July 2024 Market Commentary

July proved to be another uneventful month for the markets, although the TSX managed to close above 23,000 points for the first time as investors rotate into value, commodity, and low-volatility stocks. By the end of the month the Canadian index was up over +1,235 points where in the U.S. the much broader S&P 500 index was slightly positive moving up +61.82 points higher than the previous month close. Meanwhile, the heavily tech weighted Nasdaq-100 index lost -1.5% in July, while the Russell 2000 and Russell Microcap indices gained 11.8% and 13.5% respectively. Clearly, money is beginning to rotate away from the mega cap stocks and into the undervalued areas of the market as investors speculate the direction of central bank rate decisions.

U.S. economic data offered a mixed bag causing investors to question the second half of the year. While retail sales were above expectations as was housing and building permits, it was the jobless claims that were disappointing which suggests the labour market is cooling. The Federal Open Markets Committee left the Fed Funds rate unchanged in July at 5.25%-5.5% as expected, but consensus now sees the Fed making its first rate cut at its next scheduled meeting in September.

In contrast the Canadian consumer price index stayed within the Bank of Canada’s 1-3% range. As a result, the Bank of Canada cut its overnight lending rate by another 0.25 percentage points setting a new benchmark rate of 4.5% further signaling that the central bank is now in what TD Economics is calling a “phase of rate cuts.” Governor Macklem indicated further rate cuts are likely but emphasized decisions will be made on a meeting-by-meeting basis without committing to a fixed trajectory. The BoC also published results from its Q2 Business Outlook Survey and Canadian Survey of Consumer Expectations. Both surveys showed inflationary pressures were diminishing and includes a GDP forecast of just 1.2% for 2024, down from 1.5%. Core inflation also came in below the BoC’s expectations for the second quarter, which clearly gave them more confidence in their forecast that price pressures are well on their way back to the 2% target.

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