What a month November was.
For all the apprehension that investors had felt going into the month, it seems it was all for nothing. Many equity markets saw strong gains, and most indices are at all-time highs.
We entered the month with many concerns. Inflation remained a tough foe to beat, causing yields to spike; corporate earnings were coming in weaker than forecast, and, of course, a US election that was too close to call. The doomsday scenario wasn’t around who would win the election, it was that we wouldn’t know the outcome for months. Yet, in a welcome surprise, we had a clear outcome the following morning, with a loud message of reform being sent to Washington.
President-elect Trump and the Republicans had been given a Red Sweep, and they now have two years to enact policies to unwind much of the regulations and Red tape that many feel had held back the US Economy. Immediately, markets reacted. GDP estimates and earnings expectations were taken higher on the belief that the US economy would take off next year.
While this is great for many areas, it does make one debate the need for future rate cuts if everything is going so well. Add to this the threat of inflationary tariffs being implemented, and a scenario exists that sees inflation and bond yields remaining high with the backdrop of a strong US economy.
Back in Canada, this isn’t such a great outcome. The first term of President Trump was not Canada-friendly, and there is little reason to think his relationship with Ottawa has improved since then. The recent threat of 25% tariffs on all Canadian exports (while unlikely) is a harsh reminder of what is coming. The Canadian dollar has fallen to a multi-year low vs the USD, and prospects do not look great for a rebound anytime soon.
But what if the market has gotten some of this wrong? The prospect of higher growth led to bond yields and higher USD, but during the campaign, President Trump was often quoted as seeking to lower the US dollar to spur manufacturing and the export sector. The commodity sectors took it on the chin because of the stronger dollar, with gold and copper each down nearly 10% at their lows.
One group that did very much enjoy the election outcome, was the cryptocurrency sector. Bitcoin hovered around $60k last month, yet it almost touched $100k at the post-election rally. Ether and other coins participated as well. With the promise of regulations and barriers being removed, we could be entering a ‘golden’ period for crypto. The new US administration seems intent on making America a leader in this emerging sector.
Entering the final month of the year, it’s remarkable how markets have performed. It almost seems like a repeat of 2023. A year in which we entered full of caution, on a recession watch and wary that Central banks would mess up the prospects of a soft landing. Ending another year with strong returns has put those fears well in the rear-view mirror. Yet, it’s always dangerous to get too complacent. Everyone who can remember the first Trump term is likely expecting that 2025 will prove to be yet another volatile year.
While earnings growth should remain strong, the problem on the horizon will be around valuations, as by few measures, are markets ‘cheap’. But that is something to worry about in January; December is seasonally one of the strongest months of the year.
Enjoy the ride, but we should get ready for some speed bumps.
— Greg Taylor, CFA, is the Chief Investment Officer of Purpose Investments
All data sourced from Bloomberg unless otherwise noted.
By the numbers displays the total returns for the month of October 2024.
The content of this document is for informational purposes only and is not being provided in the context of an offering of any securities described herein, nor is it a recommendation or solicitation to buy, hold or sell any security. The information is not investment advice, nor is it tailored to the needs or circumstances of any investor. Information contained in this document is not, and under no circumstances is it to be construed as, an offering memorandum, prospectus, advertisement or public offering of securities. No securities commission or similar regulatory authority has reviewed this document, and any representation to the contrary is an offence. Information contained in this document is believed to be accurate and reliable; however, we cannot guarantee that it is complete or current at all times. The information provided is subject to change without notice.
Commissions, trailing commissions, management fees and expenses all may be associated with investment funds. Please read the prospectus before investing. If the securities are purchased or sold on a stock exchange, you may pay more or receive less than the current net asset value. Investment funds are not guaranteed, their values change frequently, and past performance may not be repeated. Certain statements in this document are forward-looking. Forward-looking statements (“FLS”) are statements that are predictive in nature, depend on or refer to future events or conditions, or that include words such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” intend,” “plan,” “believe,” “estimate” or other similar expressions. Statements that look forward in time or include anything other than historical information are subject to risks and uncertainties, and actual results, actions or events could differ materially from those set forth in the FLS. FLS are not guarantees of future performance and are, by their nature, based on numerous assumptions. Although the FLS contained in this document are based upon what Purpose Investments and the portfolio manager believe to be reasonable assumptions, Purpose Investments and the portfolio manager cannot assure that actual results will be consistent with these FLS. The reader is cautioned to consider the FLS carefully and not to place undue reliance on the FLS. Unless required by applicable law, it is not undertaken, and specifically disclaimed, that there is any intention or obligation to update or revise FLS, whether as a result of new information, future events or otherwise.