Welcome to my monthly comment on key issues in the market, and how they affect your investments.

February 2024

 

Cut!

While the pandemic response brought misery to the lives of many (no travel, no family visits, no exercise!), one unexpected benefit of the lockdown was having extra time on our hands. Like many others, I used the time to rediscover the joys of gardening, home renovations and just generally tidying up the place. But I also took up a hobby I’d last enjoyed as a teenager – filmmaking. On weekends we started making films featuring ourselves and a few others in our bubble, and once we were allowed to gather in larger groups we even embarked on an amateur film production of Shakespeare’s Twelfth Night (you can watch it here). Of course we had to teach ourselves the whole art of filmmaking from scratch, from how to frame a shot to setting up lighting and recording sound. Not sure we were too successful, but we did discover one of the most fun things about directing a film which is, of course, being able to call out “Lights, Camera, Action” and then, once the take is done, to shout “CUT!”.

Perhaps you remember the great Canadian improv actor Colin Mochrie doing the same, on the hit show Whose Line is it Anyway? Here’s a mash up you might enjoy…

For some months now, markets have been shouting “CUT!”, directed at the US Federal Reserve, which sets interest rates. We’re in our second year now of high rates and investors want to see an end. They have a point. After spiking during the post-pandemic period, inflation has now eased. As you can see from the chart below, which measures where inflation is relative to the mean over the past 10 years, we’re basically back to normal. So is it time to cut rates?

Markets have been anticipating that 2024 will be the year of rate cuts – and not just one or two. The chart below shows the markets expecting the Federal Reserve to drop short term lending rates from 5.25% to 3.8%. Note that not everyone agrees they will be this aggressive (including RBC).

Lowering rates would stimulate the economy, and increase the value of the stocks and bonds in your portfolio. But cutting too quickly might not be in our long term interest. If inflation isn’t put back in the box for good, it could return, creating long term uncertainty for businesses and households. In fact, RBC economists say they’d rather see rates stay conservatively high for now even if that means tipping the US into a shallow recession, since that would clear the way for a generational return to growth. So, while we sympathize with the call to “CUT!” we’re mindful of the risks, and remaining cautious in our outlook.

A snapshot on CO2

Our World in Data is a great site showcasing facts relating to a range of important social, economic and environmental issues. Here’s their latest, showing that globally one-quarter of CO2 emissions is covered by some form of carbon pricing or cap-and-trade policy. Click on the map to check out more details.

Is Mass Timber the future?

RBC’s Thought Leadership team has recently put out a Report on Mass Timber, showing how using wood in high-rise construction can significantly reduce negative environmental impact. Check it out.

And finally…

Perhaps you’ve already heard that there will be a total eclipse of the sun, visible across parts of North America on April 8th this year. Mark your calendars!

And finally finally … Interested in taking a retirement self-assessment quiz? We recently met with the people behind this new tool for retirees, which explores the emotional, psychological and relationship challenges of retirement. Check it out here.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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