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The upbeat sentiment that marked the end of last year continued in financial markets in the first quarter of 2024, with both the S&P 500 and TSX surpassing its previous records set all the way back in the early days of 2022. A special thanks need to be given in part to the persistent outperformance of tech giants at the forefront of advances in artificial intelligence. Bonds meanwhile continued to lag, as investors no longer expect as many rate cuts as they did to start the year all while precious metal prices appreciated in the face of a still uncertain geopolitical context.
On the economic front, although there has been some good news since the start of the year, the real state of affairs remains difficult to assess as contradictory signals multiply. For example, while manufacturing activity appears to be picking up, consumers appear less prone to spend, as evidenced by slowing retail sales growth and rising credit card delinquency rates. Lastly, the fog is still thick on the inflation front, with various price indices surprising both on the upside and the downside in Canada and the U.S.
My base scenario still anticipates a gradual slowdown in inflation accompanied by more turbulence for economic growth. In this respect, investors will have to keep a close eye on consumer spending and, ultimately, the resilience of the labour market, which could be challenged later this year. Nevertheless, in the shorter term, the fact that the Federal Reserve is opening the door to rate cuts potentially as early as June – despite inflation stalling around 3% –could provide further grounds for optimism in equity and bond markets for the time being. Moreover, this suggests that the Fed will not hesitate to act quickly – as it did a year ago during the regional bank debacle – in the event of a significant deterioration in economic activity, thereby reducing the risk of a financial accident.
In a special Q1 edition of ‘Market Perspectives’, not only will I highlight the events of March but everything you need to know during what was a robust first quarter of the year. In addition to highlighting North American stock markets, I wanted to bring to your attention the momentum we have experienced, the volatility- or lack thereof- as of recent and comment on the Federal Reserve’s latest impacts on financial markets. See attached.
I hope you enjoy the read and regardless of the path ahead for financial markets you can be confident that you have an investment professional in your corner who is committed to your success.
Thanks for taking time out of your day to become better informed.
-AP
