July 16, 2024
Dear Investors & Friends,
What’s New @ IWP:
I hope that your summer is off to a great start! At Investing With Purpose Ltd., we have been focussed on building out our business. We are focused on making your experience with us more engaging and streamlined. Esther, (my savvy assistant) has a number of investor focussed projects that she has started and as they are completed, you will notice an even more thorough level of service from us. We are hoping that these initiatives are rolled out in the early Fall, in time for the busy Fall > Winter & Spring investing seasons.
We also have some other interesting new topics that we can discuss. On top of our (what I would consider to be) amazing fund offerings, we now offer Exchange Traded Funds, “ETF’s”.
ETFs are similar yet different to funds and as such, they offer their own distinct pros/cons for each individual investor. As time goes by, I plan on having conversations with investors whom I think ETF’s might make sense for. I will begin by saying that ETF’s are not a holy grail for investors…. They do have strengths but as I mentioned above, they also do have some drawbacks which I think should be considered as well. If you would like to take the initiative and reach out to me to discuss ETF’s and how they may fit in to your portfolio, please feel free to reach out anytime.
From an investor’s perspective, one of the unique attributes about my suite of ETF’s is that it will allow for me to include Bitcoin, Etherium and general Crypto exposure to an investor’s portfolio if they are so inclined. At the end of the day, ETF’s will be another tool in my toolbelt that I can use to help you achieve all of your investment goals… “On time!”
Stock Market Update:
Equity markets dipped about 5% in early April, (in hindsight that was a healthy, small drawdown) but the markets bounced back in May and in to June. Investors were hopeful for interest rate cuts to boost markets, supported by lower inflation and a positive economic outlook. In June, the Bank of Canada and the European Central Bank cut interest rates, starting a policy-easing cycle. However, the US held off due to a strong labor market and sticky inflation.
Market performance continued to broaden beyond tech to other sectors through Q2, corporate earnings continued coming in better than expected and economic growth, though slowing, remained in good shape.
The S&P/TSX Composite Index ended the quarter down 0.5%, the S&P 500 Index up 4.3%, the Nasdaq Index up 8.3%, the MSCI World Index up 3.0% and the MSCI EAFE Index up 1.0%. year to date U.S., Canadian and global stocks are all in positive territory.
Oil prices continued rising. Several factors were to blame, including Saudi Arabia led OPEC’s decision to maintain its current production levels and geopolitical tensions in the Middle East. In Canada, the carbon tax increase on April 1, further inflated pump prices.
Canadian employment slowed, leading to an increase in the unemployment rate to 6.2% (up 2% from a year ago) while wage growth decelerated to 4.7%, the slowest pace since June 2023. This data is consistent with an easing labour market which would be welcomed by the Bank of Canada in its inflation battle. Monthly Canadian GDP data for April along with the preliminary estimate for May were also released. April data revealed 0.3% growth month-over-month (MoM). However, the preliminary estimate for May indicated Canadian growth continues to moderate, showing a modest 0.1% MoM gain.
In contrast, the U.S. job market remained robust with the unemployment rate steady at 3.8% while wage growth accelerated. However, U.S. retail sales and personal spending fell slightly, easing fears about a pick-up in activity and inflation. This highlights the diverging paths of the Canadian and US economies.
Inflation, interest rates and central banks
U.S. inflation fell for the first time this year, a welcome relief to investors and the Fed. CPI was 3.4%, down from 3.8% in Q1. While promising, core inflation, which includes food and energy, remains sticky and not low enough for the Fed to consider rate cuts. As expected, the Fed left rates unchanged in the 5.25-5.5% range. Fed chair Powell said while there had been progress toward the Fed’s 2% inflation target, current policy would be needed for longer but would prove sufficiently restrictive over time.
Canadian CPI fell back within the Bank of Canada’s 1-3% range and close to its 2% inflation target. Falling prices for food, services and durable goods led the way, although rent prices remained high and there was a pick-up in travel costs. The progress in reigning in inflation was enough was for the Bank of Canada to cut its overnight policy rate by 0.25% to 4.75%, the first step towards lower interest rates. Governor Macklem hinted there would be further cuts if inflation continues to ease but reiterated the decision would be dependent on incoming data (inflation, employment, growth, consumer expectations).
Similar to the Bank of Canada, the European Central Bank is making progress towards its 2% inflation target, and echoing the Bank of Canada, lowered its key policy rate 0.25% to 3.75%. Both cut rates in June. Japanese inflation also continued to decelerate although it remains above the Bank of Japan’s 2% target meaning it may consider further policy measures. As a result, the Bank of Japan kept its policy rate range at 0.0-0.1%.
Inflation moderated in the U.K. as well, coming in at 2%, the lowest reading since April 2021 and in line with the Bank of England’s (BoE) inflation target. U.K. GDP data was also released showing the economy has rebounded after falling into a recession during the second half of 2023. Q1 2024 GDP was 0.6%, the strongest pace of growth since Q1 2021. The BoE opted to keep its bank rate at 5.25% but Governor Bailey noted it was likely the BoE will need to cut rates in the coming quarters and make policy less restrictive. The People’s Bank of China also kept it benchmark rate unchanged.
What we can expect now?
Inflation and anticipated rate cuts continue to drive markets. Central banks are monitoring inflation and underlying economic indicators to assess the timing of rate cuts. Market performance has also been broadening beyond AI and mega cap tech to other sectors and this will likely continue as we head into the second half of the year. There might be additional volatility as the U.S presidential election looms in November, but there is little reason to expect a severe slowdown. Volatility and pullbacks are a normal part of investing and present strategic buying and rebalancing opportunities for asset managers.
Regardless of where we are in the market cycle, it’s important to take a disciplined approach to investing and stay focused on your long-term goals. This strategy helps you keep your emotions out of investing, typically buying high and selling low like many investors do. Ongoing monitoring and reviewing of your portfolio also ensures it remains on track. Diversifying investments reduces risk as well.
Thank you for your continued trust and I appreciate having the opportunity to assist you in working toward your financial goals. We are with you every step of your investment journey. Should you have any questions regarding your portfolio, please do not hesitate to contact us.
Sincerely,
Adam Aleshka
The information in this letter is derived from various sources, including CI Global Asset Management, Statistics Canada, U.S. Bureau of Labor Statistics, Bloomberg, National Post, Wall Street Journal, Toronto Sun, and Morningstar as at various dates. This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources and reasonable steps have been taken to ensure their accuracy. Market conditions may change which may impact the information contained in this document. Before acting on any of the above, please contact me for individual financial advice based on your personal circumstances. Certain statements contained in this communication are based in whole or in part on information provided by third parties and CI Global Asset Management has taken reasonable steps to ensure their accuracy. Market conditions may change which may impact the information contained in this document.
The contents of this newsletter does not constitute an offer or solicitation for residents in the United States or in any other jurisdiction where either Adam Aleshka and/ or Sterling Mutuals is not registered or permitted to conduct business. Mutual funds provided through Sterling Mutuals Inc. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus carefully before investing. Mutual funds are not guaranteed, their values fluctuate frequently, and past performance may not be repeated.
