Please join us in watching Maili’s September Market Update video, where we discuss key issues affecting Canadians, including interest rate decisions, the upcoming U.S. elections, and geopolitical tensions. Gain valuable insights to help you stay on track with your financial goals and feel secure, knowing your investments are in good hands.
Click below to watch our 9-minute video update:
A summary of what Maili discusses in this month’s video:
The global markets experienced a calm period until July, with the S&P 500 not seeing a single day of more than a 2% decline for 356 consecutive trading sessions. However, recent months have seen a return of market volatility due to factors like the U.S. Presidential elections, geopolitical tensions, and speculation about the Federal Reserve’s interest rate decisions. Despite this, portfolio managers view volatility as an opportunity to invest in strong companies at better prices.
The U.S. elections often create short-term market volatility, but historically, the party that wins the presidency has minimal long-term impact on the stock market. Over time, market performance is more influenced by economic fundamentals, corporate earnings, and global events, making a diversified portfolio and long-term investment focus the best strategy.
We are, however, researching nuances and prepared for differences on a smaller scale regarding which industries might benefit more under each candidate. For instance, American steel companies could thrive under Trump’s tariffs, while Green Energy companies might see substantial growth with a Harris victory.
While not a guaranteed outcome, one last interesting statistic is that in 6 out of 6 election years where stocks were up by 10% or more by Labor Day, they finished the year higher than they were on Labor Day. (source: Evercore ISI Research)
Canada and the U.S. have both started rate-cutting cycles, raising questions about how quickly and how low rates will drop. This will depend on balancing inflation and economic growth, with central banks now focusing on both curbing inflation and stimulating growth, leading to nuanced and responsive monetary policies.
All of this suggests that markets will continue to react to new economic data, and volatility will remain elevated. It will be important to stay vigilant, yet maintain a calm, long-term perspective when investing.
So, what are the markets forecasting about the direction of interest rates these days? By the end of 2025, the market anticipates that the Bank of Canada (BoC) will cut rates by another 75 points, which would be very welcome for any of you variable rate holders out there. Similarly, the market expects the Federal Reserve (Fed) to cut rates by another 50-75 points.
While rate cuts are a welcome relief for borrowers and potential borrowers, they do come with a downside for savers. The interest rates and income from GICs and high-interest savings accounts have decreased and are likely to continue falling. Therefore, investors may need to allocate more funds into riskier assets like stocks and bonds to try to achieve the 5% returns they had grown accustomed to from GIC’s before rates started heading lower.
As we navigate this evolving landscape, we understand how it’s crucial to stay informed and adaptable. The interplay between inflation, interest rates, and economic growth will continue to shape market dynamics, presenting both challenges and opportunities for investors.
Having said all of this, what do we suggest clients do?
We recommend that you stick to your investment plan and allow us to navigate these choppy waters as we always have, and trust the process.
Based on our research and insights, we continue to see stocks as a favorable investment relative to cash. The broader market is now outperforming the high-flying tech names that dominated the past year and a half, making the market less crowded and offering more opportunities for the rest of the market to catch up to the strength in the technology sector and benefit diversified portfolios.
While the remainder of 2024 may present some challenges, we anticipate that both stocks and bonds will ultimately finish the year on a positive note. But as always, we remain vigilant and ready to adapt to any emerging developments in the global markets.
If you have any questions about how this relates to you or your investment portfolio and financial plan, please give us a call at 778 655 2410 or email us at thewonggroup@wellington-altus.ca
Sincerely,
Maili Wong, CFA, CFP, FEA
Senior Portfolio Manager & Senior Wealth Advisor
Wellington-Altus Private Wealth Inc.
Board Director
Wellington-Altus Financial Inc.
