Each quarter, The Press asks four experts to analyze the situation to grow a fictitious portfolio with an initial capital of $100,000, and therefore within the reach of most individual investors. In this second meeting of 2024, these experts briefly look back at the first quarter and describe their outlook for the coming months on the financial investment markets. Also, they are recalibrating their individual asset allocation for the second quarter of 2024 based on a balanced benchmark portfolio. That is to say established at 60% in stocks and 40% in bonds and cash, with distribution differences limited to 10% more or less.
What findings for the first quarter of 2024?
Candice Bangsund, Vice President and Portfolio Manager, Global Asset Allocation, Fiera Capital
“Markets got off to a spectacular start to the year, extending their winning streak to five consecutive months, while many of the world’s stock indices hit new records. Investor appetite was fueled by continued good economic data in the United States, the prospect of a drop in interest rates and better-than-expected corporate results. On the other hand, the bond markets were under unfavorable pressure in the first quarter. After falling at the end of 2023, government bond yields started to rise again as investors revised their expectations of an upcoming interest rate cut in response to economic growth and inflation persistent in the United States. »
Michel Doucet, vice-president, investment strategist and portfolio manager, Desjardins Wealth Management
“The first quarter in the financial markets was marked by an upward revision of the short-term economic outlook, which prompted investors to moderate their expectations for an upcoming rapid interest rate cut by central banks. In the United States in particular, while we expected at the start of the year a soft landing for the economy, followed by a series of rate cuts by the Federal Reserve (Fed), we instead find ourselves with a favorable gliding economy casting doubt on expectations of a drop in interest rates before the end of the year. »
PHOTO JOSHUA ROBERTS, REUTERS ARCHIVES
The strength of the American economy raises doubts about lowering interest rates from the Federal Reserve.
Martin Lefebvre, Chief Investment Officer and Strategist, National Bank
“The resilience of the American economy continued to surprise in the first quarter. This economic surprise carried over into the US stock market, which further outperformed other major markets. Also, despite some investor fatigue at the end of the quarter with the big titles in the technology sector, the American stock market then benefited from the upturn in value in the raw materials and energy sector. The Canadian stock market also benefited from this revival, but to a lesser extent due to the marked slowdown in the Canadian economy. »
Hugo Ste-Marie, Director of Portfolio Strategy and Quantitative Analysis, Scotiabank Global Markets
“The first quarter was marked by fairly exceptional returns on the stock market, of the order of 6% to 13% depending on the indices, which far exceeded investors’ expectations. In my opinion, two main factors contributed the most to this stock market momentum. First, the strength of the American economy continued to surprise despite the anticipated impact of high interest rates. For example, growth forecasts in 2024 in the United States, which were barely 0.5% at the end of 2023, were multiplied by four, to 2%, three months later. Secondly, several of the most closely watched companies on the American stock market, starting with the technology giants, delivered end-of-year 2023 results that exceeded expectations. »
What are the prospects for the coming months?
Candice Bangsund, Vice President and Portfolio Manager, Global Asset Allocation, Fiera Capital
“The debate over the so-called landing of the US economy continues in the financial markets. Recent statements from the Federal Reserve predict a soft landing during which inflation would ease without causing major damage to the economy and would allow three rate cuts in 2024. It is a little worrying to note that the decline in the Inflation has stalled since the start of the year, while several key components of the inflation rate have surprised on the upside. These upward pressures on inflation have intensified with the continued strength of the economy in the United States, which has cast doubt on the Federal Reserve’s ability to cut interest rates this year. »
Michel Doucet, vice-president, investment strategist and portfolio manager, Desjardins Wealth Management
“Among the elements to watch, I am closely following the upcoming company results to see if they can “deliver the goods” in order to satisfy the still relatively high expectations of stock market investors. I am closely monitoring the evolution of the main measures of economic conditions in the United States and Canada, in order to be able to readjust my expectations of monetary policy from central banks. If there is a rebound in inflation, it could signal another delay in expectations for rate cuts, perhaps even until next year. Internationally, I closely monitor the monetary policy statements of the European Central Bank as well as the Bank of Japan. »
Martin Lefebvre, Chief Investment Officer and Strategist, National Bank
“I expect the U.S. economy to remain strong despite the slowdown in consumer spending. Peak growth in the United States was reached at the end of 2023, but the scenario of a soft landing remains valid, with the risk of recession now postponed until the end of the year. In Canada, however, the effects of rising interest rates in the economy are greater than in its American neighbor, as is the risk of recession. In this context, I would not be surprised if the Bank of Canada decided to precede the American Federal Reserve in lowering interest rates, in order to limit the slowdown in the economy. »
Hugo Ste-Marie, Director of Portfolio Strategy and Quantitative Analysis, Scotiabank Global Markets
“The favorable economic situation in the United States is expected to continue, given the strength of the job market and the recent rebound in manufacturing activity indices. On the stock market, this economic impulse should continue to favor the future results of companies, as well as their potential for additional valuation. I therefore expect another good quarter in the main stock markets, albeit at a somewhat slower pace. This economic strength in the United States could support inflation at a higher level than that targeted by the Fed before lowering interest rates. »
Where is your asset allocation for the second quarter of 2024?
Candice Bangsund, Vice President and Portfolio Manager, Global Asset Allocation, Fiera Capital
“The risk environment in the economy and financial markets justifies maintaining a relatively neutral portfolio positioning in equities [par rapport au portefeuille équilibré de référence]. First, if it turns out, a scenario of a soft landing for the economy and a decline in inflation would be positive for future company results and their additional valuation on the stock market. If the continued strength of the American economy sparks a resumption of inflation and a postponement of the interest rate cuts already envisaged by the financial markets, the recent gains in value on the stock market could be threatened by a powerful headwind in the investor sentiment. I maintain a preference for Canadian stocks, with an overweight [à 30 %] compared to the reference balanced portfolio, and double the allocation to American equities [15 %]. I consider that the Canadian Stock Exchange still offers relatively attractive stock values. In addition, the notable rebound in commodity prices since the start of the year, notably oil, gold and copper, bodes well for the S&P/TSX stock index. »
Michel Doucet, vice-president, investment strategist and portfolio manager, Desjardins Wealth Management
“I am reducing my weighting in bonds a little [de 40 % à 35 %] in anticipation that this market could be affected by rapid changes in economic conditions which would prompt central banks in Canada and the United States to revise their interest rate reduction intentions. I am increasing my equity weighting a little [de 60 % à 65 %] by focusing more on Canadian stocks [de 18 % à 22 %] and one more point in American stocks [de 32 % à 33 %]. Even if the Canadian economy slows, the S&P/TSX stock index could surprise investors thanks to the rebound in resource sectors and the performance of large Canadian companies with a strong international presence and which benefit from income in US dollars . »
Martin Lefebvre, Chief Investment Officer and Strategist, National Bank
“I reduced the allocation to bonds [de 39 % à 35 %] in order to correct a positioning that proved too defensive in the first quarter, which harmed overall performance. I am increasing my equity allocation [de 60 % à 64 %] by focusing more on American stocks [de 20 % à 22 %] and on the actions of developed economies internationally [EAEO, de 12 % à 16 %]. I anticipate that the American stock market will continue to benefit from a still favorable economic situation in the United States. And in Europe, the economy and the stock market are recovering better after the shock of the war in Ukraine and the energy crisis in 2022. On the other hand, I am reducing my allocation to Canadian stocks a little. [de 20 % à 19 %] as a result of a more perceptible risk of recession in Canada than in the United States. »
Hugo Ste-Marie, Director of Portfolio Strategy and Quantitative Analysis, Scotiabank Global Markets
“I only make two changes. First, I am increasing my weighting in American stocks which was too low in the first quarter, which harmed my return in the fictitious portfolio. I am bringing it from 15% to 20% by banking on the possibility of a still advantageous return on the American stock market during the second quarter, in the absence of a turnaround in the economic situation on the horizon. I am also reducing my overweighting in cash [liquidités]which goes from 15% to 10%, but remains at double its weighting [5 %] in the reference balanced portfolio. Until interest rates fall, the real return on cash remains advantageous in a balanced portfolio. My overweighting in Canadian stocks remains unchanged at 24%. I therefore want to continue to benefit from the rise in the prices of raw materials and energy – two sectors with a strong presence on the Canadian stock market – as a result of the rebound in manufacturing activity indicators at the global level. »