September 2024 Portfolio Management Team Update  

Elvis Picardo

September 24, 2024

September 2024 Portfolio Management Team Update 
By Elvis Picardo, CFA®, CIM, Senior Portfolio Manager, iA Private Wealth
September 24, 2024  

Market Review 
Global equities added to gains in August, as they recovered from the worst bout of volatility since 2022 that erupted in the first week of the month.

The TSX advanced 1.0% last month, after a 5.7% gain in July that was its best monthly performance since November 2023. The index fell as much as 5% in the first week of August after volatility spiked worldwide, before rebounding to reclaim the 23,000 level. Sector performance was mixed, as gains in the financials and technology groups were offset by declines in commodities, industrials and consumer staples. Bank stocks – which account for 20% of the TSX index – diverged significantly in August. Royal Bank reached a new record high, and National Bank, CIBC and Bank of Nova Scotia advanced, while TD Bank and BMO registered declines after fiscal Q3 earnings came in below expectations.

In the U.S., the S&P 500 recovered from an abrupt plunge that had taken it to the brink of a correction to post a 2.3% gain in August. The Dow Jones Industrial Average (DJIA) rose 1.8%, and the Nasdaq Composite lagged with a 0.7% gain. The MSCI AC World Index advanced 1.6% overall in August, with gains in North American indexes offset by declines in some European and Asian bourses.

(Sources: FactSet, Bloomberg) 

Outlook & Portfolio Strategy
September so far has belied its reputation as the worst month historically for equity performance, as U.S. indices have bounced back from another weak start to the month to rise to new highs. The S&P 500 fell more than 4% in the first week of September, with the Nasdaq Composite tumbling almost 6%, led by Nvidia’s 14% plunge that wiped out over $400 billion in the world’s largest AI chipmaker in a week.

But aggressive “buying on the dips” stemmed the slide, while the S&P 500 and DJIA clambered to new record highs after the Federal Reserve slashed its benchmark interest rate by 50 basis points on September 18, on unbridled optimism that the world’s largest central bank will successfully engineer a “soft landing” for the U.S. economy.

Investors expect additional rate cuts from the Federal Reserve over the next 12 months. With the U.S. economy still looking solid despite pockets of weakness in areas like the labour market, investors remain confident that additional rate cuts will prevent any incipient weakness in the economy from getting worse.

It’s a similar situation in Canada, where ebbing inflation and lower interest rates have led to Canadians’ becoming the most optimistic about the economy since 2022. Earlier this month, Statistics Canada reported that Canadian CPI rose 2% in August from a year ago (Figure 1), the slowest annual pace since February 2021. Some economists predict that the data may lead the Bank of Canada to slash its policy rate by 50 basis points at its next meeting on October 23. The Bank of Canada has already cut rates three times since June, bringing the benchmark overnight rate to 4.25%, and market participants expect the rate to fall to about 2.5% by July 2025.

YTD gains of 14% for the TSX Composite and almost 20% for the S&P 500 (source: FactSet) suggest that much of the good news, especially with regard to lower interest rates, is already priced in at current levels. Investors may be disappointed if economic data shows significant weakness (which would derail the “soft landing” hypothesis) or if inflation proves to be stickier than expected, causing optimistic assumptions about future rate cuts to be reconsidered.

At present, scant attention is being paid to spiraling geopolitical risk in the Middle East and elsewhere, or to the market implications of the U.S. Presidential election that is just around the corner. We expect market volatility to resume as these events come into sharper focus, with Q3 earnings that will be reported from the first week of October contributing to the market’s gyrations. We are confident that the changes made by the Portfolio Management Team (PMT) to client portfolios in mid-July will mitigate downside risk in the near term, while enabling continued participation in markets’ upside over the long haul.

Figure 1: Canadian inflation back to 2% 

Please contact any member of the PMT if you have any questions or concerns regarding your accounts. 

This information has been prepared by Elvis Picardo, who is a Portfolio Manager for iA Private Wealth Inc. and does not necessarily reflect the opinion of iA Private Wealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Portfolio Manager can open accounts only in the provinces in which they are registered. iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Canadian Investment Regulatory Organization. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.