Commentary

Executive Summary
 

Second Quarter 

 

Equity markets navigated through the first half of 2024 rewarding investors with positive returns despite economic and political uncertainties. While the first quarter saw good broad-based performance globally, the second quarter was more a story of U.S. strength, with the US S&P 500 index and the NASDAQ index up 3.9% and 8.3%, respectively. The Canadian S&P/TSX benchmark was down 1.3% in the second quarter but remains up 4.4% over the last 6 months. In Europe, the FTSE 100 finished the quarter up 2.7%, while the German DAX was down 1.4%. The significant gains in the U.S. market were primarily driven by enthusiasm around artificial intelligence, which boosted the performance of mega-cap tech stocks like Nvidia (149.5%), Microsoft (19.3%), and Alphabet (30.5%). The S&P 500 equal weight index is up around 4% indicating that the few large names are driving the index returns.

 

The Model Portfolio finished the second quarter up 0.7%, for a total gain of 5.6% for the first half of 2024. After a strong first quarter, only the U.S. market-maintained momentum. As noted last quarter, we expected markets to take a breather after a strong start, but the AI theme continued to fuel the U.S equity market. The broader macro environment remains sturdy, but the North American economy is still performing below its full potential. With lingering inflationary pressures, central banks remain cautious about lowering rates to stimulate the economy. The Bank of Canada was the first of the G7 countries to cut rates, and we expect the Federal Reserve to follow suit in September. Despite the expectations for further rate cuts this year, the longer end of the yield curve shifted upward slightly in the quarter.

 

For the second half of the year and into 2025, we remain cautiously optimistic. Markets will be focused on the economic data which will affect the speed with which central banks can ease their monetary policy. While the data has weakened in 2024, the probability of a recession has decreased, meaning that weaker data does not necessarily mean a recession. With less restrictive interest rate policies, it should provide a tailwind for the equities which suffered under this tight monetary policy, namely the banks, utilities, and telecommunications companies, while the tech darlings let their earnings catch up to their valuations.

 

 

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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