Second Quarter Veritable Market Update 2024

Cautious patience

In response to worldwide Covid-related interest rate shocks, global central banks simultaneously raised interest rates to heights not seen in 15 years. Tighter financial conditions are having their desired effect. In most countries, inflation has dropped dramatically, even if it remains above the standard 2% target.

For central banks setting monetary policy is like captaining big, clumsy ships up a river, and doing so while facing backwards. Central banks navigate between painful recessions on one bank and painful inflation on the other. They steer with lagged data, trying to make smart decisions about necessary adjustments without being clear where the economy is and what is coming next. Contrast this with financial markets, which are forward-looking and perpetually in a hurry to predict that future.

Markets go up or down as those predictions change. Investors entered the year with expectations of aggressive rate cuts, easing financial conditions and the ship steering away from recession. Central banks were in less of a hurry. They have kept to small adjustments, letting the ship drift. Their cautious patience has been warranted. Economic data has been coming in too hot one month and too cold the next. As investors changed their views to higher-for-longer rates, bond prices were pressured lower. As investors changed their views to a stronger economy, global equity prices pushed higher.

Two roads diverged

Regional economic differences remain, with the United States having notable strength. A ‘spendier’ than expected US consumer, protected by fixed rate 30-year mortgages, has kept the economy expanding. That growth, combined with excitement for Artificial Intelligence within a handful of gargantuan tech companies, pushed the US stock market to its third straight quarter of strong returns.

In Canada, as well as Europe, consumers felt the impact from high rates sooner. Spending has slowed, unemployment is higher, and the economy is limping along. By June, central banks had room to begin lowering rates. The economic divergence from the US was mirrored in stock market returns. European stocks provided modest gains over the quarter, while Canadian stocks experienced a decline.

Keep calm. Carry on… diversified.

In today’s environment of election challenges, deplorable violence and war, and artificial intelligence adoption, investing success can’t rely on predicting the unpredictable. Asked when the US Federal Reserve would have the confidence to start lowering rates, Chairman Jerome Powell answered, “I don’t know.” We applaud that honesty. Markets, in their rush to the future, prefer prediction camouflaged as certainty. Time and time again, the search for that certainty has proven fruitless.

To navigate in an uncertain world, there is no better path to achieving financial goals than staying invested in a well-diversified portfolio. Today’s geopolitical and economic concerns don’t prevent compelling opportunities from developing across our diverse investment universe. It remains possible to identify loans that beat inflation, businesses that create long term value, real assets that generate stable returns, and diversifiers that diversify; all in service of taking families to and through the retirement they desire.

To discuss how Veritable Wealth can support your financial goals, please contact us.

All the best,

Douglas Schein

Chief Investment Officer, Veritable Wealth Advisory

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