If 2022 was the year that Central banks waged war on an overheated economy, then 2023 was the year that markets fought back. In the face of persistent inflation central bankers in North America continued to hike interest rates for the first half of the year. Investors, at least south of the border, had different ideas. The S&P500 took flight in the middle of March and didn’t look back until the end of July. It’s no secret that Artificial Intelligence was the catalyst as ordinary folks were suddenly confronted with a new marketplace of technology tools that finally brought the narrative of game changing AI into practical reality. AI has arrived, and investors are rushing to buy a piece of the action. Now dubbed “The Magnificent Seven”, Amazon, Apple, Google, Tesla, Meta, Microsoft and most notably Nvidia accounted for nearly the entire return of the US market in 2023. The growth of those companies relative to the rest of the S&P500 index is depicted below. Understandably, the resource heavy Canadian stock market did not fare as well in the first 3+ quarters of the year.
In the latter half of the year central bankers began to yield their assault and investors started to bet on when the tide would turn on interest rate policy. A late October meeting after which US Federal Reserve Chairman Powell suggested that three rate cuts were on tap for 2024 spurred a Q4 rally on both sides of the border with the total return on the S&P 500 (CAD) finishing the year just shy of 22% and the TSX total return at 11.75%.
After years of lackluster performance, fixed income investors finally got some reprieve in 2023 with total returns on most major bond ETFs falling between 5-10%.
Undeniably, the past 3 years have been a very difficult environment to make investment decision. A global pandemic that brought the global economy to its knees, followed with never seen before financial stimulus in the form of money printing and rate cutting, only to be followed with the most aggressive paern of interest rate hikes since the 1980’s is nothing short of anomalous in history. Now that the page has turned on 2024, we set our sights on the best path forward. The likelihood of a serious recession is dwindling, yet questions remain how well Canadians and their US counterparts will respond to rising mortgage rates and other loan payments. In stock markets there are those that believe we will see a rotation into the less loved, or “Value”, companies and those that remain laser focused on the technological advances of AI. The former are hoping to preserve capital while the later and will invest at any cost. No matter where you find yourself in that debate, one thing that is well apparent is that technology now permeates every sector of the marketplace.
Our team continues to favour high quality companies and balance the short-term risks of public investing by augmenting portfolios with Private investments. The fourth quarter saw our Private Credit, Real Estate and Equity pools return 1.26%, 1.33% and 1.80% respectively. Combined, these pools have delivered positive performance 150 out of 153 months since inception.
Wishing you a great start to 2024!
-The Gilman Deters Private Wealth Team
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