Market Outlook 2024

The end of 2023 brought us much to be merry about as the markets finished with a rather upbeat tone. The economy didn’t slide into recession, inflation appears to be retreating, and the talk of the town has shifted to rate cuts in the not-too-distant future. Research indicates that U.S. growth is still chugging along nicely, accompanied by some encouraging signs of inflation – even core inflation. The economic news in the U.S. was much better than anticipated with a 4.9% jump in Q3 GDP with a host of other positives to report; a surprise bounce in November housing starts, a pick-up in homebuilder confidence, a slide in mortgage rates, a big upswing in consumer confidence, low jobless claims, a surge in durable orders, and sturdy income trends. Although, growth is expected to slow to 1% in Q4, we should see this rate hold on average in 2024.

 

Canada on the other hand has been disappointing, compared to its’ neighbour as the aggressive rate hikes have clearly been more challenging for Canadians than the average American. Despite the call for zero percent GDP growth, the economy has been slightly positive. Although, GDP was flat in Aug – Oct, it may hold the line with November estimates pointing to a 0.1% gain. An interesting fact to highlight is that Canada’s population growth was 3.2% year-over-year, which is the fastest growth rate the country has experienced since the late 1950’s. We suspect this will be reflected in the consumer spending data in the months to come.

 

On the inflation front, both Canada and the U.S. reported key inflation readings for November that looked pretty much the same. The annual rate came in at 3.2%, the lowest since early 2021, and down almost 2 points from a year ago. The 3- and 6-month trend is looking even better at 2.2% and 1.9%, respectively. These numbers are encouraging, and we expect to see these numbers come down even more as central banks continue to hold rates for at least another quarter or two. We suspect that policymakers will err on the side of caution, not wanting to reverse a call from reducing rates too soon. We would anticipate the Bank of Canada to move ahead of the Fed when there is a decision to cut rates, as the domestic backdrop is softer than that in the U.S.

 

In the markets we look for a continuation of the ‘normalizing’ process we’ve been going through over the past couple of years. We expect the markets to behave in a similar pattern experienced in 2023, although more muted, as fears of further rate hikes fully give way to the anticipation of rate cuts. In Canada, we look for strength in Communication Services, Consumer Discretionary and Financial stocks and see the TSX moving to a new high of 23,500. We recognize our year end price target of 22,500 in 2023 was too optimistic, but 2024 could very well be the contrarian trade for Canada.  In the U.S. we see the S&P 500 reaching 5,100 by year end and look for strength from both Financials and Information Technology.

 

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