Market Commentary – Q2 2024

Half a year has flown by, and I wanted to provide some insight into what has happened in the last several months.   

Canada’s main stock market, the S&P/TSX composite index, ended the second quarter down 1.3%, but still up 4.3% year-to-date. The materials and energy sectors were also down for the quarter, with the price of oil settling at $81.54 per barrel.  The S&P/TSX index is dominated by financials, energy, and materials, so when these sectors are down, it weighs heavily against the index. 

South of the border, US markets continued their upward climb in 2024.  The S&P 500 rose 3.9% and is up 15.3% year-to-date. The tech- heavy Nasdaq index rose 8.3% during the second quarter and is up 18.6% year-to-date. Tech giants Nvidia, Microsoft, and Apple (part of the “magnificence seven”) have helped fuel gains for the first half of 2024, with positive earnings and growth.    

The Bank of Canada cut the overnight lending rate by 0.25% in June, and with inflation slowly cooling, there will likely be further rate cuts in 2024. Rates will not immediately sink like stones but should have more of a gradual decline.  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 continue to stay patient to take advantage of this investment opportunity.   

Just in time for Canada Day, our friends in Ottawa have raised taxes yet again.   “Capital gains”, (which means selling an investment that has a gain associated with it) were taxed at 50% before the tax increase. Now as of June 25, anyone with personal investments (rental properties, investment portfolios, cottages) will have to pay 66% on any capital gains over $250,000.  This may disproportionately affect investors who own rental and secondary properties (cottages) and for those who own corporate investments, where the entire capital gain is now taxed at 66%.  

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 though, at an accelerated pace in the US.  This 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 will pop up to take their place.  As the adage goes, long-term investing success comes from time, not timing.  Life is hard sometimes and the world can be a scary place…these too are constants and markets have returned more positive return years than negative ones for investors, despite this. 

In the meantime, enjoy the beautiful Canadian summer and I look forward to catching up in the fall! Regards,