From our Portfolio Advisory Group
Global equity markets have maintained their strong start to the year, despite investors needing to recalibrate their expectations for the timing of interest rate cuts. Recent global economic data has been mixed, whereas in the U.S. it has largely exceeded expectations, with the latest inflation reading suggesting a modest uptick in price pressures. Meanwhile, minutes from the U.S. central bank’s recent meeting revealed that policymakers continue to ponder the risks associated with premature rate reductions. Below, we discuss the earnings season, which is now in its final stages.
A key factor behind the equity market's strength lately has been earnings results. Fourth quarter U.S. earnings are set to rise by just over 3% year-over-year, roughly double the expected pace. Though not remarkable in absolute terms, this growth is notable given the anticipated drag from higher interest rates on operating profits. Earnings results were especially strong across some pockets of the Consumer, Industrials, and Technology sectors. The “Magnificent Seven” technology-centric stocks, which make up nearly 30% of the U.S. S&P 500 index, have been crucial to driving the market’s overall earnings growth due to their sheer size and influence. Without their contribution, earnings growth would have declined by 4% year-over-year. In other words, while the U.S. market’s earnings growth looked fine relative to expectations, the strength of its underlying companies may be overstated given the lack of breadth.
During this earnings season, comments from management teams have been generally positive with respect to consumer demand, although several noted consumers’ growing sensitivity to prices. Nevertheless, many companies highlighted robust economic indicators, such as high job creation and low unemployment claims. In their view, this suggests consumers can continue to spend, albeit with budgets strained by inflation. And while retail sales numbers recently came in below expectations, they remain significantly higher than pre-pandemic levels. Management perspectives varied on operating conditions, with some looking for clearer guidance on interest rates and others voicing concerns over persistent inflationary pressures and cost challenges. Across the board, there was a clear focus on cost management and profit margin improvement.
As we look to the rest of 2024, earnings growth is expected to pick up. Analyst estimates suggest an earnings growth rate of nearly 9% for the year. And unlike the past year, this growth is anticipated to be more broadly distributed across various companies, not just the “Magnificent Seven”. This more evenly distributed earnings growth would be a welcome development, but this outlook is predicated on several assumptions: consumer and business demand that remain resilient and potentially improve, a deceleration in inflation, and lower interest rates. While such a scenario is entirely possible, the range of potential near-term outcomes remains wide, given how far interest rates have moved over the past few years and questions regarding inflation’s future trajectory. In managing portfolios, we are displaying greater caution than usual, given these uncertainties.
Wealth Management
Tax packages have begun mailing – theT5 Tax packages, T5s from RBC Global Asset Management, T4RIFs and T4RRSPs were out earlier in February. First Home Savers Account tax slips are out today and are being mailed (not available on e-delivery).
In your tax package mailed by RBC Dominion Securities, there is a check list for what slips you will be expecting. Please do not file your taxes until you have received all slips. And be sure to take the entire package to your tax professional. Non-registered fees are tax deductible as per CRA rules and these are included in the package.
RRSP contributions receipts are out regularly now for those last minute contributions.
I have attached a few articles on taxes - one on tax rates in Ontario, one on early 2024 tax planning, one on RIF / LIF minimums. I get this question often on how RIF/LIF minimums are calculated – it is a formula based on age and market value of the RIF/LIF on Dec 31 each year. As you get older, the percentage increases and in theory your market value should be decreasing because of withdrawals.
Client events
We are celebrating International Women’s Day on March 8th with clients and our guest speaker is Larissa Franklin who is an Olympic Bronze Medalist in Softball.
In the Community
I am volunteering again this year on the Hearth Place Annual Gala committee. Our gala will be held on April 13, 2024. We are looking for donations to the silent auction table and specifically bottles of wine for our wine draw. If anyone has something they can donate, please contact me or Danielle Carroll, directly at Hearth Place danielle@hearthplace.org
Team Notes
We celebrated Pink Shirt Day in our office on Wednesday February 28th.
Pink Shirt Day, also known as Anti-Bullying Day, raises awareness about bullying in schools, workplaces, at home and online. See attached picture.
The initiative started here in Canada in 2007, when 12th-grade students in Cambridge, Nova Scotia, bought and distributed 50 pink shirts after a fellow student was bullied for wearing a pink shirt. Since then, the Pink Shirt Day initiative, led by the CKNW Kids’ Fund, raises funds to support anti-bullying programs year-round, and people from over 180 countries across the world show their support on Pink Shirt Day each year.
I am not in the office the week of March 4-8th – I will check emails once/day. Kim will be here to answer any questions and a reminder that Kim is fully licensed for trade execution.
Kim will be off 2 days during March Break week – Thursday March 14 & Friday March 15
Our office and the markets will be closed on Friday March 29th for Good Friday.
The clocks move ahead one hour on Saturday March 9th – spring forward, fall back! It will be nice to see the longer days as we approach spring.
Happy Spring everyone!