| Left to Right: Corinne, Sarah, Mark, Peter, Nathalie and Jackson Gallivan Wealth Management Report: September 2024
A few topics our newsletter touches on this month: - Our Thoughts: Fall Economic Update (Canada) - By the numbers: August - Other Things: Ottawa Client Event, Disruptors podcast, Global Insight Monthly, Our Thoughts: Fall Economic Update (Canada) Global markets moved higher over the last couple weeks of August, 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.
That continued decline in inflationary pressures, coupled with ongoing signs of a cooling Canadian economy, prompted the Bank of Canada (BoC) to make its third consecutive interest rate cut this week. It’s widely expected that the U.S. Federal Reserve will initiate its first rate cut at its next meeting later this month. Canada's inflation rate has steadily declined this year, with the Consumer Price Index (CPI) falling to 2.5% year-over-year in July, marking its lowest level since March 2021. The economy grew at an annualized rate of 2.3% in the second quarter, surpassing expectations though a sizable portion of the growth—roughly 80%— was driven by increased government spending. The Canadian labour market also offers a mixed picture. While the unemployment rate held steady at 6.4% in July, it has risen almost one percentage point from the same time last year. However, this uptick is more a reflection of slower hiring than widespread job losses. Newcomers to Canada and young workers have unemployment rates at much higher levels of 12.6% and 14.2%, respectively. Canadian households continue to face a formidable challenge: mortgage renewals from ultra-low interest rates locked in in 2020-21. RBC Economics has estimated that approximately 25% of all existing mortgages will reset in 2025, and a third will follow in 2026. While a decline in interest rates can help, mortgage payments could rise between 20% to 40% depending on the extent of rate cuts, creating a drag on consumer spending. Despite a relatively weak economy, Canadian equities have performed well, with the market up over 12% year-to-date. This underscores the point that stock markets can sometimes reflect a different picture than the economic reality. Markets tend to be forward looking, with prices reflecting expectations of the future trajectory of company earnings. In contrast, economic data tells us what has already happened. The Canadian stock market’s strength this year can be partially attributed to the anticipation of rate cuts by the BoC, which should eventually provide relief to both Canadian consumers and businesses. This has helped the performance of rate-sensitive sectors like Financials, Consumer, Utilities, and Real Estate. The market has also been buoyed by strong performance across other sectors like Materials and Energy. Materials have been driven higher by record high gold prices, which are partly the result of central banks’ efforts to diversify their reserves. Meanwhile, the Energy sector has benefited from disciplined capital allocation across the industry despite the ups and downs witnessed with oil prices this year. We consider Canada’s stock market to be fairly valued, meaning it is neither expensive nor cheap. The performance of the stock market to date is encouraging as it has come in the face of economic challenges that may persist for some time to come. Nevertheless, the rate cuts that are well under way should eventually serve as an offset to the hikes implemented just a few years ago and potentially lead to a more durable period of growth at some point in the future. By the numbers (August): The TSX was up 1.2% and the S&P 500 was up 2.4% in U.S. dollars (0.1% in $CAD). The Europe, Australia & Far East index (EAFE) was up 0.7%, while the Emerging Markets index was down 0.9%. The Canadian bond market was up 0.3%. Interesting Listening/Reading
Regards, Mark, Peter, Sarah, Corinne, Nathalie & Jackson Gallivan Wealth Management RBC Dominion Securities Inc.* and Royal Bank of Canada are separate corporate entities which are affiliated. *Member-Canadian Investor Protection Fund. RBC Dominion Securities Inc. is a member company of RBC Wealth Management, a business segment of Royal Bank of Canada. ® / ™ Trademark(s) of Royal Bank of Canada. Used under licence. © 2024 RBC Dominion Securities Inc. All rights reserved. This information is not investment advice and should be used only in conjunction with a discussion with your RBC Dominion Securities Inc. Investment Advisor. This will ensure that your own circumstances have been considered properly and that action is taken on the latest available information. The strategies and advice in this report are provided for general guidance. Readers should consult their own Investment Advisor when planning to implement a strategy. Interest rates, market conditions, special offers, tax rulings, and other investment factors are subject to change. The information contained herein has been obtained from sources believed to be reliable at the time obtained but neither RBC Dominion Securities Inc. nor its employees, agents, or information suppliers can guarantee its accuracy or completeness. This report is not and under no circumstances is to be construed as an offer to sell or the solicitation of an offer to buy any securities. This report is furnished on the basis and understanding that neither RBC Dominion Securities Inc. nor its employees, agents, or information suppliers is to be under any responsibility or liability whatsoever in respect thereof. The inventories of RBC Dominion Securities Inc. may from time to time include securities mentioned herein. RBC Dominion Securities Inc.* and Royal Bank of Canada are separate corporate entities which are affiliated. *Member-Canadian Investor Protection Fund. RBC Dominion Securities Inc. is a member company of RBC Wealth Management, a business segment of Royal Bank of Canada. ® / ™ Trademark(s) of Royal Bank of Canada. Used under licence. © 2024 RBC Dominion Securities Inc. All rights reserved. |
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