, the S&P 500 – an index of the U.S. largest publicly traded companies, has moved 62% higher.
In October 2022, the market was reeling after a UK policy fueled panic which swept through the global bond market. Inflation was 8% and the Federal Reserve had just implemented a 75 basis point rate hike. Federal Reserve Chair Jay Powell was stating that he was willing to drive the economy into a crisis if it meant bringing inflation down. Investor sentiment was pessimistic.
Today the economy is growing – even if at a slower pace than a year ago - and profits are rising. People feel more confident about the stock market. In general, bulls tend to die at the hands of an economic crisis that few people expect (think COVID).
Moral of the story – keep your time horizon in perspective and understand your comfort level with risk before an economic crisis happens.
Returns have been very good lately and if you weren’t comfortable when markets were down 2 years ago, a conversation is a good idea.
From our Portfolio Advisory Group (as of Oct 31, 2024)
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 are just days away. 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.
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 outsized impact. Without these companies, the earnings growth rate for the market would be nearly flat.
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.
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.
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.
Wealth Management
We are approaching year end which in my world is the time I look at realized gains/losses in clients’ non-registered accounts. It’s been a good year on the markets and in managed accounts and I am cognizant of triggering gains. January is also the time to top up your TFSA with another $7000. I will be reaching out to some clients to discuss their gain/loss position if significant and to talk about topping up TFSA’s.
We have some great content on our website and I highlight a podcast series called Matters Beyond Wealth with Leanne Kaufman, President of Royal Trust. Most recent episodes cover What is the loneliness epidemic and the role of the executor. You can find them here.
Matters Beyond Wealth podcast - RBC Wealth Management
Client events
Please be aware of the Scams out there – We have this article on our bank website on how AI is being used by the scammers and how to protect yourself.
AI-Powered Scams: How AI is Enhancing Existing Scams - My Money Matters (rbcroyalbank.com)
In the Community
I attended The Future of Health Care in Durham with the CEO of Lakeridge Health, Cynthia Davis. She had some good takeaways….Durham population is expected to double in size by 2041. Looking ahead, Lakeridge Health is continuing to expand capital buildings, continuing to grow team to build better capacity, continue to leverage advanced technologies, continue to work closely with every possible partner to connect every resident of Durham Tion to a primary care provider, continue planning towards achieving a full range of health services to create healthy vibrant communities.
Attachments
Global Insight Special Report on Exploring the impact of AI and Gen AI across industries
Please Note – bank branches are closed on Monday November 11 but the markets are open.