Below is a summary of some of the relevant news items from the Capital Markets and the Economy from the past week extracted from RBC Global Insights and FactSet Research.

You can catch up on the past four weeks’ Weekly Update in the link to my Blog.

Read my latest Smart Investor newsletter on my website. The Q4 2024 edition covers Market Review for first nine months of 2024, a discussion about lower interest rates, as well as the U.S. presidential election. Shiuman’s Corner is about my first ride in the RBC Granfondo Whistler.

 

Markets

Market scorecard as of close on Friday November 15, 2024.

Country	Equity Indices	Level	1 week	YTD
Canada	S&P/TSX Composite	24,891	0.5%	18.8%
U.S.	S&P 500	5,871	-2.1%	23.1%
U.S.	NASDAQ	18,680	-3.1%	24.4%
Europe/Asia	MSCI EAFE	2,275	-2.6%	1.8%

Source: FactSet

• TSX closed off its worst levels on Friday. Most sectors finished lower, ending up 0.5% for the week.

• US equities were lower in Friday afternoon trading. Stocks ended near worst levels and extend the week's selloff, gave back some of the previous week's big gains. The S&P 500 Index set a new milestone at the start of the week, closing above 6,000 for the first time before consolidating below that mark as investor fatigue set in. This was achieved only nine months after breaching the 5,000 level in February, an acceleration from the multiyear periods that have historically elapsed between the index clocking a new “thousand” marker.

• The strength witnessed by North American equity markets this year have been impressive, with stock indices up over 20%. Ironically, these gains have exacerbated one of the main concerns we have had around stocks: valuations. From a valuation perspective, the U.S. stock market’s price-to-earnings ratio—a key measure reflecting how much investors are willing to pay per dollar of expected earnings—stands just above 22. This is well above its historical average.

• And while this tells us little about how equities will perform in the months to come, it does suggest that the U.S. stock market is reflecting a lot of positivity, optimism, and lofty expectations for future earnings growth. We have often used periods like this to recalibrate and lower our expectations around longer-term returns from a specific asset class when it has traded at similar premium levels. Fortunately, this particular dilemma is more tied to U.S. stocks and less so to the Canadian equity market, where valuation levels are less demanding.

 

Economy

Canada

• The Bank of Canada’s (BoC) Q3 Business Outlook Survey has provided policymakers with continued confirmation that the monetary easing cycle can and should continue. Overall, the business environment is improving but current data continues to support further rate cuts, with the potential for another 50-basis-point reduction at the next BoC meeting in December, according to RBC Economics.

• The recent wave of interest rate cuts has finally sparked a glimmer of hope as early readings from local real estate boards almost universally showed material jumps in home resales in October from September.

U.S.

• The focus of economic data releases during the week was inflation, with the monthly Consumer Price Index (CPI) and Producer Price Index (PPI) coming in slightly higher than consensus forecasts. The October headline CPI was up 2.6% y/y and up 3.3% excluding food and energy, with housing costs a key factor in the stubborn inflation reading.

• It’s still too early to know the precise impact of the U.S. election’s outcome on the economy. The U.S. fiscal deficit is substantial relative to the resilient state of the economy. Government spending will continue to add to growth, but it may come at the cost of higher inflation, interest rates, and less savings for the future. You can read the full article here.

Further Afield

• In Germany, the dysfunctional governing coalition collapsed due to diverging views about fiscal policy. Snap elections will likely be called on Feb. 23. According to recent polling, the current government will almost certainly lose the election. The centre-right Conservatives are polling the strongest, suggesting they will likely lead the new government. RBC Capital Markets thinks markets would perceive a move toward the centre-right in Germany as a positive in the current economic and political environment.

• Investors were somewhat disappointed by the policy stimulus announced by China during the meeting of the National People’s Congress (NPC) Standing Committee. We believe solving the local government debt issue is crucial; absent a resolution, local governments will lack the capacity and resources to stimulate investment and boost consumption.

 

Notes About Companies in Model Portfolio

• The U.S. third-quarter earnings season is nearly complete and has been less remarkable than recent quarters, though markets appear unfazed. Company profits grew around 8%, roughly double expectations. And earnings are forecasted to grow by nearly 13% year-over-year in 2025, the strongest pace since 2021. Encouragingly, more of this growth is expected to come from a wider swath of sectors, suggesting a broadening in the earnings story and less reliance on the large-cap tech sector.

 

Feel free to contact me with any questions and/or to discuss investment ideas.

I appreciate the opportunity to serve you and look forward to continuing to help you accomplish your long-term financial goals.

 

Regards,

Shiuman