August 2024 - Monthly Update
Nataliia Riabenko - Aug 01, 2024
Hope this note finds you and your family well as we move into the second half of summer.
Your portfolio posted gains in July. It remains with positive performance over the last twelve months.
In July, the bank of Canada cut the Canadian overnight interest rate by another 0.25%, mimicking their first cut in June. This reaffirms the cycle of interest rate cuts is well underway with more to follow.
When asked at start of the year about interest rate cuts, it was never our focus to correctly pick the date of the first cut. Rather it was to acknowledge that the bank of Canada was already behind. This has now moved into the mainstream of conversations and opinions today and unfortunately, for investors it misses the point. What it reinforces is that when this cycle of interest rate cuts reaches an end, Canadian overnight rates will be below those of the U.S.. On a relative basis, we expect this to lead to a lower Canadian dollar and higher price gains for bonds and bonds like stocks.
As a team, we are constantly discussing past and present conditions to inform our views of the most likely outcome for the future.
The current economic environment reminds us of the year 2010. Back then, the economy in the United States (U.S.) was a few years out from the peak of the credit crisis/housing market collapse.
Financial conditions were improving, not deteriorating. Balance sheets and the overall financial health of the private sector had returned to normal. Businesses were able to get back to doing what they do best; invest in their own productive capacity for growth and innovation into the future. If we recall, what followed from 2010 was a 7+ year cycle of economic expansion in the U.S.. It does not have to be identical to recognize there are many similarities to our economic and investment markets presently.
While we are not predicting this current cycle will be as virtuous, it does provide a strong foundation for us as investors to remain constructive for years ahead.
You and your investments remain in a strong position.
The view from Brian Belski, BMO's Chief Investment Strategist:
“US stocks had another decent month during July… closing at another month-end record. However, this move was not without some drama, particularly during the second half of the month when some high-profile tech and tech adjacent stocks reported relatively disappointing earnings results damaging the seemingly “priced-for-perfection” perception that encapsulated these stocks for much of the past year. In fact, the index [declined] during the second half of the month after these stocks started reporting results, although there was a slight reprieve on the final day of July trading when the Fed seemed to confirm that a rate cut is likely to occur in September. However, that enthusiasm quickly faded as the calendar flipped to August when a series of major economic data disappointed and stoked long-dormant recession fears and worries that the Fed may have fallen behind the curve with its policy stance. While this data is certainly alarming, we believe investors should not overreact to just one month of data and we would prefer to wait for more clues in upcoming data to determine if this weakness is in fact becoming a trend. Nonetheless, we would remind investors that corrections are normal parts of all bull markets, particularly for this time of year, and that US stocks have been long overdue for a more significant pullback… The equity “rotation trade” was on full display in July, with the S&P/TSX gaining… in July, sharply outperforming the S&P 500... From our perspective, this is the type of performance trends we expect to unfold in the second half of the year and into 2025 as the market continues to normalize and equity performance broadens from the excessive concentration over the last few years… To be clear, we expect this rotation trade to favour many of these oversold areas of the TSX, including areas like Communication Services, Utilities and Financials. Overall, we remain steadfast in our view that Canada remains the contrarian call in terms of developed markets in 2024 and is well positioned for a broad and significant catch-up trade. As the reality of a more resilient economy (for both Canada and the US), coupled with increasingly stable and lower 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:
Fortis*, Microsoft*, Royal Bank*, S&P500 Index, United Health*, Waste Management*
Stocks in your portfolio that made a new 52 week low this past month:
Telus*, United Parcel Service*
The Loonie eased half a cent versus the U.S. dollar to $0.725
We wish you and your family all our best.
Thank you,
Ian, Gab, Kaitlyn & Nataliia