We hope you and your family have had a good start to the summer and are looking forward to the warm weather.
The second quarter turned out to be another strong one as artificial intelligence (AI) and technology names continued to power indexes higher. From November of last year until April of this year we’ve seen most equities performing well. There was another inflation scare in April as economic releases showed inflation may continue to be stickier than expected, which caused interest rates to rise again. The subsequent months have shown inflation easing further but equity market leadership has narrowed to AI and technology companies as there is a great deal of capital being invested there. With equities trending higher, our model portfolios have maintained their exceptional performance and we will continue to adjust as necessary.
Canada saw its first interest rate cut in early June, and we expect many more to come over the next few years. Inflation has been showing signs of easing and the employment picture is weakening, which allowed Canada to act first. We think we’ll likely see another interest rate cut at the Bank of Canada’s next announcement on July 24. While Canada is cutting interest rates, the U.S. Federal Reserve continues to stand pat for now as they wait to gain more confidence that inflation is moving to the target 2% range. At this point, it looks like the U.S. will make its first interest rate cut in September, but that has been pushed back a few times so far this year. It has been interesting to watch currency markets during this transition period as many commentators were concerned that if Canada cut rates and the U.S. didn’t, the Canadian dollar would suffer. We have not seen this materialize at all, and in fact, the Canadian dollar is up slightly since the first Canadian rate cut.
With the volatility in interest rates, fixed income investments have continued to deliver muted returns, but are thankfully positive for the year. We think that fixed income assets have the potential to outperform over the next 12-18 months as rates ease and inflation continues to be squeezed out of the economy. This can allow portfolios to generate solid returns with less volatility and provide the income that many investors require.
We are still optimistic that markets have more room to move this year, but expect to likely see more volatility as we near the U.S. presidential election on November 5. Many worry about elections, but the elevated volatility preceding tends to calm down within a week of their conclusion as the markets start worrying about the next election. In other words, the election won’t likely be a long-term mover of the markets, regardless of if Trump, Biden or another candidate wins the election.
If you have any questions about your portfolios, please let us know and we would be happy to review. Josh is also available for all your financial and estate planning needs.
We hope that you have an opportunity to spend some quality time with friends and family over the summer, let’s hope we have a few months ahead of this exceptional weather.
Happy Stampede!
Mike & Craig
