Weekly market wrap

Key takeaways:
- The Fed's and BoC's next move will likely be a rate cut instead of a hike, but the timing of when that might happen could be a source of volatility.
- The labour market remains strong but is gradually loosening, which, together with better inflation trends, supports a pivot to less restrictive central-bank policy in 2024.
- Our base-case scenario calls for three to four rate cuts in the back half of 2024, which should help bonds recover.
- Interest-rate stability could be the catalyst for a rotation from this year's equity winners to the laggards. We think the narrow market leadership and wide valuation gaps have created an opportunity in areas of the market that have been left behind.
With a few weeks left till the end of 2023, markets remain on track for a strong finish. Stocks are hovering near their highs for the year, and bonds are rebounding nicely after a tough three-year stretch. The overarching forces supporting balanced portfolio gains this year have been the easing in inflation pressures, a resilient economy that has avoided a recession, and enthusiasm around artificial intelligence (AI).
As the torch passes to 2024, investors are counting on a successful central bank pivot away from restrictive policy to a more neutral stance to sustain and build on this year's gains. We think the Fed's and BoC's next move will be a rate cut instead of a hike, but the timing of when that might happen could be a source of volatility. Nonetheless, we see the potential end of tightening and the start of an easing cycle as a catalyst for further gains in bond prices and a broadening in equity-market leadership. We offer three reasons why we expect a gradual shift in central bank policy ahead.
The graph shows that both U.S. payrolls and job openings are easing but only gradually, and they continue to suggest labour market strength.
The graph shows that both U.S. payrolls and job openings are easing but only gradually, and they continue to suggest labour market strength.
The graph shows the year-over-year percentage change in U.S. headline, core and core excluding shelter CPI. All remain in a downtrend, with the core ex-shelter now at the Fed's 2% target.
The graph shows the year-over-year percentage change in U.S. headline, core and core excluding shelter CPI. All remain in a downtrend, with the core ex-shelter now at the Fed's 2% target.
The graph shows the weighted average interest rate on outstanding and new Canadian mortgages and the average U.S. 30-year fixed mortgage rate against the effective rate on all mortgage debt outstanding. U.S. households have been able to lock in historically low rates muting the impact of rate hikes while Canadian households have been more exposed to higher interest rates.
The graph shows the weighted average interest rate on outstanding and new Canadian mortgages and the average U.S. 30-year fixed mortgage rate against the effective rate on all mortgage debt outstanding. U.S. households have been able to lock in historically low rates muting the impact of rate hikes while Canadian households have been more exposed to higher interest rates.
The graph shows the Fed funds and Canada overnight rates along with market expectations that call for rate cuts in 2024.
The graph shows the Fed funds and Canada overnight rates along with market expectations that call for rate cuts in 2024.
Angelo Kourkafas, CFA
Investment Strategist
Sources: 1. Bloomberg, 2. FOMC Summary of Economic Projections, 3. Energy Information Administration 4. Statistics Canada, Edward Jones.
INDEX | CLOSE | WEEK | YTD |
---|---|---|---|
TSX | 20,333 | -0.6% | 4.9% |
S&P 500 Index | 4,604 | 0.2% | 19.9% |
MSCI EAFE * | 2,138 | 0.4% | 10.0% |
Canada Investment Grade Bonds * | 0.8% | 4.7% | |
10-yr GoC Yield | 3.37% | -0.1% | 0.1% |
Oil ($/bbl) | $71.20 | -3.9% | -11.3% |
Canadian/USD Exchange | $0.74 | -0.5% | -0.3% |
Source: FactSet, 12/8/2023. Bonds represented by the S&P Canada Agg index. Past performance does not guarantee future results. *4-day performance ending on Thursday.
Important economic data coming out this week includes domestic housing starts and U.S. CPI inflation data.
Senior Strategist, Investment Strategy
CFA®
Senior Strategist, Investment Strategy
CFA®
The Weekly Market Update is published every Friday, after market close.
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