Key Takeaways September 2024
U.S. Rate Cuts
The Federal Reserve announced a 50 basis point rate cut during the September 18th FOMC meeting, with expectations of additional cuts in November and December. The Fed projects four more rate cuts in 2025 and two in 2026, expressing confidence that inflation is moving toward its 2% target.
Inflation Trends
The significant rate cut was driven by concerns about a weakening labor market, despite inflation easing from a peak of 9.1% in mid-2022 to around 2.5% by August 2024.
Labor Market Softening
The labor market shows signs of weakening, with rising unemployment and fewer job openings. The Fed’s aggressive rate cut aims to protect employment and maintain economic stability.
U.S. Equities Performance
U.S. equity indices have rebounded following the rate cut, with the S&P 500 up 20%, the Nasdaq up 19%, and the Dow up 12% at the time of this recording.
Global Growth
The MSCI All Country World Index is up 17% year-to-date, benefiting from a 62.5% U.S. market weighting, which is currently at an all-time high.
Canadian Inflation and Interest Rates
Canada’s inflation rate reached 2% in August 2024, the first time since 2021. The Bank of Canada has cut rates three times since June 2024, with the benchmark rate now at 4.25%. Further rate cuts are anticipated if inflation remains under control and economic growth moderates.
Canadian Fixed Income Market
Canadian bond prices continue to rise as rates fall, with the iShares Core Canadian Universe Bond Index ETF (XBB) up 2% year-to-date, surpassing previous highs.
Canadian Equities
The TSX has surged 14% year-to-date, driven by gains in banks, energy stocks, and commodity sectors.
U.S. Election Impact
Uncertainty surrounding the upcoming U.S. elections poses a risk to markets. While Biden has dropped out, Kamala Harris and Donald Trump represent contrasting economic policies that will have varying effects on the U.S. markets.
Economic Policy Differences
- Taxation: Trump Republicans favor lower corporate taxes, while Harris Democrats propose higher taxes but with benefits for green energy and tech sectors.
- Regulation: Trump supports deregulation, benefiting traditional industries, while Harris Democrats advocate for increased regulation, particularly in climate and labor, which could drive renewable energy growth.
- Government Spending: Trump focuses on defense and infrastructure, while Harris emphasizes healthcare, education, and green infrastructure.
- Trade Policy: Trump’s “America First” tariffs may cause disruption, whereas Harris Democrats support cooperative trade, potentially stabilizing markets.
Potential Stock Market Impacts
- Trump Republicans: Short-term growth in key sectors due to tax cuts and deregulation, with potential long-term volatility from trade disputes and fiscal deficits.
- Harris Democrats: Short-term market volatility from taxes and regulations, with long-term growth in healthcare, green energy, and tech due to stable trade relations.
Investment Strategy
The current strategy remains focused on diversification and managing concentration risk. The portfolio includes companies with strong fundamentals and resilient business models. Active management will continue to lock in profits and take advantage of market pullbacks. Caution is advised as U.S. elections approach, potentially heightening volatility.