Mid-Year Performance Report Letter

In the first half of 2024, the global stock market produced positive returns.¹ Inflation has receded worldwide, and central banks have started to cut interest rates. Since the beginning of the year, inflation has declined from 3.4% to 2.9% in Canada, from 3.4% to 3.3% in the US, from 3.4% to 2.7% in the European Union, and from 4% to 2% in the UK. The unemployment rate has increased substantially in Canada, to 6.4% from its bottom of 4.8% in 2022. The US job market is in better shape, with a 4.1% unemployment rate compared to a recent low of 3.4% in 2023. The big economic news in Canada was the increased inclusion rate for capital gains beyond $250,000, which affected the wealthy and some middle-class Canadian individuals.

On the interest rate front, the Bank of Canada rate was cut from 5.25% to 5.00%, the European Central Bank reduced its interest rate from 4.50% to 4.25%, and the US Federal Funds target rate held steady at 5.50%. While inflation edged closer to its 2% target, the Federal Reserve is reluctant to cut interest rates, considering the strength of the US economy. Ten-year government bond yields increased from 3.11% to 3.50% in Canada and from 3.88% to 4.40% in the US.

Across the board, ten of the eleven global market equity sectors delivered positive returns, with technology (30%) and communications services (25%) leading the way. The top-performing countries were Turkey (35%), Taiwan (31%), and Denmark (28%).

Here are our observations on asset-class returns in the first half of 2024:

• Short-term and total-market Canadian fixed-income indices produced 1.6% and ‑0.4% returns, respectively.
• Short-term and total-market global fixed-income securities (hedged to the Canadian dollar) produced returns of 0.8% and -0.2%.
• Canadian equity delivered a 6.1% return.
• US stocks returned 17.2% in Canadian dollars and 13.6% in US dollars.
• International developed-market stocks returned 8.8% in Canadian dollars and 11.1% in local currencies.
• Emerging-market equity returned 11.2% in Canadian dollars.
• Large-cap stocks outperformed small-cap in the US, international developed markets and emerging markets. Conversely, small-cap stocks outperformed in Canada.
• Growth stocks outperformed value stocks in the Canadian, US, international developed and emerging markets.
• The US dollar appreciated modestly against the Canadian dollar, boosting US stock returns (measured in CAD) by about 4%. Conversely, the other major currencies depreciated against the Canadian dollar, reducing the return of international developed markets by slightly over 2%.

In the coming months, the media will likely raise several concerns on issues such as the US election, the lack of productivity gains in the Canadian economy, and whatever life throws at us. Investors must remember that markets, although they tend to produce positive long-term returns, are unpredictable over short periods, so market experts consistently fail to forecast them reliably. This is why PWL perseveres in keeping portfolios fully invested through the ups and downs in the market, steadily managing risk by maintaining an appropriate asset mix for each client, making sure portfolios are widely diversified, and ignoring passing fashions.

¹ Sources: DFA, Bank of Canada, Statistics Canada, US Federal Reserve, US Bureau of Labor, Eurostat, UK Statistics. All return data is calculated in Canadian dollars unless mentioned otherwise.