From our Portfolio Advisory Group
Global equities have continued to perform well as of late. But more noteworthy has been the breadth of the rally, with a variety of sectors, and not just technology, enjoying significant gains. As a result, markets outside the U.S. have also performed better, with Canada, for example, recently outperforming the U.S. We view this broadening as a healthy sign as it suggests growing confidence in the investment outlook and portfolio performance that may be less reliant on a narrow part of the market. Below, we turn our attention to the anticipation of interest rate cuts in North America, despite the diverging paths of the Canadian and U.S. economies.
Canada has thus far avoided a recession. Its most recent real gross domestic product (GDP) figure was around 1% in the last quarter of 2023. But this modest growth masks some underlying economic weakness. Canadian real GDP per-capita, which accounts for the country’s strong population growth, has been in decline for over a year now. Weak consumer spending, business investment, and lower job growth have slowed the economy, partially offset by strong exports. Recent U.S. economic data has painted a different story, generally exceeding projections. In February, U.S. real GDP grew at an annual rate of 3.2%, with the per capita rate showing similar strength. At the same time, the U.S. labour market has remained relatively tight, which continues to support consumer spending. Though manufacturing sector activity had been on a downtrend from pandemic era peaks, it has picked up in recent months.
The economic divergence in Canada relative to the U.S. has also been on display in recent inflation readings. Canada’s consumer price index (CPI) report for February, released over the past week, revealed lower than expected inflation for the second month in a row. There was a broad easing in price pressures, with the exception being shelter related costs including rents, mortgage interest, and the expenses tied to owning a home. In contrast, the U.S. has witnessed a modest reacceleration in inflation over the last two months, slightly exceeding expectations.
Despite these differences, both the Bank of Canada and the U.S. Federal Reserve have telegraphed the potential for rate cuts in 2024. Policymakers at the Bank of Canada recently indicated that cuts could be appropriate this year if the economy evolves in-line with current forecasts. The case for lower interest rates in Canada has become more convincing as recent economic data point towards moderating inflation. On the other hand, the argument for rate cuts seems less compelling in the U.S., given the economic strength that has been maintained amid higher rates. Nevertheless, Federal Reserve Chairman Jerome Powell reiterated this past week that the Fed believes it may be appropriate to cut interest rates at some point this year. In response to questions on the recent reacceleration in inflation, Powell noted that inflation continues to trend lower despite the recent “bumps in the road”. Markets are currently expecting three cuts this year in both Canada and the U.S., with the first one occurring as early as June.
The key takeaway is that rate cuts are a real possibility in both Canada and the U.S., even if the rationale and extent of these policy moves might be debated based on the current state of the two economies. Historically speaking, an environment characterized by declining interest rates tends to be supportive for investment returns. The strong equity market performance in recent months may reflect some of this optimism, though we would not be surprised to see markets continue to push higher, at least until some future developments prompt a reassessment of the outlook for inflation, growth, and interest rates.
Wealth Management
We are seeing an increase in financial fraud attempts. I am attaching an article entitled What to do if you’re a victim of a scam or financial fraud.
It's tax time - the deadline for filing personal returns in Canada is April 30. All tax slips have been delivered now either via Canada Post or your online site. I’m attaching an article on What to do with your Tax Refund.
I read this note on investing and thought I was worth including here.
20 Lessons From 20 Years of Managing Money:
1. Experiences shape your perception of risk.
2. Intelligence doesn't guarantee investment sucess.
3. No one lives life in the long-term.
4. The only client question that matters is: "Am I going to be OK?"
5. It's never been easier or harder to set-it-and-forget-it.
6. Rich people hate paying taxes more than they like making more money.
7. Getting rich overnight is a curse, not a blessing.
8. Investing is hard.
9. The biggest risks are always the same...yet different.
10. The market doesn't care how clever you are.
11. A product is not a portfolio and a portfolio is not a plan.
12. Overthinking can be just as debilitating as not thinking at all.
13. Career risk explains most irrational decisions in the investment business.
14. There is no such thing as a perfect portfolio.
15. Our emotions are riggest, not the stock market.
16. Experience is not the same as expertise.
17. Being right all the time is overrated.
18. There is a big dfference between rich and wealthy.
19. Optimism should be your default.
20. Less is more.
Full article / source: 20 Lessons from 20 Years of Managing Money - A Wealth of Common Sense
Client events
We celebrated International Women’s Day with clients on March 8 and our guest speaker was Larissa Franklin, RBC Olympian. See below for some links and a picture from the event.
Here is little bit about our sponsorship of Olympians
https://www.rbc.com/community-social-impact/athletes/olympic-sponsorship.html
And here is information on Larissa.
https://olympic.ca/team-canada/larissa-franklin/
In the Community
A few of us from the office volunteered at Simcoe Hall Settlement House this week. We did some painting on their premises to get them ready for their 90th year anniversary this summer. See attached picture.
Our staff also donated food to their food bank program. They run a number of community programs there. To learn more about Simcoe Hall please see the link.
The Hearth Place Annual Gala will be held on April 13, 2024. Thanks to all who contributed to the silent auction table.
Team Notes
Note our office is closed on Friday April 29th for Good Friday and we are open on Monday April 1.
Happy Easter!.