We hope you and your family had a great summer.
The markets were well behaved in the third quarter, playing out as we expected with a few bouts of volatility at the start of August and September. Market participants have moved their focus away from inflation, as it looks to be under control, and instead, the key data point each month has been the jobs reports.
At the start of August and September, jobs reports in the U.S. came in weaker than expected causing a small correction, before bouncing back. The fear is that if the jobs market weakens considerably, we may be nearing a recession. Thankfully, other data points continue to show the U.S. economy is in decent shape and will likely post a number close to 3 per cent GDP growth for the quarter. The Canadian economy is showing signs of weakness but if the U.S. economy continues to show strength, we will likely continue to skirt a recession.
Canadian markets finally showed some strength for the year as interest rate-sensitive stocks performed well following three cuts by the Bank of Canada. We are happy to see the rebound in those names that have been hit harder in the last few years, but we do not believe rates will go back to the level they were prior to the pandemic, so likely the bulk of the move in that space has taken place.
The big leaders in the first half of the year took a bit of a pause in the third quarter. The artificial intelligence (AI) space continues to see strong demand as well as heavy investment. The sector didn’t add much to their first half gains this quarter, but we believe there is strong potential over the next couple of quarters.
We are still watching closely for a potential October surprise. With the U.S. presidential election being nail-bitingly close, a big revelation could cause some short-term volatility. Tight polls also mean it’s likely that whoever wins the election won’t be able to implement significant policy changes as the votes will be too close, and stock markets like split governments and status quo.
Overall, we are still optimistic that once we get through the U.S. election markets are poised to trade higher as the underlying economy still has strength. Inflation is under control and central banks around the world are lowering rates to remove the restrictions that have been in place to fight inflation. We do not believe that means the markets will rocket higher, but we still see an upward trajectory until the middle of next year with volatility along the way. Fixed income has performed well this year and will likely have a tailwind behind it as interest rates normalize lower.
In the spirit of Thanksgiving, we would like to thank you for your continued trust and support. We have built a strong team to offer you planning and investment guidance that are second to none. Within our team we can take care of your investment management, financial and estate planning, and insurance planning needs. If there are any areas of your personal financial situation you would like reviewed, please let us know. We look forward to continuing to provide you with the top-tier service you have grown accustomed to over the years.
We hope you have a great Thanksgiving weekend with family and friends!
Mike and Craig
