February 2024

Equity and Fixed Income Strategy

The Amazing Resilience of the U.S. economy and AI Trade

Stéphane Rochon, CFA, Equity Strategist; Richard Belley, CFA, Fixed Income Analyst; Russ Visch, CMT, Technical Analyst; Eric Yoo, Associate; Ernad Sijercic, Associate

The long-promised U.S. recession is not even close to materializing. Case in point - and as noted by the excellent BMO economics team - just-released "Q4 GDP data showed yet another year of solid activity, while price pressures eased (which strengthens the case for interest rate cuts later this year). Growth in the fourth quarter came in much stronger than expected at 3.3%, providing a nice handoff to Q1, and setting the stage for the expansion to continue in 2024. But, with the mighty consumer still fueling economic activity, we're not expecting a pivot any time soon and are comfortable with our July rate cut call". Higher-than-expected growth and lower-than-expected inflation! That, in our experience, is not a recipe for a major market pullback. Quite the opposite, in fact.

We have often stated that looking at GDP figures is akin to reading ancient history as far as financial markets are concerned, but we find this economic resilience remarkable, and it certainly argues for further increases in consensus growth expectations for 2024 with very positive implications for corporate earnings and the stock market. While Canada's performance has been weaker, the fact that our largest trading partner (by far) is still so strong should help boost our own economic momentum

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Do not hesitate to give either of us a call at 416 359-7565 or 416-359-7564 or email Sharon Kubicek or Alisa Carli if you have any questions respecting your portfolio and the prevailing investment, economic and political issues at play today.

Sharon and Alisa