I was in Toronto earlier this month attending an investment conference where I had the opportunity to speak to and listen to some of the best money managers in North America. It was a great opportunity to get some up to date insights into both the stock and bond markets as well as the direction of inflation and interest rates. I wouldn’t say there was complete consensus on everything – far from it – but these were my big takeaways from all my conversations:

1. There seemed to be agreement that inflation is going in the right direction and that the rise in interest rates is working to bring it down.

2. Almost everyone I spoke to were of the opinion that while there will be some more pain coming in the economy, it will not be anything that couldn’t be fixed quickly with a drop in interest rates.

3. Very few people I spoke to were predicting central banks will be lowering interest rates until mid to late next year at the earliest. This will be dependent on how bad a recession we get if it comes at all.

4. I’ve been in this business since 1994 and I realized that I’ve spent about half my career in essentially a zero rate environment. Those days are gone. What we have today is basically a normal interest rate environment and eventually this new reality will be accepted. The big loser in this scenario is government whose interest payments are going to rise significantly in the next few years as they roll over debt maturities. This will put a damper on government spending as interest payments become a bigger percentage of its spending. Of course, consumers will feel this, as well.

5. I never like to predict short term movements in the stock market but it seems to me that if we are near the end of this rate hiking cycle and if some or all of the fear of a pending recession is priced into stocks, I feel reasonably confident that this bodes well for stocks in 2024.

6. The big winner of higher interest rates are balanced portfolios. For the first time since 2008, investing in fixed income will actually make you some money and will make it much easier for investors of all types to meet their financial goals.

One of the benefits of attending a conference in Toronto is the opportunity to take in the occasional Leafs game which I did on November 6 when they played the Tampa Bay Lightning. A few minutes into the second period, the Leafs were down 4 - 1 and they were not looking good. The crowd was silent and I actually heard some people talking about leaving with over half the game left! I bet if you asked people there if they thought the Leafs were going to win, most would have said no.

I couldn’t help but see the analogy to the markets. Earlier in 2023, if you had asked people what the economy was going to look like this year, nearly everyone was calling for a recession. But as it turns out, the economy and the markets, for that matter, have been amazingly resilient. I think this could bode well for the rest of the year and hopefully for 2024.

The Leafs won the game in overtime, by the way. I posted on Facebook a picture of the scoreboard when they were down 4 - 1 with the caption “It’s going to be ok…”. I think there are 2 potential lessons from this that we can apply to the markets. First, don’t let excessive pessimism affect your investment decision making. Second, whether the recession comes or not, it’s going to be ok.

If you have any questions or concerns, please reach out.