Market Musings November 2024
Happy November to all, or so we hope.
Following a fall full of economic and geopolitical news, we wanted to provide an update on the current situation. But first, we are please to tell you that Raymond James Canada has launched our mobile app. You can find the App on the App store as well as Google store. Please reach out to Isabelle, Laurent or Aidan for any assistance on setting up your mobile once you have downloaded the App.
On to the elephant in the room, the US election: The return to a trump presidency.
What do we understand about President elect Trumps plan? Strictly from a financial perspective, here are the implication from our perspective:
Tariffs: problem is that it can cause more inflation, as any tariffs will be passed on to the US consumer. The rise in the US dollar could counteract these increases in cost of goods in their local currencies, but also impact the exporting companies. This being said, Tariffs could (in doses) spur growth in manufacturing in the US, particularly for small and medium sized businesses.
Deficit: This goes into the tariffs (or new taxes) on certain goods. Ideally, the moneys raised would be earmarked to pay down the deficit. But how and when is unknown.
Cutting corporate tax rates from 21% to 15%: could be positive for growth, particularly in small medium companies. What is unknown is where Trump will find the revenues to replace those lost by this conceptual tax cut, or what programs he will propose cutting to offset. If there are no program cuts (spending cuts), it will have the effect of growing the deficit.
While the market moved soundly higher on the day following the election, it is not clear if the rally can hold. Too many unknowns: who will be in what role on team Trump? Will the republicans (who hold a lead of 206 to 191 on the race to 218 majority) take the house, and have a freer hand to make law, etc.
In our opinion, it is too early to tell, and to adjust our sights. We must remember that President elect Trumps position on China, his admiration for Putin, his somewhat ambiguous intentions with regard to the war in Ukraine and the Israeli/Palestinian conflict are all issues that that stand to have impacts and influence markets in the near term.
The next section of our musings is a bit dryer. For those of you who are into the numbers.
Macro Highlights for October:
- A supersized rate cut from the Bank of Canada (BoC) on October 23 continued an interest rate easing cycle that started in June, bringing the policy rate to 3.75% from a high of 5.00%.
- September inflation numbers were announced showing that the Consumer Price Index (CPI) headline metric beat the BoC’s 2.0% target by declining to 1.6%. The BoC’s preferred measures of CPI-Trim and CPI-Median were 2.4% and 2.3%, respectively.
- Revised immigration targets were announced to significantly limit permanent and temporary residents in Canada over the next few years, potentially impacting economic growth and the availability of lower-cost workers.
Financial Market Highlights
- The Canadian benchmark TSX Composite index and the U.S. benchmark S&P 500 both accelerated their price appreciation during the 3rd quarter.
- Market breadth was the topic in Q3 as small and mid-cap stocks gained strength on a better economic backdrop in the U.S. markets, with the start of the interest rate easing cycle, before investors flocked back to the mega-cap stocks and the Magnificent Seven towards the end of the quarter.
- Canadian sectors that did the best in October were Energy, Materials, and Financials, while Real Estate, Communication Services and Consumer Staples were the weakest.
Upcoming
- We expect rate easing to continue in Canada through the end of the year, with another 50 bp cut on December 11, followed by 25 bp reductions into 2025 until the policy rate hits 2.75% at the March 12 meeting.
- We see further downward pressure on inflation with the Canadian economy operating below potential.
- We had expected the typical increased volatility in financial markets leading up to the U.S. election, but once outcomes are known, we tend to get lower volatility and both Canadian and U.S. stock markets tend to appreciate above
Wishing you an excellent November.
As always, we welcome your comments and questions, and thank you for your trust.
Erik and Guillaume, and the Patrimonia Team
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Erik Moisan and Guillaume Desjardins-Tessier are Portfolio Managers with Raymond James Ltd. The views are those of the authors, and not necessarily those of Raymond James Ltd. Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor’s circumstances and risk tolerance before making any investment decision. Raymond James Ltd. is a Member - Canadian Investor Protection Fund. Commissions, trailing commissions, management fees and expenses all may be associated with mutual funds. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.
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