June 3, 2024 | portfolio managers' brief

Portfolio Managers’ Brief: May 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. Market Performance

  • U.S. equities experienced a 5-7% drop due to:
    • Rising labor costs fueling inflation concerns.
    • Central bankers’ challenge to control inflation without raising rates.
    • Geopolitical tensions involving Iran and Israel.
    • Disappointing earnings reports from major companies, including JPMorgan Chase.

Unlikely Rate Cuts

  • Central bankers hinted at rate cuts being unlikely before December due to ongoing inflationary pressures.

U.S. Market Charts

  • Major U.S. indices reached all-time highs in May:
    • Nasdaq up 13% year to date.
    • S&P 500 up 12% year to date.
    • Dow up 4% year to date after briefly trading over its previous all-time high.

Canadian Economic Challenges

  • The S&P TSX dropped approximately 3.5% in April due to:
    • High interest rates affecting economic growth.
    • Persistent inflation, particularly housing-related.
    • Disappointing corporate earnings in financials and energy sectors.
    • High household debt raising concerns about consumer spending and economic growth.

Canadian Market Charts

  • Canadian equities recovered from the April pullback, with the S&P TSX returning 7% year to date and hovering at all-time highs.

Global Market Performance

  • Global equity markets pulled back due to:
    • Persistent inflation.
    • High interest rates.
    • Geopolitical tensions.
    • Disappointing earnings from multinational companies.
    • Struggles in emerging markets such as China, Brazil, and Turkey.

Recovery in MSCI All Country World Index

  • After a modest 6% pullback, the MSCI All Country World Index is up 12% year to date.

Canadian Fixed Income Market

  • Canadian bond prices drifted lower as interest rates remained high.
  • Ishares Core Canadian Universe Bond Index ETF (XBB) remains down 2.30% year to date despite recovering from April lows.

Canadian Consumer Price Index (CPI)

  • Canadian CPI for April rose 2.7% year-over-year, down from 2.9% in March.
  • Slower growth in food prices and slight moderation in gasoline prices contributed to this decrease.

Bank of Canada Comments

  • Bank of Canada noted key indicators of inflation moving in the right direction, providing more confidence in gradual inflation decline.

Governor Tiff Macklem’s Statement

  • Highlighted the need for sustained downward momentum in inflation before considering rate cuts.
  • Mentioned the possibility of a rate cut in June.

U.S. Inflation and Monetary Policy

  • U.S. CPI for April was 3.4% year-over-year, down slightly from the previous month.
  • Inflation has eased over the past year but remains elevated.

Federal Reserve’s Stance

  • Fed maintained the federal funds rate at its current range for the sixth consecutive meeting.
  • Emphasized the need for further evidence of sustained reductions in inflation before considering rate cuts.

Navigating Challenges and Opportunities

  • Volatility expected to continue due to inflationary pressures and upcoming U.S. elections.
  • Central bankers’ decisions on rate cuts remain a key focus.

Investment Strategy

  • Focus on companies with robust fundamentals and resilient business models.
  • Align investment strategy with the latest economic data and central bank decisions.
  • Emphasize quality companies with lower economic sensitivity amidst ongoing cautious optimism.

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