First Quarter
2024 is off to an impressive start for investors, as markets shrugged off seemingly adverse global conditions to post strong gains in the first quarter (excluding the Hang Seng which was down 3.0%). Despite the deadly conflict in Ukraine and Gaza, tensions between global powers escalating, and news that Germany, Japan and the United Kingdom slipped into a recession, the MSCI World index was up 8.4% in US$ in the first quarter. The US S&P 500 benchmark posted its largest first quarter gain since 2019, up 10.2%, beating even the NASDAQ index (up 9.11%) for the first time in a while. The other US index, the Dow Jones, had a more modest return, up 5.6%. In Canada, the S&P/TSX index advanced 5.8% and posted a 6.6% return when including dividends.
A broadening market rally is a positive signal as much of the concern in 2023 was that the dominance of big tech was concealing underlying economic weakness, and that could have left stocks vulnerable to a downturn. In reality though, the U.S. economy continues to power on thanks to a solid labor market and an annualized 4% GDP growth for the second half of 2023. Despite somewhat higher inflation readings than expected in the first quarter, the Federal Reserve noted that the inflation story is ”essentially unchanged” which was supportive to the theme of rate cuts at some point later in 2024.
The Model Portfolio finished the first quarter up 4.9%. Coming into 2024 we were cautiously optimistic, but mindful of global tensions and economic headwinds. Hence, to finish the first quarter up almost 5% is a welcome result, but we would not be surprised to see markets take a temporary breather in the second quarter. While there was no change to policy rates in the quarter, the yield curve did move up slightly during the quarter, which left our fixed income investments up slightly, but the bond market is indicating that rates may stay higher for longer than anticipated.
Looking over the next twelve months, global economic and political conditions remain adverse, but if the first quarter is any indication, equity markets are able to thrive in face of this uncertainty. While there are always instances of markets pulling back after a strong quarter, a continued broadening of EPS growth outside of just the mega cap stocks should sustain stock prices.
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Investment Checklist
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