May 2024 - Monthly update
Nataliia Riabenko - May 01, 2024
Hope this note finds you and your family well as we reach the mid-point of spring.
Your portfolio declined in April following half a year of gains that kicked off last fall. It remains with positive performance over the past 12 months.
The price for North American stock and bond indices adjusted lower in April. For stocks, this reflected a normal reset following six months of advances.
For bonds, while their prices moved somewhat lower (leading to higher interest rate as a percentage), they remain within a stable range established last summer. In the United States (U.S.), the benchmark 10 year government bond hovered around 4.5% with the Canadian government 10 year bond a full percent lower at 3.5%.
Quarterly earnings from U.S. businesses are ahead of expectations and their guidance for the future has moved higher. All in all, data continues to reflect a U.S. economy that is growing at a normal pace. Canada’s economic performance remains neutral not materially negative.
Expectations of the start of a cycle of interest rate cuts in the U.S. are shifting from this summer to this fall. The expectation remains that Canada will begin its cycle of cuts this summer.
For investment markets, the planned increase to the capital gains tax in Canada reinforces the medium-term trend of a lower Canadian dollar (versus the U.S.) and a lower end point for Canadian overnight interest rates (at something below 3% compared to the U.S. at something above 3%).
As time passes, the combination of a relatively lower level of interest rates and currency will shift Canada's economy back into expansion mode in 2025. This future state reflects and reinforces our current investment strategy. It also informs our plan of action to look for opportunities to add to stock investments in the U.S. and bonds / bond like stocks in Canada.
You and your investments are in a strong position.
The view from Brian Belski, BMO's Chief Investment Strategist:
“US stocks snapped their five-month winning streak during April... its worst monthly performance since September 2023, although the losses were somewhat mitigated later in the month following upbeat earnings reports from several high-profile growth stocks. The weakness was brought on by the usual culprit, interest rate worries, as several recent economic reports suggest that inflation has remained stubbornly higher than previously expected. Nonetheless, the index is still up [year to date] ... and has gained ... since the second year of this bull market began in October 2023, which puts it ahead of all but three out of the 13 year-two bull market performances in the post WWII era. This is part of the reason why we have been cautious lately and have viewed this move as a little too far, too fast, especially considering the absence of a meaningful pullback, which is almost always a characteristic for this stage of bull markets. For instance, the ~5.5% slide in the S&P 500 from 3/28-4/19 would represent the weakest and shortest pullback in several decades for all year twos of bull markets during the post WWII era, excluding the pandemic. Therefore, we anticipate that price choppiness and volatility will re-emerge in the coming weeks and months, particularly considering the disconnect between elevated valuation levels for the highest-profile stocks and what is likely becoming the higher-for-even-longer interest rate outlook… The S&P/TSX declined... in April, outperforming the S&P 500 for the second month in a row. This is now the best two-month stretch of outperformance since 2022 for the TSX. While there are increasing signs of broadening out of equity performance, which we believe will be a positive tailwind for Canadian equities through the remainder of the year, the bulk of the outperformance was compositional. In fact, heavily weighted Energy and Materials were the only sectors to post positive returns this month, while Industrials and Technology were the worst performing sectors. Overall, we remain steadfast in our view that Canada remains the contrarian call in terms of developed markets in 2024, even as the TSX starts to outperform. 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:
Royal Bank *
Stocks in your portfolio that made a new 52 week low this past month:
Johnson & Johnson*, Telus*, United Health*
The Loonie declined one and a half cents versus the U.S. dollar to $0.725
We wish you and your family all our best.
Thank you,
Ian, Gab, Kaitlyn & Nataliia