Investors have had a lot to digest in 2024. Inflation has come down, interest rates have eased and markets have responded positively, yet climate disasters, geopolitical tensions and a U.S. election continue to be on everyone’s minds – and the year isn’t over yet.
Less than a month out from the U.S. election, investors are anxious to know how the outcome of the vote will impact equities and the Canadian economy. That was one of the topics discussed at the recent 2024 Market Outlook events hosted by BMO Private Wealth in Calgary and Vancouver, moderated by June Zimmer, BMO Private Wealth’s Regional President for Western Canada.
Brian Belski, Chief Investment Strategist for BMO Capital Markets, addressed the role of politics in markets, urging investors to cut through the noise. BMO Capital Markets Senior Economist Jennifer Lee, and Brent Joyce, Chief Investment Strategist, BMO Private Investment Counsel, shared their economic and market outlooks, touching on everything from interest rates to inflation and the housing market.
U.S. election risks
For investors closely watching the U.S. presidential race, Belski said that while the election will likely bring some market volatility, it’s important not to let what’s happening politically affect your investment decisions. “Politics have nothing to do with the absolute performance of the stock market. Nothing,” he said in response to an audience question in Calgary about expected market reaction leading up to, and in the aftermath of the election. “Buy good companies. Put your head down. Forget about it.”
In terms of economic impacts, Lee sees the pros and cons of both election outcomes. “If there’s a Republican win, I’d look for corporate tax cuts and less regulation, but I’m worried about, potentially, day-to-day chaos with a certain somebody,” she said. “For the Democrats, I’m worried about corporate tax hikes, tax hikes in general, but at the same time, there’s a wider social safety net, which is a good thing.”
Joyce said one issue he’s concerned about from a U.S. perspective is the ballooning deficit and decades-high spending. “After November, this issue will come to the fore. There are a lot of voices in politics and in the private sector and academia who are raising the issue. It’s not going to get a lot of air time, certainly in the late stages of a campaign, but stay tuned as we move into next year,” he said.
Inflation concerns in the rearview? Not so fast
While Canada’s annual inflation rate is now hovering around the Bank of Canada’s 2% target – a far cry from the 8.1% peak in June 2022 – Lee isn’t convinced we are out of the woods just yet. “I’m afraid that we’re going to see some choppiness on the inflation front,” she said, noting that geopolitical threats like trade wars, tariffs and climate risks could impact prices.
Rising incomes could also contribute to a second wave of inflation, Joyce said, although, wage growth is a lagging indicator, so some catch-up is to be expected. It just can’t continue indefinitely.
Opportunity amid lower rates
As inflation fell this year, Canadians finally saw interest rates come down, too. This has created a good backdrop for investors – the best in a decade, said Joyce. “We can now make money in stocks. We can make money in fixed income, rates are coming down; easing cycles are good for both assets,” he explained.
Beyond stocks and bonds, there’s also a looming question about how lower interest rates will impact housing. So far, this year’s cuts haven’t spurred a surge of new demand, but Lee said high immigration levels continue to put pressure on the market.
Joyce noted that while housing is still expensive and more supply is needed, there is finally stability. In response to an audience question in Vancouver about when prices will get back to where they were three years ago, Joyce said it’s still anyone’s guess. “I don’t see that happening in the next year to 18 months, but I don’t know that we are at the precipice of any further declines,” he said.
Canadian stocks and a slowing economy
As economic growth slows, investors may wonder how domestic stocks will fare. But Joyce noted the two don’t go hand-in-hand, and the Canadian stock market is “very globally oriented.”
“The stock market is not the economy, and the economy is not the stock market,” he said. “Nowhere is that as true as it is here in Canada.”
Joyce added there are often questions about whether to get out of Canadian stocks when concerns about productivity and growth come to the forefront, but they shouldn’t be connected.
Whether it’s economic headwinds or geopolitical threats, when it comes to investing, Belski said it ultimately comes back to fundamentals.
“There’s always something going on and there’s always something to be scared about,” he said. “So we focus on fundamentals, we don’t focus on all this negativity.”
