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Q2 2024 - Investment Update

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: 

  • The S&PS00 finished up 6.6% in CAD as mega-cap technology companies had a strong quarter
  • The TSX Composite Index with heavier weights in financials and energy ended the quarter up 1.1%
  • With inflation persisting, the Canadian Universe Bond Index ended the quarter down at -0.7%
  • The Canadian Dollar (CAD) rallied 2.2% during the quarter along with the Bank of Canada interest rate hike

Liquidity & Artificial Intelligence Boost Mega-Cap Technology Companies

  • The regional banking crisis in March led the US Federal Reserve to pump liquidity into the markets, which it kept going into Q2, resulting in money flowing into areas of the market that can absorb it, most notably the mega-cap technology stocks (Alphabet, Amazon, Apple, Microsoft and Nvidia).
  • Artificial intelligence (Al) took the spotlight in Q2 becoming the hot new topic. Mega-cap technology companies are at the forefront of this, riding the Al wave, taking their stock prices higher. Despite the strong upward movements in their stock prices during the quarter, questions remain on how Al will be monetized. As a result, the valuations of these companies look stretched in the short run.

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

I have prepared this commentary to give you my thoughts on various investment alternatives and considerations which may be relevant to your portfolio. This commentary reflects my opinions alone and may not reflect the views of Harbourfront Wealth Management. In expressing these opinions, I bring my best judgment and professional experience from the perspective of someone who surveys a broad range of investments. Therefore, this report should be viewed as a reflection of my informed opinions rather than analyses produced by Harbourfront Wealth Management Inc. “

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