The first half of 2024 has been generous to equity investors. After a bear market in 2022 and a meek rebound for most of 2023, the Canadian, American, and international stock markets began recovering in earnest in October 2023.
This recovery took them, from January to May of this year, past their previous all-time high set in late-2021 or early 2022. The markets have moved further into record territory since then.
The move is impressive. From October 31, 2023, to June 30, 2024, the Canadian S&P/TSX Composite Index rose 19%, the American S&P 500 Index jumped a surprising 29%, and the international MSCI EAFE climbed 20%.
The corporate world is in good shape. Demand is solid, costs are back under control for the most part, profit margins are high, and profits are growing. But, most importantly, inflation is back below 3% and interest rates have stopped increasing.
Eventually, the ongoing rapid rate of ascent for the equity markets will slow down or stop. But the current powerful bull phase looks set to continue for a while. Let’s enjoy it while it lasts
The first half of 2024 has been relatively quiet on the economic front. The year began with nearly stagnating growth in Canada and Europe while the American economy was resilient, somewhat pulling along the rest of the world. Six months later, the Canadian and European, and Chinese, economies have improved while the United States’ is slowing.
The labor market is currently weakening in the United States, where job creation statistics are falling and household income growth is poor. High interest rates, and the recent inflation surge, are largely to blame. Real returns in most facets of the economy are reduced and low-income households are hit hard. This is the situation we are monitoring the most, to gauge future stock market strength.
Yield curves remain inverted in advanced countries, and interest rates are elevated by recent standards. But inflation has fallen and the good news is that central banks are beginning to reduce their respective overnight benchmark rates. The Bank of Canada and the European Central bank have each cut theirs by 0.25% in early June, while the Federal Reserve (Fed) awaits further confirmation that inflation has been beaten. We now expect the Fed to cut next September.
The MSCI ACWI is the most used equity index to gauge world equity markets. It combines and amalgamates, using market capitalization to weigh individual stocks, the public companies from 24 advanced countries and 23 emerging countries. That’s 2760 stocks in total. Canada is in there with 87 companies, and accounts for 2.7% of the Index.
Triasima has mandates benchmarked to the MSCI ACWI. We thus monitor it very closely. The determining feature of the index over the first six months of 2024 is a group of securities called the "Magnificent 7". They are seven large companies, all American, that drove the performance of the index. They have been up 42% on average, and without them the performance of the MSCI ACWI would be 10%, and not 15%. These seven companies are: Alphabet, Amazon, Apple, Meta Platforms, Microsoft, NVIDIA, and Tesla.
Almost half the world population goes to polls in 2024, although not all in true democracies, unfortunately. Important results so far are the election of Claudia Sheinbaum in Mexico, where several expected reforms are not well received by the financial markets, and of Shri Narendra Modi for a third term in India, where economic progress and rising living standards carry on.
A hot topic is the emergence and growing adoption of the field of artificial intelligence. We see this as just another step in the over 100-year-old drive towards automating processes of all kinds. Like all such past endeavors, it will lead to productivity enhancements, rising living standards, and rising stock markets over time.
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