Market Highlights
Q2 ended with underwhelming market performance across asset classes, with Canadian dollar appreciation being the most noteworthy change. Within equities, the dispersion in returns amongst different equity sectors continued with different catalysts moving markets:
Liquidity & Artificial Intelligence Boost Mega-Cap Technology Companies
Navigating Persistent Inflation
In Canada, we’ve seen the labour market remain resilient and inflation persisting in food and gas prices, which led to a surprise rate hike on June 7th by the Bank of Canada. Following the unexpected rate hike, June saw a strong rally in the Canadian dollar and a poor quarter for the Canadianbond market. A strong immigration policy by the government may lead to continued strong employment numbers. We expect that the Bank of Canada’s interest rate hikes, which began over a year ago, will start to impact the economy, aligning with the historical pattern of the economy slowing 12 to 18 months after the first hike.
With energy prices down and smaller cap companies remaining flat, there is some evidence that a slowdown may be in the works, leading us to take a conservative position with respect to our Canadian equity exposure. We continue to hold a floating rate bond position instead of Canadian equities. At a current yield of 5.1% floating rate bonds are currently performing close to the TSX Composite’s half year return of 5.7%, with less volatility. While the Watermark Portfolios may not fully participate in short-term equity market rallies, positions in private credit and private real estate currently benefit from strong sector tailwinds and offer strong inflation protection. Our focus continues to be capital protection while we wait for the impact of interest rates to hit the economy, which should result in better buying opportunities in the equity markets.
Have a wonderful summer!
-The Gilman Deters Team
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