September 2023: August Update

September 07, 2023 | Gallivan Wealth Management Team


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Most major global equity markets took a breather in August after rising in July. Still, YTD performance for the US S&P 500 has been strong, with economists now tilting towards a “soft landing” outcome from the rise in interest rates.

A few topics our newsletter touches on this month:

  • Our Thoughts
  • RBC’s Industries in Motion podcast
  • Other Links: Disruptors podcast, Global Insight (monthly)

Our Thoughts:

Most major global equity markets took a breather in August after rising in July. Still, YTD performance for the US S&P 500 has been strong, with economists now tilting towards a “soft landing” outcome from the rise in interest rates. The US market has outperformed Canada, driven in large part due to excitement around generative artificial intelligence (AI – for more on this see “Industries in Motion” podcast link below). The introduction of ChatGPT has mainstreamed AI and elevated investments in generative AI for many companies. We believe this led to brisk changes in sector leadership with the “magnificent 7” stocks (Alphabet, Amazon, Apple, Meta, Microsoft, NVIDIA and Tesla) contributing roughly 60% of the S&P 500 YTD return. However, as demonstrated by this narrow market leadership, we think investor enthusiasm for AI-related investments may be too high. The potential upside opportunity from AI is undeniably large, but it is hard to quantify such upside at this juncture. We continue to re-tool our portfolios to take advantage of new opportunities (and new technologies) while remaining focused on long-term stability and dividend growth.

At this week’s September Bank of Canada (BoC) meeting, the central bank announced they will hold rates steady at 5.0%. Over the last quarter, the BoC has been more hawkish than the Federal Reserve in the U.S. in line with the divergent economic expectations mentioned earlier. With underlying price pressures still above the BoC’s 2.0% target, policymakers are likely to reiterate their willingness to remain open to further rate hikes. Meanwhile, lower than expected Q2 GDP growth, along with preliminary estimates signaling continued weakness in Q3, suggest that prior rate hikes have begun to cool the economy. Canada’s labour market has also shown signs of softening, supporting the case for a pause in rate hikes today.

By the numbers (August):  All major markets were down measured in local currency. The TSX was down 1.4% and the S&P 500 was down 1.6% in U.S. dollars. The Europe, Australia & Far East index (EAFE) was down 1.8%, while the Emerging Markets index was down 4.1%. The Canadian bond universe was down 0.2%. The US dollar rallied 2.4% in August against the Canadian dollar as interest rates remain relatively higher south of the border.

Spotlight on AI and Canadian Telcos (audio): We want to introduce you to RBC Capital Market’s Industries in Motion podcast (including brief article summaries), which highlights industries facing significant milestones and change. Two recent episodes really stand out:

Interesting Listening/Reading

Regards,

Mark, Peter, Sarah, Corinne and Nathalie

Gallivan Wealth Management

 

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