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So far, 2023 hasn’t been the doom and gloom year some market watchers predicted. The S&P 500 was up about 20 per cent year-to-date as of July 31, while the S&P/TSX Composite Index climbed about 6 per cent over the same period.
Recession forecasts have yet to materialize, and volatility, as measured by the CBOE Volatility Index, or VIX for short, has been within its long-term average of between 15 and 20 for most of the summer (and even lower during some weeks).
Will markets and the economy continue to defy expectations for the rest of 2023 and into 2024? Globe Advisor recently spoke to Kevin McCreadie, chief executive officer and chief investment officer of AGF Management Ltd., about his outlook for the economy and markets.
What do you see happening with inflation in the coming months?
We think it’s going to get tough on the inflation front. Going down from about 8 per cent last year to around 4 per cent today wasn’t going to be too hard [given the several interest rate increases and declining food and energy prices]. It’s going from 4 per cent to the targeted 2 per cent, which will be very hard. Growth has remained relatively okay thus far, but we know there’s a lag effect when you raise rates this quickly. There will come a time when those higher rates start to bite, so we expect to see moderating growth in the next couple of quarters and the end of central bank tightening in North America.
What’s your outlook for the markets?
Parts of the equity market, in particular some of those top names in the S&P 500 – what’s being called the ‘Magnificent Seven’ – have gotten ahead of themselves. We see other parts of the market, such as mid- and small-cap names, doing better in the second half of the year. But, it might not be as apparent because the index itself will be weighed down by the slower growth of those larger names that have already advanced a lot this year.
There could be disappointment for investors heading into 2024. For the first time in decades, you may not see central bankers cut rates as soon as they see growth start to weaken. They may stand on the sidelines with their arms crossed for a couple of quarters of negative growth and say, ‘Inflation is still not where we need it to be.’ That may be what catches the markets off guard.
The positive news is that when central banks decide to cut rates, they have room to do it, unlike other points in recent history when rates were near zero.
What’s the takeaway for investors?
Don’t worry whether the U.S. Federal Reserve or the Bank of Canada will raise rates again – and by how much. It’s irrelevant at this point. That damage has already been done. It’s also too soon to know when central banks will start cutting rates (but we currently anticipate mid-2024 at the earliest). In the meantime, you might have a sideways equity market that leans more into names and sectors that haven’t participated in the gains so far this year.
Also, don’t fear your fixed-income portfolio this year. Unlike last year, when some investors saw negative returns for two or three quarters, that won’t happen this year. You can still get some decent income, and it’s a hedge to what might happen in the equity part of your portfolio. There’s also nothing wrong with having a little cash right now as a defensive tool.
This interview has been edited and condensed.
- Brenda Bouw, Globe Advisor reporter
Must-reads from Globe Advisor this week
How the financial independence, retire early movement has evolved amid rising costs and volatile markets
When the financial independence, retire early (FIRE) movement went mainstream more than 30 years ago, it was a relatively straightforward strategy of saving and investing aggressively to leave the workforce decades earlier than most. However, rising costs, volatile markets, longer lifespans and the health concerns that can come with too much idle time have led to a few FIRE movement spin-offs that better reflect current economic and social realities. Brenda Bouw explains.
Being successful on social media about financial planning requires an authentic approach
Engaging with prospects directly on social media can translate into more business for an advisor’s practice. But that engagement must be truly authentic to make like-minded connections, advisors active on social media platforms say. Almost all of Mark McGrath’s clients come from his Twitter following. In a rare move, Mr. McGrath of PWL Capital Corp. let his followers peep behind the curtain of his personal life. In a 30-part thread, he tweeted about the tragic circumstances of his father retiring early without a well thought-out plan. The thread generated more than 5.2-million impressions and he gained 4,000 new followers within a week of publishing. Deanne Gage reports.
Why this fixed-income portfolio manager is bullish on corporate bonds right now
When Daniel Child founded YTM Capital Asset Management Ltd. 13 years ago, fixed income was considered the sleepy side of investing. But the rise of alternative assets, and last year’s unprecedented bond rout, has awakened investors to the wider world of fixed income. Mr. Child sees growth opportunities in select areas of the fixed-income market for the next several years. “Bonds are never sexy, but it’s an exciting time from a return perspective – and something we haven’t seen for quite a long time,” says Mr. Child, a former bond trader at Canadian Imperial Bank of Commerce and Bank of Nova Scotia. Brenda Bouw asks him what he’s buying and selling.
What happens to family trusts when children get divorced?
The family trust is a central feature in many estate plans. It can offer its beneficiaries privacy, income splitting, and some creditor protection, among other benefits. While many good reasons exist to use a family trust as part of a client’s estate plan, family law issues must be considered before a trust is settled. There’s a common misconception that if a married individual is a trust beneficiary, the value of those assets is protected on the breakdown of that individual’s marriage. In Ontario, that’s only sometimes true. Jessica Feldman Chittley of Bales Beall LLP explains why this is the case.
Also see:
How compensation models are evolving as competition for financial professionals heats up
What you and your clients need to know
Women have been sidelined in asset management careers for years. This program is trying to change that
The numbers of female money managers are bleak for a profession that values diversification at its core. Out of 3,993 portfolio managers registered with the Canadian Investment Regulatory Organization (CIRO), just 14 per cent or 554 were women, as of December 2022, according to data from CIRO’s national registration database. That statistic is similar for associate portfolio managers: 17 per cent out of 726 are women. The Ivey Business School at the University of Western Ontario has a new Women in Asset Management program aimed at improving awareness of the industry among young women who are missing out on opportunities in a prominent and well-paid field that manages large pools of capital. Ana Pereira provides more details.
These home-sharing platforms aim to match students with seniors who have empty bedrooms
Two companies are trying to tap an unused part of the housing market by matching students and other renters with homeowners who have empty bedrooms. Sparrow Living Inc., which received federal funding, launched its home-sharing platform in January of last year and is operating in Ontario and British Columbia. SpacesShared began in Barrie, Ont., and Toronto in the second quarter of this year. Both say they have been inundated by requests. They are attempting to turn unused bedrooms into longer-term rentals. That would effectively house some renters immediately as opposed to waiting for more homes to be constructed. Rachelle Younglai has more on this story.
Average price of a new car tops $66,000 as drivers wrestle with ‘a very surprising reality’
Brace yourself. The average price of a new vehicle hit a record high in Canada in June – $66,288 – up 21 per cent in one year and 47 per cent over four years, according to AutoTrader.ca’s price index report. That, combined with higher lease and finance rates, has accelerated auto loan delinquencies, prompting one industry expert to predict that drivers will be forced to downgrade their cars and extend the terms of their loans or leases to keep their payments manageable. Petrina Gentle explains.
– Globe Advisor Staff