To my clients:
It was a mixed week for North American stock markets with the Canadian TSX finishing up 1.2%; the U.S. Dow Jones Index down 0.1%; and the U.S. S&P 500 down 0.4%.
In addition to a "mixed" week for markets, it was also volatile. For the first time in many, many months, inflation reports (both consumer and producer inflation) were higher month over month as well as higher relative to expectations. I’m going to stay out of the weeds on this discussion, because the weeds are indeed tangled, but suffice it to say that this week’s surprise misses on inflation are not necessarily indicative of a trend change back to rising inflation over time. As this realization grew amongst market participants, stocks recovered their early week losses. I’ll add this important caveat: while this week’s inflation readings will likely prove to be “blips”, they should nonetheless be monitored in future months to ensure they remain just that.
Moving on, I want to address a significant point that has been a noteworthy topic in annual client reviews – the outperformance of U.S. markets vs other developed markets, most notably Canada. Backstopping U.S. stock market strength is the fact that the U.S. economy outperformed expectations last year amid labour market resilience, slowing inflation and, particularly in comparison to Canada, a less indebted citizenry. This has driven a wide divergence between the U.S. and the rest of the world, with the U.S. growth momentum bolstered by the strength of U.S. consumer spending despite high interest rates. Meanwhile, the U.K. and Japanese economies contracted in Q4 2023 for the second consecutive quarter, suggesting both economies flipped into a technical recession. Sluggish economic growth in the U.K. and Japan mirrors similar weak economic conditions in the Eurozone, China and yes, Canada. Moving forward, while the OECD expects global economic growth to soften in 2024 compared to last year, the U.S. economy is anticipated to continue to outperform other major developed economies. Amongst other reasons, this is why discretionary clients have significant exposure to U.S. investments. For non-discretionary clients more heavily exposed to Canadian investments, I’d encourage a more balanced approach with a greater inclusion of U.S. investments and will continue to discuss this possibility as I forge ahead with remaining client reviews.
That’s it for this week. All the best,
Nick
Nick Scholte, CIM, FCSI
Senior Portfolio Manager
Scholte Wealth Management
RBC Dominion Securities Inc. │ Tel: 604.257.7569 │ Fax: 604.235.9950
3200-1055 West Georgia │ Vancouver, BC │ V6E 3P3
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