The final quarter of 2023 began with low expectations as investor sentiment and consumer confidence continued to decline from the previous quarter. Both the public stock and bond markets ended October in a slump, setting the stage for a notable rebound to end the year. A strong labour market, softening inflation, and prospects of interest rate cuts led investor confidence to increase, fueling one of the strongest public market rallies in recent quarters. In contrast, private markets did not keep up with the short-term rally in public markets. However, the notable volatility in public markets as well as divergent performance between public and private markets continues to highlight the importance of a diversified investment strategy for optimal portfolio management.

The S&P 500 has recently broken out to a new high, helped by the dissipating risks of inflation and economic recession. Tech stocks are leading the way. It seems like only a matter of when, not if, equity market participation will broaden out to include more sectors and regions of the global equity market. At this stage, selectively shifting some money from the market’s biggest winners into the lagging areas probably reflects prudent risk management.

Major stock indices including the S&P500, the MSCI All-Country World Index and the S&P/TSX composite, all demonstrated impressive gains, ending the quarter up 8.9%, 8.4%, and 8.8%, 1 respectively, in total Canadian dollar terms. Following a challenging environment in the first three quarters of the year, fixed income markets experienced significant gains, marked by an 8.3% increase in the Canadian bond market, resulting in a 6.6% return for the full year. 2 This rally was primarily attributed to the growing expectation that the Bank of Canada would begin to reduce interest rates.

The outlook for global economic growth appears to have stabilized over the past 1-2 quarters. An increasing number of leading activity indicators argue that the worst for growth might now be in the rear-view mirror.

The global monetary policy tightening cycle has ended. Most of the world’s major central banks are now holding rates steady. While some interest rates cuts are likely in 2024, it is difficult to see the need for an aggressive or coordinated loosening of monetary conditions absent a meaningful crack in developed economy labor markets.

Falling inflation and prospects for easier Fed policy are increasing talk of a soft landing rather than a recession, hard landing, and bear market. Leading indicators point to slowing growth but not a collapse. Equity markets normally bottom out well before the peak in economic distress with the dot-com cycle being the notable exception. There’s still a risk of recession next year; the important point is that even if it did occur it is likely to be a mild one, particularly with the Federal Reserve providing ample liquidity to the banking system.

After the autumn rally, US equity markets already price in a soft landing. The widespread expectation is for a single digit earnings growth and single digit returns on the median US stock in 2024, with continued outperformance by the mega caps.

As always, thank you for your continued trust in us.

Penmore Wealth Management iA Private Wealth

This information has been prepared by Roland Orban who is a Portfolio Manager for iA Private Wealth Inc. and does not necessarily reflect the opinion of iA Private Wealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Portfolio Manager can open accounts only in the provinces in which they are registered. iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.

Roland Orban, CIM, PFP, Investment Advisor
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