The Nasdaq 100 and S&P 500 experienced their fifth consecutive day of gains, on January 24, 2024, mainly fuelled by major technology companies (Lipton, 2024). Key players such as Microsoft (MSFT), AMD (AMD), and Meta (META) significantly contributed to this rally, each closing at record highs. This surge in tech stocks contrasted with the declines in other indices like the Dow and Russell 2000. Notably, while tech giants like Microsoft and NVIDIA saw record highs, other prominent firms such as Apple and JP Morgan didn't follow suit. The market's sectoral landscape was diverse, with energy leading the charge due to a drop in crude oil inventories. This was closely followed by sectors like technology, communication services, and financials showing robust performance. However, sectors sensitive to interest rates, including real estate and utilities, experienced declines. The overall market mood remained positive, especially among mega-cap tech stocks, despite a few exceptions like Apple and Tesla. This divergence in performance highlights the current dynamic and unpredictable nature of the financial markets.
Canada's economy experienced a technical recession at the end of 2023, with the Canadian Federation of Independent Business (CFIB) forecasting continued challenges into the new year (Lord, 2024). The economy contracted by 0.2% in the last quarter of 2023, following a slight decline in the third quarter, marking two consecutive quarters of GDP decline, a standard definition of a technical recession (Armstrong, 2024). Although official data from Statistics Canada for the fourth quarter is still awaited, preliminary signs indicate a stagnant economy at the start of the third quarter, with some improvement in November. Despite these setbacks, the CFIB projects a modest rebound with a 0.5% growth in the first quarter of 2024. Business sales and employment are showing resilience, but overall business optimism is dampened, particularly in the manufacturing sector, which is facing reduced demand both domestically and internationally.
Business investment plans are at an all-time low, influenced by a mix of general uncertainty, rising costs, and tax increases, which exacerbate inflationary pressures and increase reliance on immigration for economic growth. The CFIB predicts an average inflation rate of 3.1% for 2024, with most businesses expected to raise prices, although at a reduced frequency compared to previous years, in line with the Bank of Canada's findings. This cautious approach reflects a broader economic scenario where companies and consumers alike are navigating through a period of financial uncertainty and adjustment. As Canada moves into 2024, the focus shifts to balancing economic recovery with maintaining stability in an environment still recovering from the impacts of a technical recession.
On January 24, 2024 the Bank of Canada decided to keep its key overnight interest rate at five percent, marking the fourth consecutive hold since the last increase in July 2023 (Heydari, 2024). This decision reflects a shift in the central bank's strategy, as noted by Governor Tiff Macklem, who emphasized the transition from assessing the adequacy of the high interest rate to focusing on the duration it should be maintained to tackle the persistently high inflation. Despite the recent slowdown in inflation, Macklem deems it premature to consider cutting interest rates, though he did not rule out the possibility of future hikes if inflationary pressures resurface. This stance anticipates future policy discussions to center around maintaining the current rate. Economists from CIBC and BMO anticipate a potential rate cut in June 2024, acknowledging the effectiveness of past hikes in moderating economic growth. However, they also caution against the prolonged high interest rates' impact on Canadians with variable-rate loans and mortgages, many of whom will face increased costs upon renewal or refinancing. Jeremy Kronick of the C.D. Howe Institute warns of the risk of sustained high rates exacerbating economic slowdown, especially for unprepared homeowners facing significant mortgage cost increases. He predicts a shift towards a "neutral" rate of around three percent, although the timeline remains uncertain due to various influencing factors, including geopolitical tensions. This decision signals a cautious approach from the Bank of Canada, balancing the need to manage inflation with the broader economic implications of interest rate policies.
Financial Tip of the Month:
In January, ensure you're informed about the annual contribution limits for all your investment accounts, including RRSP, FHSA, and TFSA. This knowledge will help you maximize your savings from the start of the year, setting the stage for optimal growth across your various investment portfolios.
We hope you find this information valuable and informative. As always, please don't hesitate to reach out to us at email@example.com for any questions about your portfolio or to help navigate the process of growing and preserving your wealth.
Armstrong, Peter. “What Does 2024 Have in Store for the Canadian Economy?” CBC News, CBC/Radio Canada, 1 Jan. 2024, www.cbc.ca/news/business/armstrong-inflation-economy-1.7066473.
Heydari, Anis. “No Change on Interest Rate as Bank of Canada Sticks to 5% .” CBC News, CBC/Radio Canada, 24 Jan. 2024, www.cbc.ca/news/business/bank-of-canada-interest-rate-january-1.7093055.
Lipton, Josh. “Tech Giants Drive Fifth Day of Gains for Dow, S&P 500.” Yahoo! Finance, Yahoo!, 24 Jan. 2024, finance.yahoo.com/video/tech-giants-drive-fifth-day-222103965.html.
Lord, Craig. “Canada Hit Technical Recession in 2023, Small Business Group Forecasts.” Global News, Global News, 23 Jan. 2024, globalnews.ca/news/10244065/cfib-technical-recession-2023-forecast/#:~:text=Canada’s%20economy%20hit%20a%20technical,the%20final%20quarter%20of%202023.