July 2024 - Monthly Update
Nataliia Riabenko - Jul 01, 2024
Hope this note finds you and your family well with much to look forward to this summer.
Your portfolio posted gains in June and over the last twelve months.
Investment markets were mixed in June with bond markets retreating slightly, American stock indices grinding higher while Canadian stock markets declined.
In the United States (U.S.), the economy and job market remained in growth mode with the pace moderating as expected. The Canadian economy remains sluggish, and the job market is starting to exhibit signs of weakness.
Inflation continues to trend lower on both sides of the border with the rate of declines more consistent in Canada.
At the beginning of June, the Bank of Canada reduced its overnight interest rate by 0.25%. For the first time in over a year, Canadian interest rates are below 5%.
For us as investors, it is important to understand this is the start of a multi-year trend of interest rate cuts. It is also a global trend that was followed by the European Central Bank, and at some point this year, the U.S. Federal Reserve. We expect the Bank of Canada to finish this cycle of interest rate cuts below 3% (sometime in 2026).
Typically, declining interest rates positively affect bonds and bond-like stocks in our portfolio. This will contribute to a broadening of participation in gains in the second half of this year and beyond.
You and your investments are in a strong position.
The view from Brian Belski, BMO's Chief Investment Strategist:
“[First half] stock market [S&P 500 ] performance was quite impressive… buoyed by [a positive] return over the last two months following April’s… pullback. In fact, the index closed June at an all-time month-end closing high. Despite this market strength, plenty of skepticism remains with many still expecting the S&P 500 to struggle in the coming months since [second quarter] market dynamics reverted back to 2023 trends with a select set of very expensive mega-cap tech+ stocks leading the gains. The worry seems to be that momentum is running too hot for these stocks pushing valuation to extremes, and should they begin to struggle, their outsized influence on the index could lead to a significant pullback. We disagree. The macro and earnings backdrop appear to support continued gains for stocks overall, albeit at a slower pace, in our view. In addition, while individual stock outperformance has certainly narrowed, we are very encouraged by the fact that all but three sectors were able to deliver above-average gains alongside market strength during [first half] – which was a completely different trend vs. 2023. Furthermore, S&P 500 fundamentals excluding the 10 largest stocks appear reasonably attractive with valuation at only a slight premium, while earnings growth has been improving for most of the past year. Thus, we believe these trends favor these “underappreciated” stocks and will likely buoy the market should the performance of some of the highest profile stocks begin to falter as investors seek other areas for portfolio allocations… The S&P/TSX declined… in June, sharply underperforming the S&P 500 which was up … on continued strength of the mega-caps. Indeed, overall US equity market concentration returned leaving Canadian equities largely ignored by both foreign and domestic investors. Technology was the only sector to outperform the S&P 500, while the big three sectors (Energy, Financials, and Materials) all underperformed the market. Overall, we remain steadfast in our view that Canada remains the contrarian call in terms of developed markets in 2024. As the reality of a more resilient economy (for both Canada and the US), coupled with increasingly stable interest rates becomes 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:
Microsoft*, Qualcomm*, S&P500 Index
Stocks in your portfolio that made a new 52 week low this past month:
TD Bank*, Telus*, United Parcel Service*
The Loonie eased half a cent versus the U.S. dollar to $0.73
We wish you and your family all our best.
Thank you,
Ian, Gab, Kaitlyn & Nataliia