Dear Friends,

I hope your weekend was a great one.

Last week, our team, joined by some of our partners, had the extreme privilege of spending some time helping pack lunch snacks at Community Crew. It was with great pride that we were able to contribute in a small way towards helping feed the children of Niagara who need it most.

Community Crew is a tremendous organization doing incredible work. They serve 4500 lunches to children in over 30 Niagara schools every single day!

Another amazing organization doing much needed work in our community. Our thanks and appreciation go out to them.

 

 

It is hard to believe, but 2023 is coming to an end. Fortunately, both global equity and bond markets appear to be finishing the year on a strong note. This strength can be attributed primarily to two factors. First, the rate of inflation continues to show signs of moderating, raising expectations that central banks are at the end of their rate hiking cycles. And second, while growth has slowed – in some areas more than others – economies have generally handled the challenges better than expected. Below, we step back and briefly review 2023. We also look ahead to 2024.

While 2023 had its ups and downs, it has proven to be a year of economic and market resilience. On the economic front, growth has slowed but there have been positive surprises, especially in the U.S. where the consumer has been stronger than elsewhere. The inflation backdrop has meaningfully improved, transitioning from an accelerating rate last year to a decelerating one currently. This led to a better investing experience this year as volatility declined, as it historically does when inflation falls from high levels. Lower inflation and volatility have been welcome developments in the bond market, where returns have been more normal and favourable compared to last year. Equities have also seen reasonable returns, with some markets performing better than others, driven particularly by large cap technology stocks. It is worth noting that the breadth of stock market gains improved towards the year’s end, suggesting more stocks have been participating in the rally of late.

What’s in store for 2024? Our firm’s investment team believes the combination of high rates and restrictive lending standards is a recipe for a recession, particularly in regions like Canada and Europe where growth figures have been underwhelming. There is the chance the U.S. and other regions avoid a recession, and instead experience a “soft landing”, where growth slows but does not outright decline. In such a scenario, earnings would not decline, but would keep growing, more modestly, and help the equity market generate further gains. Nevertheless, the range of potential outcomes for equities over the next year remains wider than normal. Meanwhile, bond yields are significantly higher than they have been in some time which has re-established their role in portfolios. More specifically, bonds of high-quality issuers such as governments and highly rated companies now offer reasonably attractive levels of income combined with the potential to shield portfolios to some degree from any resurgence in volatility should a recessionary scenario develop.

Our approach to managing portfolios in 2024 will be consistent with this past year: treading more cautiously than normal given the range of potential outcomes discussed above. We expect to remain patient with the equity allocations in our portfolios, believing that the window of vulnerability that lies ahead will prove to be temporary. On the fixed income front, we continue to look for opportunities where appropriate to take advantage of higher yields that are available.

We extend our warmest wishes to you and your loved ones through the holiday season. We wish you all the best for the upcoming year.

For any questions, please don’t hesitate to reach out.

Merry Christmas,

Frank