Knowledge Centre

Q1 2024


That swooshing sound investors hear is stock markets around the world zooming upward. Over the past quarter, many of the world’s leading stock markets have hit record highs as has gold, various commodities, and bitcoin. Of note, this upward trend has occurred while interest rates remain at punishing levels in Canada, the U.S., and Europe. High rates are a large part of the reason the global economy is sputtering. Britain and Japan are already in recession and Germany is likely to join them. As China grapples with a property crisis the U.S. economy remains a bright spot. However, it is the growing prospect of declining interest rates that is cheering up investors around the globe because falling rates would boost the value of just about everything.

After a third quarter contraction, the Canadian economy’s expansion over the past few months has exceeded expectations, allowing the country to skirt a recession. Growth was broad based, with 18 out of 20 sectors expanding, including somewhat surprising growth in real estate, rental, and leasing for the third consecutive month. This strong rebound could allow the Bank of Canada more time to assess whether inflation is slowing sufficiently. Inflation, led by shelter costs, is still running hotter than the bank’s target and interest rates remain at a 22 year high of 5.0%. The prospect of multiple rate cuts later this year has increased meaningfully.

The U.S. economy is still expanding at a rapid clip and is showing few signs of slowing down. What makes the recent strength so remarkable is that it has taken place despite the sharply higher interest rates necessary to tame high inflation. This is due to strong consumer spending that is being underpinned by a muscular labour market. The prospect of the Federal Reserve cutting rates later in the year if inflation continues to wane is also acting as a strong tailwind.

Europe narrowly avoided a recession in the second half of 2023. Weak consumer sentiment, sticky inflation, a resilient labour market, and Red Sea tensions are all risk factors for further curtailed growth. While underlying inflation is easing, domestic price pressures remain high largely due to strong wage growth. The European Central Bank has kept borrowing costs at record highs and is not yet ready to lower rates even after a steep fall in fuel costs. Still, the financial markets are pencilling in multiple rate cuts later this year as the worst seems to be over.

Both the U.K. and Japan have stumbled into recession. In the U.K., inflation is still running above target although price increases have eased more than anticipated; a signal that the first rate cut could happen in the second quarter. Japan’s revival after three decades in the shadows has been put on hold after unexpectedly slipping into recession due to anemic domestic demand. This has caused Japan to fall behind Germany and is now only the fourth largest economy. India’s economy is set to overtake both Japan and Germany in coming years. Despite its economic troubles, investors have embraced Japanese stocks.

Global stocks have been downright phenomenal in the first quarter. The Canadian stock performance has been middling, climbing 6.6% (all figures in Canadian dollar terms). U.S. stocks have once again been world beaters, surging 13.4% in the first three months. International stocks gained an impressive 8.6% while Emerging market stocks delivered a decent return of 5.0% in the first quarter. Only bonds dampened the party, falling 1.2% so far this year.

As is so often the case with markets, it may be time to get a bit anxious when all around us we see nothing but blue skies. Certainly, central banks are on the brink of victory in the fight against the global surge in inflation. Economic activity has been remarkably resilient and the financial system has held up well, but we are not out of the woods yet. The potential resolution of high interest rates being reversed shortly has been the cornerstone of the stock market rally, but it has not been without excessive hand wringing during the early part of the year.


Canadian and global markets continued their rally in the first quarter of 2024 amid encouraging economic news and easing inflationary pressures. GDP growth rebounded in January after the economy narrowly dodged a technical recession in late 2023. Preliminary GDP data for February is also in positive territory and Statistics Canda reported a surprise of 41,000 new jobs in the same month (although the unemployment rate is higher due to strong population growth). Looking at recent economic resiliency in isolation might give the impression that the BOC’s (Bank of Canada’s) tightening cycle, incepted two years ago, was ineffective. However, there are clear signs of the effectiveness of the BOC’s policies as the Canadian GDP had pulled back for six quarters prior and job growth in the private sector has been dismal. Importantly, the BOC has come a long way to shrink inflation to 2.8% (within its target range) as of February 2024. Against this macro backdrop of normalizing inflation data, investors are increasingly confident that the days of higher policy rates would end by the second quarter of 2024 and a soft landing scenario is more likely.

The S&P / TSX, like its global peers, found solace in this environment to record new highs as it climbed over 22,000, its first record in two years. In percentage terms the S&P / TSX closed the quarter strongly with a 6.6% gain. While the Canadian benchmark is still falling behind the S&P 500 which posted a 13.4% gain (in Canadian dollar terms), the performance differential has significantly narrowed compared to the past few years. The breadth of the S&P / TSX rally has expanded from being Technology focused to encompassing most other sectors besides. All sectors but Telecoms and Utilities weighed positively with Energy, Health Care and Industrials posting double digit returns of 17.8%, 17.5% and 10.8% respectively.

The energy sector has been on a five month rally amid OPEC+’s continued stance for supply cuts. The International crude benchmark, the Brent, edged into the $90 per barrel territory while its North American counterpart, the WTI (West Texas Intermediate) reached $85, both above their 200 day moving averages. Besides temporarily favourable geopolitical factors, the sector seems well supported by fundamentals that should underpin the rally for a longer term. Health Care stocks regained some luster in Canada as more countries, especially Germany, are willing to decriminalize the use of marijuana. One spectacular rally was gold which broke through the long awaited $2,000 psychological level to close the quarter at $2,245. Materials, despite a 5.4% gain, has not fully captured the upside of gold. The downward outlook for interest rates in the months ahead is a key macro factor supportive for the sector. Financials posted a modest 4.4% gain although the big 6 banks reported positive results during the quarter. These banks prefer to adopt a cautious stance in this environment of higher rates, setting aside a combined $4 billion in loan loss provisions. Telecoms and Utilities, the largest detractors from the TSX with 8.5% and 2.3% losses respectively, continued to underperform due to higher rates although the sectors appear near bottom.

The global tightening cycle has taken a toll on growth although regional pockets of resilience exist especially in North America where risks of a recession have significantly receded. However, the World Bank in its latest report still projects a challenging economic environment ahead with global growth falling behind its previous decade average. In Canada the economic rebound of the last few months might deter the BOC to cut rates sooner. However, a further easing of the inflation rate in the months ahead after a remarkable drop in February will present a convincing case for the Bank to start cutting the key rate. The TSX is well positioned in this cycle to consolidate its gains as previously out of favour value stocks have seen its momentum picking up, outpacing growth stocks in March more than 2 to 1.


2024 has been a mixed bag for bonds, after a solid year in 2023, which was preceded by two down years. Within the bond universe, floating rate bonds, short term treasuries and corporate bonds are outperforming bonds on the long end of the curve with long term bonds being the bottom performers. Bonds returned -1.2% for the first quarter of 2024. Interest rate uncertainty acts as a headwind for bond performance which has been exemplified through not only this first quarter but over the last two years.

Inflation, an adversary for bond prices, has shown promising signs of reverting back to normalized levels after two years of fast paced increases. As of February 2024, the annual inflation rate in Canada slowed to 2.8%, its lowest reading since June 2023. The rate of inflation was over 5% from January 2022 to February 2023. Primary contributors easing inflation were cellular / internet services (Canada has the highest wireless costs in the world) and relief in food pricing. Lower gas prices have been helpful in reducing inflation.

Following Russia’s invasion of Ukraine in February 2022, the price of oil skyrocketed to over $116.32 USD/BBL (per barrel), its highest since the financial crisis of 2007/08. It has since fallen by more than 40% as it hovers around $80 USD/BBL currently. Inflation expectations in Canada decreased to 4.9% in the fourth quarter of 2023, a significant improvement from the peak 7.2% figure reported in Q4 of 2022.

As evidence continues to roll in that inflation is steadily moving back towards normalized levels of 2%, monetary authorities are taking notice. The Bank of Canada has held its key interest rate at 5% again, signalling its intent to stop raising rates further. Like most news, this was met with mixed results. Market participants were relieved that borrowing rates won’t be increasing but are anxious for the decreases to begin. The Bank of Canada is likely about to embark on an interest rate cutting journey during 2024 but what is most important about the potential easing for markets is that it maintains a relatively smooth trajectory. Concerns about underlying inflation persist amidst global risks, namely attacks on Red Sea shipping routes and the ongoing wars across the Atlantic.
Talks of recession are diminishing, the Canadian economy has likely evaded a recession. The first quarter of 2024 is projected to be a weak quarter for growth. On the flip side, as the year progresses, there is an expectation that inflation will ease towards 2.5% which will boost growth if realized. Helping wage inflation, the unemployment rate in Canada rose to 5.8% in February. The business outlook is still strong. There is a swath of pent-up demand for travel and leisure with a record number of flights being booked particularly for the summer months. The Canadian dollar rebounded during the quarter.

South of the border, on March 20th, The Fed explained that rates would be maintained at the current range of 5.25% to 5.5%, and projected that they may lower borrowing costs as we progress into the second half of the year. The announcement had a mixed reaction in Canada for bonds. More volatile assets such as corporate bonds and stocks were the main benefactors of the announcement.

Investors need to be careful not to get too ahead of themselves in their expectations of bond performance given the encouraging words from Central banks and performance on the equity side of their portfolios as the economy continues to wade its way through the quickly changing economic landscape in this post-COVID era. Corporate bonds and lower rated junk bonds may be outperforming but the reliability of cash flows produced by higher quality bonds is vital for a successful fixed income strategy.


U.S. equities carried their momentum into 2024 after a scintillating rally to end 2023. The first quarter for the S&P500 gave way to double digit returns of 10.6% (all figures in U.S. dollar terms) for the second straight quarter and six consecutive months of positive performance since October 2023. High Inflation and the consequential adjustments in interest rates have been the primary catalyst for swings in the market since the COVID-19 market lows of 2020. Consumer inflation expectations have been dramatically reduced over the past 18 months and are now sitting at a three year low of 3%. To put this in perspective, as recently as June 2022, the one year forecast for inflation was nearly 7%. Lower gas prices have been a positive contributor for reducing inflation. Following Russia’s invasion of Ukraine in February 2022, the price of oil skyrocketed to over $116.32 USD/BBL (per barrel), its highest since the financial crisis of 2007/08. It has since fallen by more than 40% as it hovers around $80 USD/BBL currently.

A consequence of the sky-high inflation which rattled markets in 2022 forced the Federal Reserve to raise interest rates. The Fed made a series of rate hikes through the year to curb consumer spending, encourage increased savings, and attract foreign investment. In its latest meeting on March 20th, The Fed explained that rates would be maintained at the current range of 5.25% to 5.5% and projected that it might lower borrowing costs in the second half of the year. So far there has been a mixed reaction between those who believe talk of rate cuts is premature and those who can breathe a sigh of relief.

It is too early to declare the hikes an outright success. However it’s hard to argue the impact of the hikes given forecasts for lower rates. Sustainably lower inflation is vital to the success of the Fed’s hawkish strategy since 2022. There is a growing sense of optimism that the Fed will accomplish its mandate of a “soft landing” by raising rates high enough to cool down inflation without sinking the economy into a recession. If inflation were to spike again, the Fed would likely not hesitate to increase rates yet again. The unemployment rate increased to nearly 4% which is a good sign for wage inflation.

Digital disruption and the emergence of artificial intelligence (AI) continues to dominate headlines. The performance of Information Technology stocks, in particular the “Magnificent Seven”, have been a large driver of growth for the quarter. Nvidia Corp., which makes up over 5% of the S&P 500 index, has returned over 80% so far this year and Meta Platforms Inc., the sixth largest component of the index has appreciated over 35% year to date on news that it would begin issuing dividends. The flourishing AI industry is accelerating the demand for computer chips given their ability to process large amounts of data and text. As technology improves, so will the demand for manufacturing and infrastructure. Utility companies could and should reap the benefits here. Sector performance has been impressive thus far in 2024 with only Real Estate, Utilities and Consumer Staples producing less than double digit returns.

A recent International Energy Agency report stated that given the strong growth in Emerging Markets and higher electricity consumption in energy intensive data centres, AI and crypto currencies could double the demand for power by 2026. The outperformance of the Energy sector over the quarter reflects an early indication of the increase in demand.

The strong rally across the U.S. stock market brings volatility and opportunities for stock picking. With what appears to be a bullish scenario of lower rates and easing inflation, it is important not to become overly optimistic or eager to participate in market trends, but instead follow a disciplined, patient approach. As markets continue to see dispersion in valuations, returns and earnings estimates, there will be a greater opportunity for skilled investment managers to generate more alpha.


Stocks hit new record highs as global equities surged on optimism that central banks are on the verge of reversing their high interest rate stance and opening the flood gates to easier money. Global equity performance has been on a roll even though there are divergences in economic growth patterns from a soft landing in the U.S. and moderate growth in Asia versus a probable slump in Germany. The first quarter has demonstrated that taming inflation is a more arduous task than many had hoped. The focus is currently on short term potential growth opportunities.

Europe’s economy stagnated last year and barely avoided a recession in the final quarter as it underperformed the rest of the world. Former powerhouse Germany struggled with industrial malaise. It is currently on a path for broadly flat or negative growth for the sixth quarter in a row. Europe is suffering from stifling inflation and higher central bank rates which are being exacerbated by political turmoil in several countries. The European Central Bank is being forced to make an about face in its interest rate tightening policies and will likely deliver multiple rate cuts in the next few months to reverse the recession in manufacturing and cooling services economy.

The U.K.’s economy will continue to struggle to generate much economic growth in the months ahead despite a modest upgrade to annual growth estimates. However, inflation has eased more than anticipated after hitting a peak of 11% in 2022, raising expectations that the Bank of England may start cutting interest rates shortly after keeping them at a nearly 16 year high. Britain is experiencing considerably higher wage growth relative to most developed nations which is contributing to falling standards of living and will likely have a meaningful influence on upcoming elections.

The Bank of Japan made the seismic decision to raise interest rates for the first time in 17 years as the economy slipped into a recession. Japan has emerged from the grip of deflation and is focusing on reflating growth after decades of massive monetary stimulus as inflation has exceeded its target for well over a year now. This is an opportunity for the economy to break out of the protracted stagnation of the so called “thirty lost years”. This, coupled with a corporate governance makeover, has helped fuel the revival of Japan’s once moribund stock market. Foreign investors have taken notice of attractive valuations, an earnings boost, a currency that is languishing around a 34 year low and increasing demand from investors who have pared China exposure. It has shattered 35 years of mediocrity and pushed the stock market to new all-time highs, making it one of the world’s best performing stock markets.

International equity markets gained 5.9% (all figures in U.S. dollar terms) in the first quarter. The increase was propelled by Asian markets that climbed 8.7% with Japanese stocks in particular surging 11.2% during the quarter. European markets managed a 5.4% gain on the back of Italian stocks that climbed 13.9% in the first quarter. U.K. stocks only managed to eke out a 3.1% gain during the first three months of the year.

Global equity markets ended the first quarter on a high, but investors were subject to wild swings after sentiment lurching between optimism and pessimism about the prospective of future rate cuts. Switzerland surprised the markets by being the first country to cut rates, although they were likely just getting out in front of the pending onslaught of global rate slashing. Even as markets bet on rate cuts there are faint slivers indicating a revival of economic activity popping up. It is always best to remember that things are never as bad as you fear and seldom as good as you hope.


Leaving China aside, many emerging economies continue to be well positioned for 2024. There are bargain basement valuations to be found in emerging market equities thanks to an overvalued U.S. dollar. The last time emerging market equities were this cheap was late 2003, just before shares rallied more than 200%. History shows that every single time there has been a sustained period of U.S. dollar decline it has coincided with strong outperformance for Emerging Markets. And they are definitely overdue for an extended period of outperformance.

China’s era of rapid growth is over and the probability of economic stagnation in the medium term is rising. Its challenges are due to a combination of domestic factors: a rapidly aging population, a significant overhang of debt and slow progress in institutional reforms. In the short term, China is lean on exports to drive growth and push down prices. China is embarking on the restructuring of its property sector, which represents 30% of its economy, as it starts to collapse. China faces high youth unemployment, a population that has reached its peak and one of the most indebted corporate sectors in the world. China’s central bank is cutting the amount of reserves it holds for banks as part of a slew of measures to support the slowing economy. However, this is kind of like throwing cups of water on the fire as there are no meaningful short term solutions to its dramatically dimmed allure.

India is one of the top performing emerging markets, benefiting from the shifting geopolitical environment and its role as a counterweight to China in the region. While China is floundering, India has flourished in recent years, earning record stock market valuations and surging foreign inflows. India has made significant progress in streamlining its economy which is projected to grow by 6% annually. They have done well eliminating bottlenecks and promoting national integration. Its stable democracy, market friendly policies, strong rule of law, excellent demographics and low credit penetration have gone a long way to build a foundation for economic growth going forward.

Brazil and Mexico have benefited and continue to benefit from geopolitical global economic fragmentation and the rise of the concept of nearshoring. Both countries are capitalizing on re-configurations in global supply chains and commodity markets. Elevated commodity prices will likely continue to represent a major economic boon for Brazil and resurgence in Latin American markets. Mexico has surpassed China as the top trading partner with the U.S.. However, elections in June may drive some uncertainty. Mexico’s central bank will probably be the next to cut rates. Brazil, Hungary, Colombia, and Chile have all eased rates, while Israel joined the fray, delivering the first rate cut in four years.

Emerging Markets as a whole climbed only 2.4% (all figures in U.S. dollar terms) in the first quarter. European emerging markets lead the way with a 5.8% gain, followed by Asia’s 3.4% advance in the quarter; Taiwan was the clear winner with stocks surging 12.5% and India climbed 6.1%. Latin American stocks delivered the weakest results losing 3.9% in the first three months of the year with Brazil being the primary culprit for the fall, as stocks dropped 7.3%. China was also a laggard, falling 2.2% and given its disproportionate weighting of 30% of the index, that had a big impact.

Two factors will be front and centre this year: interest rates and politics. For the last two years the question was how far central banks will raise rates. Now the question is when and how far will they cut. Five of 18 central banks in emerging market countries cut rates in January, matching the December number which had been the highest number in at least three years. Many Asian central banks will join the fray in the coming months. Another consideration is with upcoming elections as a staggering portion of the global population will go to the polls this year. Politics absolutely matters in Emerging Markets and if both factors are resolved positively this could lead to strong share price performance.


Following widespread losses in 2023, the commercial REITs market signaled some rebound in 2024 despite a challenging economic backdrop with supply – demand imbalances and declining occupancy rates. Currently there are a myriad of factors eliciting investors optimism towards the sector. One notable factor is decelerating inflation at 2.8% in February, the lowest rate since June 2023. Another positive factor is the high probability of a soft landing in the months ahead along with a gradual decline in short and long term rates. This optimism has helped the REITs sector recoup losses in March with the Canadian REIT index posting a modest 0.72% loss for the quarter while its global counterpart, the MSCI World REIT, posted a 1.6% gain in Canadian dollar terms.

Entering 2024, economic conditions and their impact on REITs have varied across the globe. Capital costs remained elevated and transaction volumes weakened, although the market consensus leans towards a downward movement for rates as the year progresses. The bear market of the last few years has opened a window of opportunity in select areas of the Global REITs market with high quality assets at historically low valuations. In the U.S. Commercial Real Estate (CRE) sector for instance, the days of easy financing and underwriting standards have long gone but most REITs display well-structured balance sheets with leverage ratios averaging 40%. By comparison, the sector experienced leverage ratios in the 60% range during the great financial crisis of 2008.

Apart from select regions in Europe and Asia, the risk profile in the Office segment remains elevated. In its latest report, Colliers (a real estate research and investment company) recorded rising vacancy rates in Canada over the past four years. As of the fourth quarter of 2023 vacancy rates reached 17.6%. Colliers also estimate the rate to rise 1% further in 2024 before peaking by late 2025. The hybrid work environment, initially thought to be transitory, is now entrenched in many corporate cultures due to employee resistance to full time work at the office. As a result, headwinds in the beleaguered segment have hardly abated and corporations continue to scale back their space needs. Traditionally, the office segment has been a favourite area for institutional investors including pension funds and banks but for now they prefer being on the sidelines or allocating capital to infrastructure or private equity. Notwithstanding, a few bright spots have started to emerge within the segment. According to CBRE (another real estate and investment company) the Canadian office market has seen a positive start in the first quarter of 2024 with 439,000 square feet net absorption of office space. Another trend is the market split of the office segment with stronger occupancy rates for higher quality offices relative to lower ones. This new development, known as flight to quality, has been more prevalent in downtown areas and an increasing number of tenants find the opportunity compelling.

The multifamily segment is another bright spot with strong fundamentals. Residential demand has outpaced supply over the last few years and the vacancy rate is expected to fall below 1% in many regions in Canada. The average asking price for a rental unit in Canada spiked 10.5% year over year as of February – the fastest annual growth since September 2023. The CMHC (Canadian Mortgage and Housing Corporation) reported an all-time high construction of new homes as of last year, especially with apartment buildings. However, it also estimates that the demand is enormous and Canada needs an extra 3.5 million units by 2030 to fill the gap. For investors in the multifamily and residential segment, the near and longer term outlook appears more attractive than the inherent risks.

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