MARKetS REPORT – 3rd Quarter 2024

“I like the dreams of the future better than the history of the past.” – Thomas Jefferson

Dear friend,

Stocks and bonds closed higher in a very eventful third quarter of 2024 as falling inflation and interest rate cuts outweighed sudden bursts of volatility in early August and September. Investors were looking at data for any hints of possible recessions in Canada and the U.S. as unemployment crept up but welcomed an accelerating shift by central banks to lower interest rates.

In Canada, the S&P/TSX Composite Index ended the third quarter up 10.54%.  In the U.S., the S&P 500 Index was up 5.78% and the Nasdaq Index was up 2.76% this quarter.  Globally, the MSCI World Index was up 4.69% and the MSCI EAFE Index was up 0.82% in the third quarter. Apart from Japan, major global equity indices are in positive territory year to date, with the S&P 500 index and the Dow Jones Industrial Average both closing the third quarter at new highs. Canadian and U.S. Bonds rose in the third quarter as yields continued to move lower. The FTSE Canada Universe Bond Index is in positive territory on a quarterly, year to date and one year basis.

Earnings reported during the period showed corporate profits rose in Canada and the U.S. in Q2 from Q1 and year over year. U.S. Q2 Gross Domestic Production (GDP) grew 3%, annualized, up from 1.6% in Q1. Consumer spending, inventory investment, and business investment all contributed to the rise.  U.S. retail sales data for August suggested consumers were being cautious but did not indicate retrenchment. Canada’s GDP increased 2.1%, annualized, in Q2 but July data and estimates for August indicated growth remains soft. Economic performance in July was aided by the retail trade sector, the public sector and the finance and insurance sector.

The multi-year slump in Chinese equities was dramatically reversed when a series of major economic stimulus announcements between September 24-29th sent Chinese stocks soaring. The buying frenzy peaked on Monday, September 30th, the eve of a week-long national holiday, when the Shenzhen Composite Index shot up 10.9%, its best day since 1996, and the Shanghai Composite Index charged ahead 8.06%, its best day since 2008. This rally capped off a nine-day bull run that erased losses of the previous 12 months. Globally, China focused ETFs benefited accordingly. However, as noted in this decline and rally, these markets have higher volatility and therefore higher risk than what a lot of investors desire.

Oil prices declined throughout the quarter and slipped further late in September on news that OPEC would boost output despite tepid demand growth in an oversupplied market. The West Texas Intermediate (WTI) price for oil closed Q3 at $68.17 US$ per barrel. Gold continued its year long advance and posted its biggest quarterly gain since 2016, closing the 3rd quarter at $2,659.40 per oz in US$. 

Canada’s unemployment rate rose throughout Q3, inching up to 6.6% in August. Job vacancies fell by 4.1% to 526,900 in July, the third consecutive monthly decline. On a month-over-month basis, average weekly earnings were up 1.0% in July, following a rise of 0.4% in June.  The U.S. unemployment rate dropped slightly to 4.2% in August, with job gains in construction and health care, but has risen in six of eight months since January, when it was 3.7%.

Markets were buoyed by a steady decline in inflation in Q3. Canada’s Consumer Price Index (CPI) rose 2.0%, annualized, in August, year-over-year, down from 2.5% in July and 2.7% in June. The August reading was squarely within the Bank of Canada’s stated target range for inflation. Lower gasoline prices helped while mortgage and rent costs remained the biggest drivers. U.S. inflation hit a new three-year low in August, with CPI falling for the fifth consecutive month to 2.5%, annualized, down from 2.9% in July. Core inflation, which strips out food and energy, was roughly steady at 3.2%.

The mix of inflation, unemployment and growth data across Q3 facilitated the Bank of Canada’s 0.25% (quarter point) cut on September 4th and BoC governor Macklem noted that the decision was motivated in part by the need to support economic growth going forward. The next BoC rate announcement is October 23rd. Similarly, the long-awaited U.S. rate cut reflected both the Fed’s growing confidence that inflation is under control and an alertness to the economic risks of sustained high interest rates. The cut, a larger than expected 0.50%  (or 50 basis point cut), lowered the federal funds rate to a range between 4.75%-5%. The next Fed rate decision is November 7th.

Eurozone inflation fell to a three-year low of 1.8% in September, down from 2.2% in August and 2.6% in July, with sliding energy prices again a tailwind. That trend and August data pegging eurozone GDP growth at just 0.2% in Q2 opened the door for the European Central Bank (ECB) to trim rates by a quarter point on September 12th to 3.5%, its second such reduction in 2024. The sluggish growth outlook will be in focus at the next ECB meeting on October 17th. 

In contrast, the Bank of England (BoE) kept interest rates at 5% in September after a 0.25% cut in August, with BoE governor Bailey emphasizing that vigilance on inflation remains a priority. UK inflation held steady in August at 2.2%, annualized, but lower energy prices were offset by persistent services inflation, which rose to 5.6% from 5.2% in July. Core inflation, ex food and energy, rose to 3.6% from 3.3% in July.

Japan’s inflation rate climbed to 3.0%, annualized, in August from 2.8% in the prior three months, the highest level since October 2023. In September the Bank of Japan (BoJ) held its key policy rate at 0.25% and BoJ governor Ueda expressed caution about the economic outlook. The BoJ increased interest rates in March and July to end its negative interest rate policy. Japanese equites had a volatile quarter, most notably when the Nikkei 225 Index plunged nearly 20% in the first five days of August before recovering, but still finished down for the quarter.

What can we expect now?

Markets should benefit if the downward trends in inflation and interest rates persist, with the Organization for Economic Cooperation and Development (OECD) noting in late September that falling rates and recovering real wages should support global growth through 2024 and 2025. Lower rates are making cash less attractive and reviving interest in traditional dividend paying stocks and the benefits of bonds. October will be overshadowed by the November 5th U.S. presidential election, but investors may choose to look past any turbulence to the prospect of further rate cuts before year end. But a generally positive outlook might be tempered by the ongoing conflict in Ukraine and Russia, and the spiralling geopolitical tensions in the Middle East as Q4 begins.

Each generation faces challenges that often appear both unique and overwhelming, but when viewed through the sobering lens of history, we find they are neither.  Today, we face any number of challenges which, while significant, are arguably no more daunting than: a global depression; two world wars; the Cold War; the assassination of one US president and the resignation of another; 9/11; a world-wide pandemic. 

And yet the market continues its inexorable climb.  Why?  In my view, and in spite of our shortcomings, humans are remarkably resilient, as well as masterful inventors and innovators, who strive to make a better life for themselves, their families and their societies.   

Regardless of where we are in the market cycle, it’s important to take a disciplined approach to investing and stay focused on your long-term goals. This strategy helps you keep your emotions out of investing, typically buying high and selling low like many investors do. Ongoing monitoring and reviewing of your portfolio also ensures it remains on track.

Wealth Access Portal

Recently (in May 2024) the older online portal to view your holdings at Mandeville Private Client closed.  There is now only the Wealth Access portal for online review and deposit of your statements:

https://mandeville.investor.d1g1t.com/

If you have not been online or have not received a request for online access, please let us know.  I know that some requests may have been sent to an older email address, but it is our mission this fall to get you set up and able to review asap.  

Very Much Appreciated

Thank you for your continued trust in me and my team for the opportunity to assist you in working toward your financial goals. We are with you every step of your investment journey. Should you have any questions regarding your portfolio, please do not hesitate to contact my office. We can be reached from 9am to 5pm at our office number 519-432-6744 (extension 238 for me and extension 239 for my assistant Susan).  Or after hours I can be reached on my cell phone, 519-859-6449.

Until we speak again, I hope you have a wonderful autumn.

All the best,

Mark McConnell, BA (Economics), DipBIS

Senior Investment Advisor, Branch Manager

Mandeville Private Client Inc. is a member of the Canadian Investment Regulatory Organization and a member of the Canadian Investor Protection Fund.  Commissions, management fees and expenses all may be associated with investments in mutual funds and exchange traded funds (ETFs). Please read the prospectus before investing. Mutual funds and ETFs are not guaranteed, their values change frequently, and past performance may not be repeated. This publication contains the opinion of the writer.  The information contained herein was obtained from sources believed to be reliable, but no representation or warranty, express or implied, is made by the writer, Mandeville or any other person as to its accuracy, completeness or correctness.  The information in this letter is derived from various sources, including CI Global Asset Management, Statistics Canada, U.S. Bureau of Labor Statistics, Bloomberg, Wall Street Journal, Financial Times, Trading Economics, CNBC, Globe&Mail, CTV and Morningstar as at various dates. This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources and reasonable steps have been taken to ensure their accuracy. Market conditions may change which may impact the information contained in this document. Before acting on any of the above, please contact me for individual financial advice based on your personal circumstances.