March 18, 2024 | portfolio managers' brief

Portfolio Managers’ Brief: March 2024

BY: Jason Ayres
A brief review of market conditions and how they are impacting the management decisions of our Investment Review Committee (IRC).

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Key Takeaways

U.S. Stock Market Performance

As we approach the end of Q1 2024, the major U.S. stock indexes continue to exhibit strong performance. At the time of the recording, the S&P 500 and the Nasdaq have both seen a 9.5% increase year to date, while the Dow Jones Industrial Average has experienced a modest 4.30% rise. The lag in the Dow Jones can be attributed to its focus on value and income-based companies, which have not performed as well as the growth sectors predominant in the S&P 500 and Nasdaq.

Record Highs in U.S. Indices

All three major U.S. indices have been trading at all-time highs. Specifically, the S&P 500 has seen about 30% of its constituent companies reach new highs this year, with the Information Technology and Industrials sectors leading the charge.

Concerns of Overbought Stocks

Investor concern is growing regarding how much further stock prices can go given the current economic and interest rate environment. However, with the number of companies hitting new highs trending up vs down into new S&P 500 highs, there may still be room for the current rally to continue.

Canadian Stock Market

Here in Canada, the S&P/TSX composite index has had a reasonable start to 2024, up 4.50% year to date. However, it struggles to keep pace with the market cap weighted S&P 500 or the tech-heavy Nasdaq.

Global Market Trends

The MSCI All Country World Index (ACWI) has risen by 8.00% year to date, though it’s important to note the heavy weighting of the United States within this index.

Bond Markets

The bond market remains range bound as interest rates remain relatively high. The iShares Core Canadian Universe Bond Index ETF (symbol XBB) is down by -1.00% year to date, with expectations that bonds will  remain at these levels until the BoC provides clearer signs of a rate cut.

Bank of Canada’s Inflation Strategy

Canadian CPI for January 2024 decreased to 2.9% from 3.4% in December 2023, indicating that the Bank of Canada’s strategy of using interest rates to control spending has been effective. However, underlying pressures are expected to persist, with inflation projected to remain around 3% through the first half of 2024 investors are patiently waiting for clearer signs of a rate cut.

U.S. Inflation and Interest Rates

U.S., February’s CPI numbers were higher than expected at 3.2%. This has led to expectations that U.S. central bankers will maintain current interest rate levels in their next meeting, with a revised expectation of three rate cuts this year, down from six expected at the end of 2023.

2024 Market Forecast

The stock and bond markets have been fluctuating between optimism and caution, influenced by interest rate policy expectations and economic conditions.

Market Sentiments: Bulls vs. Bears

Bulls: Anticipation of rate cuts by mid-2024, boosting markets and economic growth, fueled by recent strong market performances and confidence in economic resilience.

Bears: Concerns over stock overvaluations and potential average returns, with inflation concerns that could revise rate cut expectations.

Strategy and Outlook

The current market environment underscores the importance of diversification across portfolio management styles and portfolio holdings with a focus on companies with robust fundamentals and resilient business models to navigate a potentially slowing economy. The strategy involves a blend of cautious optimism, emphasizing holding quality companies with lower economic sensitivity, alongside employing a variety of option strategies in certain portfolio models to enhance cash flow while maintaining upside potential in covered call positions.

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