Market Outlook - August 2024

The outlook remains positive, despite the increased negativity amongst investors in recent weeks. Sloppy job numbers in the U.S. and Canada have renewed fears of a potential recession and put investors on edge. We think with investors back to pricing in a series of early and often U.S. rate cuts – brought on by Chair Powell’s remarks – this has helped firm up the Canadian dollar and removed one hurdle for the BoC. Our own economics Team is calling for 100 bps of cuts by January, and then another 50 bps by mid-2025, which will take the overnight rate to 3.0% by next June.

Foreign fund flows out of Canada have stabilized and we believe this trend will reverse in the last quarter. It is noted that Canadian household cash (and cash equivalents) is sitting at decade highs. These factors could be the recipe for a rising TSX and a situation where low interest rates and low inflation leads investors back to equities and a rising tide lifts all boats scenario. In that scenario we could see the TSX exhibit above average performance in the last quarter of 2024 and well into 2025.

From our perspective, stocks are pricing in an almost perfect “outcome” at current levels which is a challenge. We believe opportunities still exist especially considering the improving market breadth trends in recent months. For this reason, we have been very selective in our stock selection and have remained somewhat defensive in our portfolio construction as we remain cautiously optimistic.

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