Insights and Strategies
Striking the Right Balance
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 was up 10.5% in 3Q24 and 18.2% YTD, versus the U.S. benchmark S&P 500, which was up 5.9% in 3Q24 and 21.0% YTD. All figures represent total returns in local currency.
- 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 their average over the following 12 months.
