August 2024 Market Commentary

What is often considered the laziest month of the year, August 2024 was certainly not for the faint of heart. After closing out the month of July with strong year-to-date performance for both the TSX and S&P 500, volatility wasted no time in serving up a dose of fear & panic as investors hit the sell button at a pace that far exceeded the buys. On the first Monday of the month the S&P 500 closed with a -3% drop, its biggest one-day decline in nearly two years. The Feds responded quickly to provide a calming tone around renewed fears of recession and oversees Japanese officials offered reassurance that rate increases were off the table. It didn’t take long for investors to settle down, as the markets turned around with ease and by that Friday the S&P 500 was virtually flat on the week. Meanwhile, by the middle of the month the TSX hit a record high with energy and financials contributing to broad-based gains as Federal Reserve Chair Jerome Powell endorsed the start of rate cuts, raising hopes the economy could avoid a recession.

By the end of the month headlines read, “S&P/TSX, U.S. markets rise as August ends ahead of anticipated September rate cuts.” The TSX closed on Aug 30th at 23,346.18, or 235.37 points higher and the S&P 500 closed at 5,648.40, or 126.10 points higher than the previous month close. Yet, retail investors have grown increasingly more skeptical as markets have gone up and raising cash while institutional investors were deploying. Chief Equity Strategist, Brian Belski, sighted that “Canadian households continued to hold decade high levels of cash and cash equivalents, with both household money market funds and cash holdings near 10-year highs”. In addition, foreign investment flows into Canada have also been negative, although August marked a significant reduction. All eyes are on the job numbers in the U.S. as investors speculate on an increasing jobless rate.

From a bullish perspective the soft-landing narrative has more traction as initial claims remain largely in line with expectations. Q2 GDP growth was revised up 0.2 percentage points (pp) to +3.0% and August consumer confidence reached the highest level in six months. Inflation has moved to the back burner as Q2 core PCE (personal consumption expenditures) revised down 0.1 pp to +2.8% which is in line with expectations, while the year-over-year rate stayed at +2.6% despite expectations for a slight uptick. Although we’re headed into the choppiest season of the year with September and October, and a U.S. election in November, the anticipation of rate cuts from both the Bank of Canada and the Federal Reserve will go a long way to boost stocks, especially in commodities and interest sensitive stocks. With such large amounts of cash on the sidelines we believe this will help boost equity flows and drive Canadian equities higher through the remainder of the year and into 2025.

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