As always, the year has gone by far too quickly. With November here we are looking at majority of the year in the rearview mirror. If economic performance for the year could be summarized in one word, it would be “flat”. Overall, both the stock and bond indexes are at around the same spot where they started the year. There were areas that did provide growth but overall the general market was flat.
One topic everyone will be happy to quit discussing is inflation. In Canada we have seen the rate of inflation fall from 5.9% in January to 3.8% in September. Canada also had flat growth in the economy for the 3rd quarter of 2023 relative to the US. Those items resulted in the Bank of Canada holding the interest rate at 5% for the second straight announcement. The Bank of Canada does have a target of 2% for inflation and is hoping that they have taken rates high enough that inflation will continue to trend down without additional interest rate hikes. Although, the Bank of Canada has not ruled out additional hikes if inflation remains elevated and they deem it is needed to bring inflation down to the target.
In terms of the stock market, we have seen a flat year in Canada and an increase of around 9% in the S&P 500. The S&P can be misleading when looking at the numbers as the top four companies are 20% of the index. Those four companies have been responsible for most of the growth in the S&P this year. If you look at the S&P from an equal weight standpoint where all the companies are each 0.2% of the index it has been flat for the year. We are currently in the midst of earnings season and are seeing mixed results. We are seeing some companies exceeding and others miss on their earning projections. This is resulting in the market sitting in a holding pattern until there is a clear picture of future financial conditions. If we see financial conditions worsen the market will likely worsen with them if the conditions were to improve the market would likely improve as well.
The bond market has also had a relatively flat year. With the continued discussion of possible rate hikes through the year bonds stayed around the same price they started the year. As with equities some areas have offered better performance than others. Bonds are in a much stronger position than they have been in previous years. With the increased interest rates bonds are now being issued at a much higher interest rate than they were 2 years ago. Bonds have historically provided stability in times of uncertainty and when we do see the eventual decrease in interest rates, we should see bond prices jump.
There are still many question marks when it comes to the market and what the future holds. There is likely a balance between equities and bonds that works best for you, your portfolio, and your plan. The key is to understand your plan and design your portfolio to help you meet your goals and objectives.