December 2023 - Monthly Update
Kaitlyn Richardson - Dec 01, 2023
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Hope this note finds you and your family well as we round out 2023 and launch into a new year.
Your portfolio posted gains in November. It remains with positive performance over the past 12 months.
November was a strong and positive month for stocks and bonds in both Canada and the United States (U.S.).
The conversation has evolved into expectations of interest rate cuts in both Canada and the U.S. during the first half of 2024. In the U.S., this has led to an uptick in consumer confidence, and a continuation of the consumer spending that drives U.S. economic activity.
There is an index from the New York Federal Reserve called the Global Supply Chain Pressure Index. It tracks things such as shipping costs, backlogs and delivery times within the global transportation network. This index hit its lowest level on record in November, two years after soaring to all time highs in conjunction with supply side inflationary spike of 2021/2022.
If supply chain has largely been fixed, one should expect the path for inflation and interest rates to be lower in the future, not higher.
We expect these trends to continue to solidify in the months ahead. Taken together, they represent a tailwind for investment markets and economic activity.
We expect Canada to cut interest rates ahead of the U.S. on the path back down toward 3%. In this country, the catalyst for interest rate cuts will be slowing economic activity and protecting the economy from further contraction. In the U.S. interest rate cuts will add fuel to the new cycle of economic growth currently underway, without causing a renewed spike in inflation.
These long-term trends reinforce our existing investment strategy to prefer stocks in the U.S. and bonds and bond-like stocks in Canada.
You and your investments are in a strong position.
The view from Brian Belski, BMO's Chief Investment Strategist:
“
The S&P 500 snapped its three-month losing streak in spectacular fashion last month with... easily its best monthly gain of the year and closing just shy of its 2023 closing high price. In fact, it also represented the second-best November gain for the S&P 500 in over 40 years, trailing only 2020 when the market was rebounding from the earlier in the year pandemic-led losses. From our perspective, the strength was a combination of oversold conditions heading into the month and investors’ interpretation of somewhat dovish Fed speak throughout the month, as 10-year Treasury yields slid roughly 50 bps. However, the stock market move was probably a little too much, too fast since we continue to believe that investors are underestimating the Fed’s inflation fight resolve and are pricing-in significantly more rate cuts than are likely to occur in 2024. Therefore, we would not be surprised if stocks have a relatively volatile December and finish the year at similar levels as the market expectations and Fed messaging merry-go-round takes another spin. Nonetheless, we did find one characteristic very encouraging – market breadth – as half of S&P 500 500 stocks managed to outperform the index last month, representing a jump of roughly 20% from the monthly average for the prior 10 months. We believe broadening participation will be a key feature in the coming months… The S&P/TSX gained… in November returning to positive performance for the year. Despite this strong performance, the TSX still underperformed the S&P 500. Indeed, domestic growth concerns remain a key headwind to Canadian equity performance, with a significant amount of relative negativity priced in, in our opinion. Overall, the positive performance in November was broad; however, Technology and Financials were the key drivers of performance as both these sectors posted positive earnings surprises this quarter. Meanwhile Energy and Consumer Staples posted the lowest performance. Fundamentally, the TSX saw a slight increase in valuations, which remain near historical lows, earnings expectations continued to rebound, and revision trends continued to improve. From our perspective, Canada has significant room for further valuation normalization, particularly as earnings continue to rebound from the slight decline seen in 2023. Overall, while 2023 has been a disappointing year for Canadian equities, our work suggests a lot of negativities are already priced into Canadian equities. As such, Canada remains well positioned for the broader normalization we expect to unfold in North American markets over the coming years, particularly as valuations revert and equity performance broadens out.”
Stocks in your portfolio that made a new 52 week high this past month:
Accenture*, Microsoft*, S&P500 Index, Thomson Reuters*, Waste Management*, United Health*
Stocks in your portfolio that made a new 52 week low this past month:
Bristol-Myers*
The Loonie gained a cent and a half versus the U.S. dollar to:
$0.74
We wish you and your family all our best for a happy, healthy new year and beyond.
Thank you,
Ian, Gab, Kaitlyn & Nataliia