Quarterly Commentary – July 2024

And just like that, we are in the middle of summer!  Some years really seem to drag, but not 2024!  Nonetheless, I wanted to give you a quick update of what we have seen so far this year in the investment markets.

Canada’s major stock market index, the S&P/TSX, finished the first half of the year up 4.3%.  The major US stock market index, the S&P500, finished the first half of the year up 15.3%.  And the tech-heavy Nasdaq finished the first half of the year up 18.6%.

Safe to say that the growth we saw at the end of 2023 continues.  Albeit, it’s important to realize where the growth has come from.  You may have heard of the “Magnificent Seven”… no, not the movie… but, Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla.  These 7 companies are responsible for the lion’s share of the growth seen in the US stock market and Nasdaq so far this year.  Not that we haven’t seen growth in other areas of the global economy, but these 7 have dominated with their AI-focused business models and, in many ways, have skewed the market returns to the positive this year.

Shifting focus to look at bonds, the S&P Canada Aggregate Bond Index fell by 0.22% in the first half of the year, and the S&P 500 Bond Index (US focused) fell by 0.41%.  In other words, the bond market was more or less flat.  That said, as interest rates continue to fall, we expect the bond market returns to grow.  What hurt bonds in 2022, rising interest rates, should be the opposite in the next year or two.

As inflation continues to slowly decline, we believe interest rates will follow suit.  More rate decreases are expected through 2024 and to continue through 2025.  When interest rates fall, bond prices climb, which means great opportunity for investment portfolios holding fixed income. 

Stock markets like interest rate decreases too, for several reasons, not the least of which are reduced debt servicing costs for companies, which should increase profitability.  We are not “out of the woods” yet for inflation and economic concerns, but in my opinion, things are moving in the right direction.

For the balance of the year, I believe markets will perform well, with the hope of more widespread positive momentum rather than in just 7 tech stocks.  I believe central banks will continue to reduce rates which will bode well for both bond and stock markets as previously mentioned. 

Of course, uncertainty is the constant nowadays!  The US election, wars in Ukraine and the Middle East continue to fuel all manner of unknowns.  These are short-term problems that will come to an end, though new ones are likely pop up to take their place.  As the adage goes, long-term investing success comes from time, not timing.  The key will be to remain as objective as possible even when uncertainty abounds.

In the meantime, one certainty I know right now is the need for sunscreen and sunglasses! I hope you have many reasons to need both, and I will look forward to keeping in touch.

All the best,
Bryson

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