January 2024-Monthly Update

 

Hope this note finds you and your family well as we launch into 2024.

 

Your portfolio posted gains again in December. It remains with positive performance over the past 12 months.

 

The positive trajectory for North American investment markets carried into December for stocks and bonds in both Canada and the United States (U.S.). This aligned with the general acceptance of central banks cutting overnight interest rates in the first half of 2024.

Cycles of interest rates cuts are much faster than cycles of hikes.

Lower interest rates lead to more capital leftover for business and households.

In Canada, these funds will be broadly used to pay down debt at the household level.

In the United States (U.S.), household debt to income ratios are much more normal and manageable than in Canada. The excess capital will be spent / invested productively, creating additional activity to further propel the U.S. economy higher.

We expect the Bank of Canada to cut interest rates sooner than it had forecast in response to the domestic economic slowdown that is already underway.

With leading and larger interest rate cuts, the Canadian dollar would weaken against the U.S. dollar in the medium term.

A lower exchange rate versus the U.S. dollar makes our exports more competitive (lower cost in U.S. dollars). Increased exports will be a key driver to shift the Canadian back into a cycle of growth.

All in all, this reinforces our investment strategy of owning U.S. stocks to participate in the ongoing cycle of economic growth complimented by a select number of Canadian stocks with bond-like qualities.

 

You and your investments are in a strong position.

The view from Brian Belski, BMO's Chief Investment Strategist:

“

US stocks built upon November strength in December with the S&P 500 gaining… and just shy of an all-time high. The enthusiasm stemmed from the usual set of factors – declining interest rates and an investor interpretation of a Fed dovish pivot. Admittedly, we have been surprised by the strength over the past two months and worry that the move was a little too much, too fast. Nonetheless, we continue to see the trend as “up” for 2024 but it is likely to be very bumpy along the way since we continue to believe investors are placing too much emphasis on a series of 2024 Fed rate cuts, which is something it has continued to push back on in recent speeches. The good news is that economic data and corporate earnings remain resilient and are likely to buoy stock prices unless these trends take a significant change for the worse throughout the year, in our view… The S&P/TSX posted another solid gain in December… and closed the year up. While these returns are encouraging from our

perspective, the TSX has still underperformed the S&P 500 during this end of year rally and finishes the year underperforming the S&P 500 by the largest margin since 2013. Indeed, our view remains the TSX should be performing much better than it has throughout the year and remains poised for a significant catch-up trade when equity performance broadens out and earnings confidence returns. Overall, the strong rally in the last three months of the year was broad based. However, both Energy and Materials meaningfully underperformed acting as the key anchor to TSX performance, even as US equity performance broadened out. Overall, while 2023 was a disappointing year for Canadian equities on a relative basis, 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*, Home Depot*, Mastercard*, S&P500 Index, Thomson Reuters*, Qualcomm*, Waste Management*, United Health*

Stocks in your portfolio that made a new 52 week low this past month: none

The Loonie gained a cent and a half versus the U.S. dollar to:

$0.75

We wish you and your family all our best.

 

Thank you,

 

Ian, Gab, Kaitlyn & Nataliia