Global equity markets ended 2023 with a fourth-quarter rally, rewarding patient investors. The Hang Seng was the only market in the red with a 13.8% decline, while all other developed markets closed the year with significant gains. In North America, the strongest performer was the more technology weighted NASDAQ index (43.4%), followed by the S&P500 (24.2%) and the Dow (13.7%). The more interest rate sensitive Canadian S&P/TSX index was the laggard, up 8.1% (but 11.8% when including dividends)
Within the markets, anything related to technology and AI experienced a notable upswing in 2023. In the S&P500 index, for example, the strong market performance was marked by a notable division between high performing “Magnificent Seven” stocks, which were up on average 80%, with the balance of the index growing a more modest 12%. While certainly impressive, given the market capitalization of these companies, the law of large numbers would make it seem unlikely to repeat itself again next year.
The Model portfolio finished 2023 with an 8.8% gain in 2023 thanks to a solid 6.3% increase in the fourth quarter. While slightly behind the benchmark, high single-digit gains for a balanced portfolio is a welcome result given the challenging economic backdrop of rising interest rates and a slowing economy. The Bank of Canada (BoC) and the Federal Reserve (Fed) held rates in the fourth quarter. The Canadian yield curve remains inverted, longer-term maturities experienced a significant downward shift in the fourth quarter pushing bond returns into positive territory for 2023 after two years of negative performance.
As we enter the new year, the global economic outlook remains uncertain, but there are grounds for optimism. Our strategist’s recession probability model is consistently decreasing, and inflation has significantly reduced from its peak, making the 2% inflation target achievable in 2024. Additionally, there is a growing trend of upward revisions in earnings which should be supportive of equity markets and returns going forward.
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1. Make 2024 RRSP contribution as soon as funds are available. The maximum is 18% of 2023’s earned income to a maximum of $31,560.
2. Make 2024 $7,000 TFSA contribution as soon as funds are available. The maximum if you have never contributed is $95,000.
3. Make $2,500 annual RESP contribution per child to benefit from the 30% combined government grants.
4. Take advantage of the new FHSA if you are looking to buy a house for the first time in the future
5. Review asset allocation to make sure it is in line with current objectives and risk tolerance and inform us of any special income need for this year.
The calculation of performance data set forth herein has been prepared by the author as of the date hereof and is subject to change without notice. The author makes every effort to ensure that the contents have been compiled or derived from sources believed to be reliable and contain information and opinions, which are accurate and complete. However, BMO Nesbitt Burns Inc. ("BMO NBI”) makes no representation or warranty, express or implied, in respect thereof, takes no responsibility for any errors and omissions which may be contained herein and accepts no liability whatsoever for any loss arising from any use of or reliance on this report or its contents. Information may be available to BMO NBI or its affiliates that is not reflected herein. This report is prepared solely for information purposes. Please note that past performance is not necessarily an indicator of future performance. The indicated rates of return are gross of fees or commissions. Individual results of clients' portfolios may differ from that of the model portfolio as fees may differ, and performance of specific accounts is based on specific account investiture. The noted model portfolio portfolio may not be appropriate for all investors
11 Sources: Bank of Canada, Bloomberg, BMO Capital Markets