April 2024-Monthly Update

 

Hope this note finds you and your family well as we begin to enjoy warmer weather.

 

Your portfolio posted gains again in March for the sixth consecutive month. It remains with positive performance over the past 12 months.

 

Investment markets in North America remained in an upward trajectory. This mirrored the economic data coming out of the United States (U.S.) that reflects a steady pace of consumer spending, stronger than expected job market and an expanding manufacturing base. Given these trends positively effect and reinforce each other, it is reasonable to expect they will continue.

 

Let’s look towards the medium-term (the years 2025 & 2026): The path for overnight interest rates is one of the main trends that will define this time period for investment markets.

 

With central banks around the world starting down the path to lower interest rates (China) this is looking more and more like a global trend. For some regions, lower interest rates will translate into additional growth (U.S.). For others, it should mean less contraction (Europe & Canada). While the start date and degree will vary somewhat, the overall direction is clear.

 

In North America, we continue to expect Canada to begin cutting rates ahead of the U.S.. When this cycle of rate cuts ends, the overnight rate in Canada will settle at a lower level than in the U.S. This makes sense when we look at long-term interest rates in the market and implied expectations of economic performance.

 

Structurally lower interest rates in Canada compared to the United States is not something new. Long-term bond rates have Canada sitting almost a full percentage point lower than the United States. This reflects the lower growth potential of the Canadian economy.

 

A weaker Canadian dollar in the medium-term would be a consequence of structurally lower interest rates relative to the U.S.. While this makes imports more costly, a weaker Canadian dollar allows our exports to be more competitive on price - something that's helpful when we aren't as competitive on productivity. An export lead framework would also allow Canada to follow the U.S. economy into a normal cycle of growth. Something we expect in the year(s) ahead.

 

This underpins our investment strategy of owning U.S. stocks to participate in the ongoing cycle of economic growth complimented by a select number of Canadian bonds and stocks with bond-like qualities.

 

You and your investments are in a strong position.

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

“

Although US stock market momentum has cooled off a bit in recent days, the S&P 500 finished off an impressive [first quarter] with the index gaining… its highest first quarter tally in five years and setting a series of new record highs along the way. And with this strength the S&P 500 now sits slightly above our 2024 year-end price target... However, as we have mentioned in recent reports, we do not believe anything has changed yet within our base case assumptions so believe the rally over the past five-plus months has been a little too much, too fast. For instance, the index has already gained roughly 20% since this bull market started its second year in Oct’23, which would rank higher than all but one second full-year bull market performances in the post-WWII era. In addition, we believe the almost unimpeded rally off the most recent Oct’23 low and elevated valuation levels necessitate some near-term caution, if history is any sort of guide, since all these other bull markets experienced at least one significant pull back during their second years. Nonetheless, we expect the somewhat unexpected resilience of earnings growth to continue throughout the year, which is something that should buoy stock prices, in our view. Therefore, we continue to advise investors to not be too concerned should the market encounter some weakness in the coming months, as we expect, and instead treat any such periods as an opportunity to increase exposure to favored positions within portfolios.... The S&P/TSX gained… in March, outperforming the S&P 500 for the first time since September 2023. Interestingly this is the first time the TSX has outperformed the S&P 500 in a month of positive returns since April of last year. Indeed, from our perspective we are starting to see the early signs of a broadening out of performance, which we have consistently argued will be a key tailwind for Canadian equities in the second half of the year. Overall, we continue to believe Canada remains the contrarian call in terms of developed markets in 2024, even as the TSX hit a new all-time high. As the reality of a more resilient economy (for both Canada and the US), coupled with increasingly stable interest rates become clear in the second half of 2024, we believe fundamentals will begin to rebound faster than currently expected, helping to drive more consistent and broader performance as the year progresses.”

 

Stocks in your portfolio that made a new 52 week high this past month:

Accenture*, Canadian National Rail*, Home Depot*, Mastercard*, Microsoft*, Royal Bank*, S&P500 Index, Qualcomm*, Waste Management*

Stocks in your portfolio that made a new 52 week low this past month: 

Telus*

The Loonie gained half of one cent versus the U.S. dollar to $0.74

We wish you and your family all our best.

 

Thank you,

 

Ian, Gab, Kaitlyn & Nataliia