We are coming to the end of the year and barring a downturn in the last few days of trading, we’re set to have one of the strongest years on record for PWL clients. This has truly been a year where all proverbial cylinders have been firing.
Remember that in late 2023, the predominant concern was that of sticky inflation, high interest rates and fears that a widely expected recession might have been slow to come but would inevitably materialize. To quote David Rosenberg in November 2023: “Bonds over stocks in 2024, and if you feel compelled to stick with equities in the coming year, stay with what works when interest rates move lower – what I call “bonds in drag”: utilities, consumer staples, health care and telecom services.” (Globe and Mail, Nov. 16, 2023)
Well, he was wrong about bonds over stocks. To do so would have cost investors the ~20% equity premium that stock markets delivered over bonds over the last 11 months. What about his sector pics? Of the 11 subsectors in the S&P500, he picked the ones whose returns have been 2nd, 5th, 7th and 11th. Let’s just say he isn’t winning any races this year…
Maybe it isn’t fair of me to pick on one man’s predictions. However, when you hold yourself out in the media as an expert and make such bold statements, I do think it’s fair to be held to account. He is also one among thousands spouting similar divination and soothsaying. At PWL, we don’t think these predictions make for useful investment guidance.
To come back to our many firing pistons, it has been a solid year for bonds, with interest rates declining particularly in the short maturities, but also a little in longer-dated bonds. Real estate has been a surprisingly strong performer, with a number of non-traditional real estate sectors performing quite well, particularly data-center REITs. Despite a challenging few years, this year has proven why real estate is a fundamentally sound asset class and belongs in all portfolios.
In stock markets, the returns have been fantastic. Clearly the US market has been the primary driver with returns of about 35% to the end of November. The Canadian, International and Emerging markets have hardly been sluggish, with all contributing to the healthy return of stocks over bonds that I mentioned earlier.
As always, I’ll provide all the year-end returns in January when we send out our 2024 performance reports. In the meantime, I hope this note is a reminder that no matter how tempting it may be to think that we can predict what markets might do in the year ahead, even the most seasoned, award-winning veterans struggle to do so successfully.
With that, I want to wish you a very happy holiday surrounded by family and friends, giving thanks for our good fortune in the past year and lending a hand to those who have not.
