Positive market momentum continued in the United States as large cap technology stocks dominated for another quarter. The S&P 500 has set multiple all-time highs in 2024, driven by names like Nvidia, Apple, Microsoft, Amazon, Alphabet and others. The information technology sector now accounts for more than one-third of the overall weight of the S&P 500. While increased concentration does increase the overall risk level, the highest weight of any individual security is still barely above 7%, making the S&P 500 arguably the world’s most diversified individual country benchmark index.
The Canadian equity market, by contrast, has very limited exposure to technology companies and that may be a major reason why the returns of the S&P/TSX Capped Composite have lagged S&P 500 returns for so long. The Canadian market tends to do well relative to other countries when resource stocks and financials do well. Although there have been some bright spots over the past few years, financials have been a bit of a drag on performance which understandably happens in a rising interest rate environment.
Outside of North America, we have developed and emerging international markets. Developed markets primarily include the United Kingdom, Japan, the Euro zone countries and Australia. We don’t think there is much to get excited about there, other than a bit of diversification of economies. Emerging markets tend to exhibit higher growth rates than developed markets, but also greater risk since governments may be a bit more controlling and less stable overall. China is the largest component of emerging markets indices followed by Taiwan and India, and a collection of others including Mexico and countries from South America, Europe, Asia and Africa.
It’s a big world out there! There is no shortage of investment opportunities, and we are very diligent in allocating client assets to each equity region in a way that is appropriate and optimal for every single portfolio that we offer. We take a long-term view, and we do not waver back and forth based on the latest headlines in the media. Most importantly, we take great pride in making sure that every portfolio chosen for an account is the best possible choice based on direct consultation with clients regarding their objectives and ability/willingness to tolerate risk. Although we make extensive use of technology, all clients are given personal attention by our registered investment professionals. No Justwealth employee will receive any kind of sales commission on investment products.
The preamble in geography is relevant because we are in a phase where political change is either happening or poised to happen. In the most recent quarter, leadership changes occurred in the United Kingdom and France, both electing to move to more socialist governments. In North America, left-leaning governments are already in place, but both the United States in 2024 and likely Canada in 2025, could conceivably have changes towards more right-leaning governments. Generally speaking, right-oriented governments would be perceived to be more friendly for the investment markets, however there are no guarantees. Additionally, markets sometimes tend to reward stability in government over political orientation. We remind everyone that although changing political regimes may add some short-term volatility to market returns, it probably means very little in the long run.
Shifting focus to economic developments, major central banks have finally budged from their aggressive tightening positions with both Canada and the European central banks lowering their policy rates in June. Although inflation is still above target rates in most jurisdictions, a slowdown in output and weakening employment data has been sufficient for central banks to start slowly taking their foot off the brakes. There is almost universal consensus that the trend will expand to the United States and perhaps continue further in Canada in the coming months/quarters. Declining interest rates has made a positive impact on bond prices (finally!), and we are quite confident that bond returns going forward will be much better than they have been looking backwards.
Wishing everyone a safe and happy summer!
Here is a recap of market performance as of June 30, 2024*
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