The global economy has avoided a recession in the face of supply-chain disruptions in the aftermath of the pandemic, a Russian-initiated war on Ukraine that triggered a global energy and food crisis, and a surge in inflation, followed by a globally synchronized monetary policy tightening. It remains resilient, with growth holding steady as inflation returns to target. On a year-over-year basis, global growth bottomed out at the end of 2022, shortly after median headline inflation peaked. According to projections from the International Monetary Fund, growth for 2024 and 2025 will hold steady around 3.2%, with median headline inflation declining from 2.8% at the end of 2024 to 2.4% at the end of 2025.1 Most indicators point to a soft landing. In May we maintained our U.S. twelve -month forward looking outlook to reflect our view for Stagnation (U.S. Real GDP growth between 0 and 2.5%) over the entire period. Stagnation will put downward pressure on rates, as moderating inflation will lead to less restrictive monetary policy.

China’s trade surplus in US dollars decreased to 72.35 billion in April from 86.46 billion in the same period a year earlier, as exports grew much less than imports.2 China’s annual inflation rate rose to 0.3% in April 2024.3 The Eurozone economy expanded 0.3% on quarter in the first three months of 2024, with German GDP rebounding (0.2% vs -0.5%) and France (0.2% vs 0.1%) and Italy (0.3% vs 0.1%) expanding at a faster pace.4 Annual inflation in the Euro Area was confirmed at 2.4% in April, nearing the 2% target.5 The unemployment rate in the Euro Area stood at a record low of 6.5% in March. Across the major Euro Area economies, Spain continues to report the highest jobless rate at 11.7%, followed by France at 7.3% and Italy at 7.2%.6 The Eurozone posted a trade surplus in March. Among major trading partners, imports fell from China, the U.S., the U.K., Russia, and Norway. Exports fell 9.2%, declining to the U.S., the U.K., Switzerland, and Russia.7

Annual inflation in the US eased to 3.4% in April from 3.5% in March.8 The unemployment rate edged up to 3.9% in April from 3.8% in the previous month.9 The annual inflation rate in Canada eased to 2.7% in April from 2.9% in the earlier month.10 The unemployment rate was at 6.1% in April.11 Canada reported a trade deficit of CAD 2.3 billion in March.12

As growing concerns surrounding rising inflation and the resulting hawkish sentiment from the Fed led to market jitters, U.S. equities declined in April, with the S&P 500 down 4.1%. Mid- and small caps fared worse, down 6.0% and 5.6% respectively. The S&P/TSX Composite declined 1.8%. The S&P Europe 350 slipped 0.7% in April, its first monthly loss since October 2023, trimming its year- to -date gain to 7.2%. Seven of 16 countries contributed positively to the pan-European equity returns, with the United Kingdom the biggest positive contributor with +0.7%. At the opposite end of the spectrum, Switzerland subtracted 0.5% from the S&P Europe 350’s return. The S&P Pan Asia BMI lost 1.2% in April. 

In May we maintained the asset allocation from April. We do not anticipate the commencement of rate reductions in the U.S. in June due to current strong economic factors and recent comments made by the Fed. Alternatively, due to an underperforming Canadian economy, we expect the BoC to cut interest rates earlier and more than the Fed this year. Gold is held across all models as a long-term strategic asset as it will continue to benefit our portfolio models during stagnation.

The nature of economic cycles is changing. Medium-term growth prospects remain historically weak in line with lower total factor productivity growth. A significant part of the decline comes from increased misallocation of capital and labor within sectors and countries. Fiscal policy and electoral cycles will continue to dominate our outlook. Our twelve- month forward outlook focuses on the size and scale of the U.S. budget deficit, coupled with the substantial Treasury debt issuance required to address it. We will continue to monitor this as we move through 2024. Our approach to portfolio management is nimble, opportunistic, and deliberate in identifying asset classes that are best placed to generate returns in a new world order. Our focus is on protecting portfolios from downside risk, and we believe that our investment process is working to achieve that goal.

Deborah Frame, President and CIO

Drew Millard, Portfolio Manager

1 International Monetary Fund. April 2024.

2 Trading Economics. China Trade. May 9, 2024.

3 Trading Economics. China Inflation. May 11, 2024.

4 Trading Economics. EU GDP. May 15, 2024.

5 Trading Economics. EU Inflation. May 17, 2024.

6 Trading Economics. EU Unemployment. May 3, 2024.

7 Trading Economics. EU Trade. May 21, 2024.

8 Trading Economics. U.S. Inflation. May 15, 2024.

9 Trading Economics. U.S. Unemployment. May 3, 2024.

10 Trading Economics. Canada Inflation. May 21, 2024.

11 Trading Economics. Canada Unemployment. May 10, 2024.

12 Trading Economics. Canada Trade. May 2, 2024.

Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. April 30, 2024. Index performance is based on total returns and expressed in the local currency of the index.

Markets anticipate easing policies from major central banks starting in June, driven by ongoing inflation normalization and a shift toward recession prevention. For Canada, we look for a first cut in June compared to the first expected move from the Fed in December as higher interest rates are having a large impact on the Canadian labor market. In April we maintained our U.S. twelve -month forward looking outlook to reflect our view for Stagnation (U.S. Real GDP growth between 0 and 2.5%), over the entire period. Stagnation will put downward pressure on rates, as moderating inflation will lead to less restrictive monetary policy.

The Chinese economy grew by a seasonally adjusted 1.6% in Q1 of 2024, quickening from an upwardly revised 1.2% increase in the previous quarter.1 The Consumer Price Index in China decreased 1% in March over the previous month.2 China’s trade surplus declined to USD 58.55 billion in March. Exports shrank by 7.5%, while imports fell by 1.9%.3 The consumer price inflation rate in the Euro Area was confirmed at 2.4% year-on-year in March.4 The unemployment rate in the Euro Area stood at a record low of 6.5% in February 2024. Across the major Euro Area economies, Spain continues to report the highest jobless rate at 11.5%, followed by Italy at 7.5% and France at 7.4%.5

The U.S. economy expanded an annualized 3.4% in Q4 2023. Government spending rose 4.6%.6 Annual inflation in the U.S. accelerated for a second month to 3.5% in March. Energy costs rose 2.1%.7 The unemployment rate in the United States dipped to 3.8% in March. The labor force participation rate increased to 62.7%.8 The trade deficit in the U.S. widened to $68.9 billion in February 2024, the highest in ten months.9 The annual inflation rate in Canada rose to 2.9% in March of 2024. A sharp rise in gasoline prices (4.5% vs 0.8% in February) pushed transportation inflation to 3%. Looking further, a prolonged period of restrictive interest rates by the Bank of Canada, in addition to increasing Treasury yields in the U.S., lifted mortgage interest costs by 25.4% annually. As a result, average rents grew faster (8.5%), keeping rents inflation at 6.5%.10 The unemployment rate in Canada jumped to 6.1% in March from 5.8% in the earlier month.11

Despite uncertainty surrounding potential Fed rate cuts, economic strength and diminishing recession fears led to the best Q1 U.S. market performance since 2019, with the S&P 500 up 10.6%. The broadening of the rally continued in March, with the S&P Mid Cap 400 up 5.6%, outpacing the S&P 500 3.2% gain. Canadian equities finished the month up 4.1%. The S&P Europe 350 soared 4.1% in March, its best month since November 2023. All but one of 16 countries contributed positively to the pan-European equity returns in March, with the United Kingdom the biggest contributor with 1.0%. Pan Asia equities rebounded but continued to lag the global market, with the S&P Pan Asia BMI rising 2.6% in March.

In April we reversed the asset allocation shift from March, reintroducing exposure to 3-to-7-year treasuries and removing the 20-year plus treasury bond. We no longer anticipate the commencement of rate reductions in the U.S. in June due to current strong economic factors and recent comments made by the Fed. Alternatively, due to an underperforming Canadian economy, we expect the BoC to cut interest rates earlier and more than the Fed this year. U.S. Mid-cap equities continue to provide an industrial-centric sector allocation, ebbing refinancing risk and less demanding valuations relative to mega caps. Gold is held across all models as a long-term strategic asset as it will continue to benefit our portfolio models during stagnation.

The nature of economic cycles is changing. Fiscal policy and electoral cycles will increasingly dominate outlooks. A long list of fiscal commitments, ranging from military to climate-transition expenditure, will keep government budgets in deficit, particularly in Europe. As elections approach, countries will likely loosen fiscal policy further—the U.S. and the U.K. being prime examples in 2024. Our twelve- month forward outlook focuses on the size and scale of the U.S. budget deficit, coupled with the substantial Treasury debt issuance required to address it. We will continue to monitor this as we move through 2024. Our approach to portfolio management is nimble, opportunistic, and deliberate in identifying asset classes that are best placed to generate returns in a new world order. Our focus is on protecting portfolios from downside risk, and we believe that our investment process is working to achieve that goal.

Deborah Frame, President and CIO

Drew Millard, Portfolio Manager

1 Trading Economics. China GDP. April 16, 2024.

2 Trading Economics. China Inflation. April 11, 2024.

3 Trading Economics. China Trade. April 12, 2024.

4 Trading Economics. EU GDP. April 17, 2024.

5 Trading Economics. EU Unemployment. April 3, 2024.

6 Trading Economics. U.S. GDP. March 28, 2024.

7 Trading Economics. U.S. Inflation. April 10, 2024.

8 Trading Economics. U.S. Unemployment. April 5, 2024.

9 Trading Economics. U.S. Trade. April 4, 2024.

10 Trading Economics. Canada Inflation. April 16, 2024.

11 Trading Economics. Canada Unemployment. April 5, 2024.

Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. March 31, 2024. Index performance is based on total returns and expressed in the local currency of the index.

As anticipated, the FOMC voted in March to leave the target range for the federal funds rate unchanged at 5.25% to 5.50%. This was the fifth consecutive stand pat decision, all of which have been unanimous. Broadening global economic activity should help broaden investment performance, which has been narrowly concentrated in U.S. mega-cap equities. Bull markets have begun to take hold in a diverse collection of global markets including Japan, Brazil, Italy, Denmark, and India. In March we maintained our U.S. twelve -month forward looking outlook to reflect our view for Stagnation (U.S. Real GDP growth between 0 and 2.5%), over the entire period. Stagnation will put downward pressure on rates, as moderating inflation will lead to less restrictive monetary policy.

China’s consumer prices rose by 0.7% year over year in February,1 while China’s surveyed urban unemployment rate averaged 5.3%.2 China’s trade surplus increased in February as exports grew by 7.1%, while imports climbed by 3.5%. The trade surplus with the United States saw exports rising 5% while imports declined by 9.7%.3 Annual core inflation in the Euro Area fell for a seventh straight month to 3.1% in February 2024.4 The Eurozone posted a trade surplus of €11.4 billion in January 2024, compared with a deficit of €32.6 billion in the same period last year. Exports rose 1.3% year-on-year. Among key trading partners, exports increased mainly to the U.S., Japan, and Switzerland, but dropped to Russia, China, and Norway. Meanwhile, imports slipped by 16.1%, primarily from China, the U.S., Switzerland, Norway, Russia, Japan, and India.5

The U.S. economy expanded an annualized 3.4% in Q4 2023, supported by consumer spending and non-residential business investments, according to the third estimate from the BEA.6 The annual core consumer price inflation rate in the United States eased to a near three-year low of 3.8% in February.7  The unemployment rate in the United States rose by 0.2 percentage points to 3.9% in February.8 U.S. imports rose by 1.1% while exports increased at a much slower rate of 0.2%.9 The Canadian economy expanded by 0.2% in the fourth quarter of 2023, recovering from a revised 0.1% contraction in the previous period. The country’s exports of goods and services rebounded by 1.4%, largely due to crude oil and crude bitumen sales (+6.2%). Meanwhile, imports of goods and services declined by 0.4%.10 The annual inflation rate in Canada slowed further to 2.8% in February,11 while the unemployment rate in Canada rose to 5.8%.12

Markets shook off looming concerns over inflation and the Fed’s future rate trajectory with more record highs in February, driving the S&P 500 up 5.3%. While Small Caps lagged, the S&P Midcap 400 was up 5.9%. Canadian equities finished the month on the upside. The S&P/TSX Composite rose 1.8%. The S&P Europe 350 extended its January gains in February, up 2.0% during the month. 8 of 16 countries contributed positively to the pan-European equity returns, with Germany the biggest contributor with 0.6%. Pan Asia equities rebounded but continued to lag the global market, with the S&P Pan Asia BMI rising 3.6% in February. China led the pack with the S&P China 500 bouncing back from its multi-year lows and closing the month up 9.3%.

In March we shifted the asset allocation, reducing exposure to 3-to-7-year treasuries and adding the 20-year plus treasury bond in anticipation of the commencement of rate reductions in the U.S. U.S. Mid-cap equities continue to provide an industrial-centric sector allocation, ebbing refinancing risk and less demanding valuations relative to mega caps. Gold is held across all models as a long-term strategic asset alongside bonds as they will continue to benefit our portfolio models during stagnation.

The nature of economic cycles is changing. Fiscal policy and electoral cycles will increasingly dominate outlooks. A long list of fiscal commitments, ranging from military to climate-transition expenditure, will keep government budgets in deficit, particularly in Europe. As elections approach, countries will likely loosen fiscal policy further—the U.S. and the U.K. being prime examples in 2024. Our twelve- month forward outlook focusses on the size and scale of the U.S. budget deficit, coupled with the substantial Treasury debt issuance required to address it. We will continue to monitor this as we move through 2024. Our approach to portfolio management is nimble, opportunistic, and deliberate in identifying asset classes that are best placed to generate returns in a new world order. Our focus is on protecting portfolios from downside risk, and we believe that our investment process is working to achieve that goal.

Deborah Frame, President and CIO

Drew Millard, Portfolio Manager

1 Trading Economics. China Inflation. March 9, 2024.

2 Trading Economics. China Unemployment. March 18, 2024.

3 Trading Economics. China Trade. March 7, 2024.

4 Trading Economics. EU Inflation. March 18, 2024.

5 Trading Economics. EU Trade. March 18, 2024.

6 Trading Economics. U.S. GDP. March 28, 2024.

7 Trading Economics. U.S. Inflation. March 12, 2024.

8 Trading Economics. U.S. Unemployment. March 8, 2024.

9 Trading Economics. U.S. Trade. March 28, 2024.

10 Trading Economics. Canada GDP. February 29, 2024.

11 Trading Economics. Canada Inflation. March 19, 2024.

12 Trading Economics. Canada Unemployment. March 8, 2024.

Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. February 29, 2024. Index performance is based on total returns and expressed in the local currency of the index.

The global economy has displayed impressive resilience in the face of aggressive monetary tightening with GDP rising 2.9% over the past four quarters.1 Domestic output gaps are expected to be far more important in determining inflation in a particular economy than has been seen over the past 20 years of globalization. The result will be shorter and more frequent cycles, accompanied by more volatility and higher inflation, resulting in global growth occurring at a slower rate. In February we maintained our U.S. twelve -month forward looking outlook to reflect our view for Stagnation (U.S. Real GDP growth between 0 and 2.5%), over the entire period. Stagnation will put downward pressure on rates, as moderating inflation will lead to less restrictive monetary policy.

China’s consumer prices fell by 0.8% year over year in January.2 The Euro Area economy stagnated in the last quarter of 2023, as persistently high inflation, record borrowing costs, and weak external demand continued to exert downward pressure on growth. Among the bloc’s largest economies, Germany contracted by 0.3%, while France’s GDP stalled. In contrast, economic growth in Spain and Italy accelerated to 0.6% and 0.2%, respectively.3 The Eurozone posted a €16.8 billion trade surplus in December 2023, compared to a deficit of €8.5 billion in the same period last year. Imports tumbled by 18.7%, mainly from Russia, Norway, the U.K., Switzerland, and China. Exports declined by 8.8%, primarily to Russia, Norway, Switzerland, and Japan.4

The U.S. economy expanded an annualized 3.2% in Q4 2023. In 2023, the U.S. economy grew 2.5%, compared to 1.9% in 2022.5 The unemployment rate in the United States held at 3.7% in January 2024.6 U.S. trade deficit narrowed to $773.4 billion in 2023. Imports fell 3.6% due to the lower cost of oil and the slowdown in demand for goods. Exports rose 1.2%.7 The Canadian economy expanded by 0.2% in the fourth quarter of 2023, recovering from a revised 0.1% contraction in the previous period, helped by higher exports. The country’s exports of goods and services rebounded by 1.4%, largely due to crude oil and crude bitumen sales. On an annual basis, real GDP grew 1.1%, the third consecutive year of expansion but at the slowest pace since 2016 (2020 excluded), as the economy faced pressure from high-interest rates.8 The unemployment rate in Canada eased to 5.7% in January.9

Despite a sharp drop on the final trading day of the month, the S&P 500 rose 1.7% in January. Strong Q4 2023 economic growth also dampened optimism that the Fed would be able to begin cutting rates as soon as March. Interest rate volatility led to mixed results among fixed income indices. Canadian equities finished the month on the upside. The S&P/TSX Composite rose 0.6%. The S&P Europe 350 started the year on the front foot, rising by 1.7% in January. 11 out of 16 countries contributed positively to the pan-European equity returns, with the Netherlands the biggest contributor with 0.6%. Pan Asia equities continued to lag the global market with the S&P Pan Asia BMI falling 1.7% in January. The drawdown in Chinese/Hong Kong stocks deepened with the S&P China 500 closing the month at its lowest level since August 2016.

In February we maintained the asset allocation from January. U.S. companies are generally in good shape but will be impacted by refinancing debt at higher rates and capital spending will likely slow. We continue to exclude Canadian exposure as Canada is a worse off on the consumer side, due to shorter-term mortgages compared to the U.S. Gold is held across all models as a long-term strategic asset alongside bonds as they provide returns in a wide range of economic conditions. The diversification and risk reduction advantages of fixed income relative to equities will continue to benefit our portfolio models during stagnation.

The nature of economic cycles is changing. Fiscal policy and electoral cycles will increasingly dominate outlooks. A long list of fiscal commitments, ranging from military to climate-transition expenditure, will keep government budgets in deficit, particularly in Europe. As elections approach, countries will likely loosen fiscal policy further—the U.S. and the U.K. being prime examples in 2024. Our twelve- month forward outlook focusses on the size and scale of the U.S. budget deficit, coupled with the substantial Treasury debt issuance required to address it. We will continue to monitor this as we move through 2024. Our approach to portfolio management is nimble, opportunistic, and deliberate in identifying asset classes that are best placed to generate returns in a new world order. Our focus is on protecting portfolios from downside risk, and we believe that our investment process is working to achieve that goal.

Deborah Frame, President and CIO

Drew Millard, Portfolio Manager

1 IMF. World Economic Outlook Update. January 2024.

2 Trading Economics. China CPI. February 8, 2024.

3 Trading Economics. EU GDP. February 14, 2024.

4 Trading Economics. EU Trade. February 15, 2024.

5 Trading Economics. U.S. GDP. February 28, 2024.

6 Trading Economics. U.S. Unemployment. February 2, 2024.

7 Trading Economics. U.S. Trade. February 24, 2024.

8 Trading Economics. Canadian GDP. February 29, 2024.

9 Trading Economics. Canadian Unemployment. February 24, 2024.

Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. January 31, 2024. Index performance is based on total returns and expressed in the local currency of the index.

Global fourth-quarter data has provided evidence that the recovery remains on solid footing, pointing to continued, but slower growth in the first three months of 2024. In the U.S., layoffs remain low, and job growth has held steady. Cooling inflation has meant that wages are now rising faster than prices. In January we maintained our U.S. twelve -month forward looking outlook to reflect our view for Stagnation over the entire period. Stagnation will put downward pressure on rates, as moderating inflation will lead to less restrictive monetary policy.

China’s economy grew 5.2% in 2023. China’s consumer prices fell by 0.3% in December.1 China’s surveyed urban unemployment rate inched up to 5.1% in December.2 The inflation rate in the Euro Area was confirmed at 2.9% in December.3 The Euro Area posted a trade surplus of EUR 20.3 billion in November 2023. Imports tumbled by 16.7%, while exports fell at softer 4.7%.4

The U.S. economy continued to grow at a healthy pace at the end of 2023, capping a year in which unemployment remained low, inflation cooled, and a widely predicted recession never materialized.  Gross domestic product, adjusted for inflation, grew at a 3.3% annual rate in the fourth quarter, down from the 4.9% rate in the third quarter.5 The annual inflation rate in the U.S. went up to 3.4% in December from a five-month low of 3.1% in November.6 The unemployment rate in the United States held at 3.7% in December, influenced by a slowdown in new entries into the labor force.7 The U.S. trade gap narrowed to $63.2 billion in November. Total exports were down 1.9%, prompted by a fall in sales of nonmonetary gold and crude oil. Total imports fell 1.9%. The deficit decreased with China and the European Union but increased with Switzerland.8 The annual inflation rate in Canada rose to 3.4% in December.9 The unemployment rate in Canada was at 5.8% in December.10 Canada recorded a trade surplus of CAD 1.6 billion in November of 2023. Foreign purchases rose for 8 of 11 product sections, led by an increase in energy imports (11.6%) amid significant buying of uranium for Kazakhstan, consistent with mining troubles from domestic mines.11

After a dismal 2022, the market recovered with a vengeance in 2023. The S&P 500 finished with a 26.3% return for the year. The strength of the Magnificent Seven powered those gains throughout, pushing the mega-cap S&P 500 Top 50 up 38%. The S&P Mid Cap 400 and S&P Small Cap 600 rose 16.4% and 16.1%. Strong gains in gold helped Precious Metals rise 11.5%, but Agriculture, Industrial Metals, and Energy posted losses. Canadian equities finished the month on the upside with the S&P/TSX Composite rising 3.9%. The S&P Europe 350 soared 3.7% in the final month to finish 2023 with a 16.8% total return. Fifteen of sixteen countries contributed positively to pan-European equity returns this year. The heavyweight French market was the brightest spot, contributing +3.3%. Germany and the United Kingdom also made major contributions of 2.5% and 2.3%, respectively. Finland was the only country that slipped in 2023, subtracting 0.05% from the S&P Europe 350’s annual return. The S&P Pan Asia BMI rose 4.7% in December after an 8% rally in November, closing the year with a total return of 12.8%.

In January we maintained the asset allocation from December. We continue to hold gold across all models. Gold is considered a long-term strategic asset alongside bonds as it provides returns in a wide range of economic conditions. The diversification and risk reduction advantages of fixed income relative to equities will continue to benefit our portfolio models during stagnation, with longer duration bonds eventually being added back into the mix.

Our twelve- month forward outlook focusses on the size and scale of the U.S. budget deficit, coupled with the substantial Treasury debt issuance required to address it. The outlook for deficits will be a driver of rate-market volatility in 2024, especially around quarterly refunding announcements and longer-dated Treasury auctions. In addition, the U.S. presidential election outcome could precipitate a material rise in yields and volatility. A Republican control of Congress would dampen any move toward entitlement reform, raise market expectations that the 2017 tax cuts would be extended, and increase the odds that corporate tax increases in the Inflation Reduction Act would be eliminated. Progress on fiscal reform would be kicked down the road. We will continue to monitor these as we move through 2024. Our approach to portfolio management is nimble, opportunistic, and deliberate in identifying asset classes that are best placed to generate returns in a new world order. Our focus is on protecting portfolios from downside risk, and we believe that our investment process is working to achieve that goal.

Deborah Frame, President and CIO

Drew Millard, Portfolio Manager

1 Trading Economics. China GDP. January 12, 2024.

2 Trading Economics. China Unemployment. January 17, 2024.

3 Trading Economics. EU Inflation. January 17, 2024.

4 Trading Economics. EU Trade. January 15, 2024.

5 Trading Economics. U.S. GDP. January 25, 2024.

6 Trading Economics. U.S. Inflation. January 11, 2024.

7 Trading Economics. U.S. Unemployment. January 5, 2024.

8 Trading Economics. U.S. Trade. January 9, 2024.

9 Trading Economics. Canada Inflation. January 16, 2024.

10 Trading Economics. Canada Unemployment. January 5, 2024.

11 Trading Economics. Canada Trade. January 9, 2024.

Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. December 31, 2023. Index performance is based on total returns and expressed in the local currency of the index.

Despite some bumps along the way, the global economy proved resilient in 2023. Alongside an economic deceleration, we expect inflation to cool sufficiently for central banks to begin cutting rates, helping to avert a contraction in the economy. While the Fed’s goal is to pull off a soft landing, the odds are against it. Historically, the Fed has managed a soft landing only twice following nine tightening cycles over the past five decades. The other seven ended in a recession. In December we maintained our U.S. twelve -month forward looking outlook to reflect our view for Stagnation over the entire period.

China’s consumer prices fell by 0.5% in November 2023.1 China’s trade surplus increased to USD 68.39 billion in November 2023 from USD 66.49 billion in the same period the previous year. The trade surplus with the United States narrowed, with exports falling 5.2% while imports shrank 6.0%.2 The Eurozone economy contracted by 0.1% during the third quarter of 2023. Among the bloc’s largest economies, there were contractions in Germany (-0.1%), France (-0.1%), and the Netherlands (-0.2%), while both Spain and Italy expanded by 0.3% and 0.1%, respectively.3 Euro area annual inflation was 2.4% in November 2023, down from 2.9% in October 2023.4 The Euro area seasonally-adjusted unemployment rate stood at 6.5% in October 2023, unchanged from the prior month.5 

The U.S. economy expanded an annualized 5.2% in Q3 2023. Exports soared 6% and imports increased 5.2%.6 The annual inflation rate in the U.S. slowed to 3.1%. Energy costs dropped 5.4%.7 The unemployment rate in the United States fell to 3.7% in November of 2023 from 3.9% in the previous month.8 The U.S. trade gap widened slightly to $64.3 billion in October 2023. Total exports went down 1%. Meanwhile, imports edged up a meager 0.2%.9 The Canadian GDP contracted by 0.3% in the third quarter of 2023, underscoring that higher interest rates from the Bank of Canada are being transmitted to a greater extent to the Canadian economy, backtracking from robust growth earlier in the year.10 The annual inflation rate in Canada was at 3.1% in November of 2023. Elevated inflation was attributed to higher mortgage interest costs (29.8%) amid the central bank’s aggressive tightening cycle, although shelter prices as a whole decelerated in October.11 The unemployment rate in Canada rose to 5.8% in November 2023.12 Canada recorded a trade surplus of CAD 2.97 billion in October 2023, from the downwardly revised CAD 1.12 billion in the previous month.13

Optimism returned to the market with a vengeance in November, as cooling inflation readings raised expectations for future Fed rate cuts, boosting U.S. equities, with the S&P 500 up 9.1% in November. The pullback in Treasury yields provided relief for smaller caps, who tend to be more sensitive to borrowing costs, with the S&P Mid Cap 400 and S&P SmallCap 600 up 8.5% and 8.3%, respectively. Canadian equities finished the month on the upside. The S&P/TSX Composite and S&P/TSX 60 rose 7.5% and 7.9%, respectively. The S&P/TSX Composite Diversified Banks was up 8.6%. The S&P Europe 350 soared 6.5% in November and turned positive for Q4. 15 of 16 countries contributed positively to pan-European equity returns this month, with Norway the only exception. Germany and France did the heaviest lifting, contributing 1.2% and 1.1%, respectively, to the S&P Europe 350’s return in November. The S&P Pan Asia BMI rose 7.9%, with every country, factor, and sector contributing positively. Korea led the pack with the S&P Korea BMI posting an 10.7% gain over the month, while China and Hong Kong were among the laggards. Japan’s larger market contributed the most to November’s gains.

In December we maintained the asset allocation from November. We continue to hold gold across all models. Gold is considered a long-term strategic asset alongside bonds as it provides returns in a wide range of economic conditions. In 2023, two significant event risks – the SVB failure and the Israel-Hamas conflict – added between 3% and 6% to gold’s performance.14 The diversification and risk reduction advantages of fixed income relative to equities will continue to benefit our portfolio models during stagnation. With a soft landing, bond prices may not appreciate much beyond their 2023 year-end range.

Our approach to portfolio management is nimble, opportunistic, and deliberate in identifying asset classes that are best placed to generate returns in a new world order. Our focus is on protecting portfolios from downside risk, and we believe that our investment process is working to achieve that goal.

Deborah Frame, President and CIO

Drew Millard, Portfolio Manager

1 Trading Economics. China CPI. December 9, 2023.

2 Trading Economics. China Trade. December 7, 2023.

3 Trading Economics. EU GDP. December 7, 2023.

4 Trading Economics. EU CPI. December 19, 2023.

5 Trading Economics. EU Unemployment. November 30, 2023.

6 Trading Economics. U.S. GDP. November 29, 2023.

7 Trading Economics. U.S. CPI. December 12, 2023.

8 Trading Economics. U.S. Unemployment. December 8, 2023.

9 Trading Economics. U.S. Trade. December 6, 2023.

10 Trading Economics. Canada GDP. November 30, 2023.

11 Trading Economics. Canada CPI. December 19, 2023.

12 Trading Economics. Canada Unemployment. December 1, 2023.

13 Trading Economics. Canada Trade. December 6, 2023.

14 World Gold Council. Gold Outlook 2024. December 2023.

Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. November 30, 2023. Index performance is based on total returns and expressed in the local currency of the index.

Global economies, overall, have performed better than expected in 2023 in the face of high levels of debt, less than accommodative monetary policy, a growing number of geopolitical tensions, and an unstable Chinese economy present challenge. Central bank hiking and cutting cycles continue around the globe and we expect that the historical pattern of rates rising into a recession, falling just prior, and continuing to fall into the first four to five months of recessions is likely to continue in many economies.  In the United States, a gap has emerged between real GDP (Gross Domestic Product) growth, signaling a “soft landing”, and real GDI (Gross Domestic Income) growth, providing support to the view that a recession is pending. In November we revised our U.S. twelve -month forward looking outlook to reflect our view for Stagnation over the entire period.

The Chinese economy expanded by 4.9% year over year in Q3 2023, as sustained stimulus from Beijing offset the impact of a prolonged property crisis and weak trade.1 China’s surveyed urban unemployment rate was 5% in October 2023, the same as in the previous month.2 China’s trade surplus in October 2023 narrowed sharply to USD 56.53 billion from USD 82.35 billion in the same period the previous year.3 The Gross Domestic Product (GDP) in European Union stagnated at 0% in the third quarter of 2023 over the previous quarter. Among the bloc’s biggest economies, the GDP shrank in Germany (-0.1%), stalled in Italy, and rose modestly in France (0.1%) and Spain (0.3%).4 The inflation rate in the Euro Area was confirmed at 2.9% year-on-year in October primarily driven by a decline in energy prices and a slowdown in food inflation.5 The Euro Area seasonally-adjusted unemployment rate increased to 6.5% in September. Amongst the largest Euro Area economies, the lowest jobless rate was recorded in Germany (3%), while the highest rates were observed in Spain (12%), Italy (7.4%) and France (7.3%).6

The U.S. economy expanded an annualized 4.9% in the third quarter of 2023.7 The annual inflation rate slowed to 3.2% from 3.7% in September.8 The unemployment rate for full-time workers was 3.70%.9 The annual inflation rate in Canada fell to 3.1% in October. Lower energy costs and slowing grocery price growth were the main contributors. Inflation is impacting a smaller share of products in the consumer basket. Most of the drop in Canadian headline CPI growth came from a 4.5% month over month decline in gasoline prices.10 The unemployment rate in Canada rose to 5.7% in October.11 Canada posted a trade surplus of CAD 2 billion in September of 2023, widening considerably from the upwardly revised CAD 0.95 billion surplus in the previous month. Higher crude oil prices during the period lifted energy exports by 10.6%, representing over one-third of Canadian foreign sales.12

Mixed earnings results, surging Treasury yields, geopolitical tensions, and uncertainty surrounding the Fed’s future rate trajectory spooked U.S. equities, with the S&P 500 down 2.1% in October. Continued concerns around an impending recession were detrimental to the more domestically oriented S&P Mid-Cap 400 and S&P SmallCap 600, down 5.3% and 5.7% respectively. Canadian equities finished the month on the downside. The S&P/TSX Composite fell 3.2%. The S&P Europe 350 slipped 3.6% in October. Three of 16 countries contributed positively to pan European equity returns with Denmark contributing +0.03%. Among the detractors, the U.K. subtracted 1.0% from the S&P Europe 350’s return in October. The S&P Pan Asia BMI plunged 4.3% in October. Japan was responsible for over a third of the S&P Pan Asia BMI’s monthly loss.

In November we eliminated exposure to the Canadian equity market and reduced exposure to U.S. Municipal Bonds and Cash. The allocations from these reductions were added to U.S. Mid-Caps. We continue to maintain gold exposure across all models. Gold is considered a long-term strategic asset alongside bonds as it provides returns in a wide range of economic conditions. The diversification and risk reduction advantages of fixed income relative to equities will continue to benefit our portfolio models during stagnation.

Our approach to portfolio management is nimble, opportunistic, and deliberate in identifying asset classes that are best placed to generate returns in a new world order. Our focus is on protecting portfolios from downside risk, and we believe that our investment process is working to achieve that goal.

Deborah Frame, President and CIO

Drew Millard, Portfolio Manager

1 Trading Economics. China GDP. October 18, 2023.

2 Trading Economics. China Unemployment. November 15, 2023.

3 Trading Economics. China Trade. November 7, 2023.

4 Trading Economics. EU GDP. November 14, 2023.

5 Trading Economics. EU Inflation. November 17, 2023.

6 Trading Economics. EU Unemployment. November 3, 2023.

7 Trading Economics. US GDP. October 26, 2023.

8 Trading Economics. US Inflation. November 14, 2023.

9 Trading Economics. US Unemployment. November 16, 2023.

10 Trading Economics. Canada Inflation. November 21, 2023.

11 Trading Economics. Canada Unemployment. November 3, 2023.

12 Trading Economics. Canada Trade. November 7, 2023.

Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. October 31, 2023. Index performance is based on total returns and expressed in the local currency of the index.

The U.S. federal government is behind a reindustrialization drive while China’s economy is sputtering and Japan is fueling growth, all while the world taps the brakes on a decades-long era of globalization. This evolution in global trade and economic policy has created a heightened sense of uncertainty over the outlook. Uncertainty about the impact of rising yields is causing central bankers to remain on hold while signaling they remain biased to hike. This bias is likely to be greatest for the Fed where growth remains strong. In October, we maintained our twelve-month forward outlook for the U.S. economy of six months of Stagnation, followed by three months of Recession and then, three months of Stagnation.

The Chinese economy expanded by 4.9% year over year in Q3 2023, as sustained stimulus from Beijing offset the impact of a prolonged property crisis and weak trade.1 China’s trade surplus in September 2023 narrowed to USD 77.71 billion from USD 82.67 billion in the same period the previous year as both exports and imports declined.2 The inflation rate in the Euro Area was confirmed at 4.3% year-on-year in September 2023, down from August’s 5.2%. Energy costs declined further (-4.6% vs -3.3%).3 The Euro area seasonally adjusted unemployment rate fell to 6.4% in August 2023, the lowest on record. The lowest jobless rate was recorded in Germany (3%), while the highest rates were observed in Spain (11.5%), Italy (7.3%), and France (7.3%).4

The U.S. trade gap narrowed to $58.3 billion in August 2023. Exports rose 1.6%, led by crude oil. Imports declined 0.7%.5 The U.S. inflation rate remained steady at 3.7% in September.6 The unemployment rate was at 3.8% in September.7 The annual inflation rate in Canada declined to 3.8% in September. The result further strengthened expectations that the Bank of Canada will refrain from further rate hikes in the current cycle.8 The unemployment rate remained unchanged for the third consecutive period at 5.5% in August.9 

As the U.S. ten-year Treasury yields rose above 5% for the first time since 2007, the U.S. market rally fizzled, with the S&P 500 down 3.3% in Q3. The S&P Small Cap 600 underperformed, down 4.9%.  Canadian equities finished the month on the downside. The S&P/TSX Composite posted a decline of 3.3%. The S&P Europe 350 ended Q3 slipping 1.5% in September. Just 4 of 16 countries contributed positively with the U.K. the brightest spot, contributing 0.4%, followed by Sweden with 0.1%. Among the detractors, France was the most prominent, subtracting 0.5% from the S&P Europe 350’s return in September. The S&P Pan Asia BMI slipped 2.3% in September and ended the third quarter with a 1.8% loss. 11 of 14 S&P Pan Asia BMI regions ended September in the red, with India contributing 0.2% to the regional benchmark’s return. At the other side of the ledger, Japan was the largest detractor with -0.7%.

In October, we maintained exposure to all asset classes, reflecting the prolonged interest rate tightening cycle and the impact that it is having on the economy. We continue to maintain gold exposure across all models. The expectation of a slowdown is a scenario in which gold has historically performed well. Gold is considered a long-term strategic asset alongside bonds as it provides returns in a wide range of economic conditions.

The forces driving change across the global economy create grounds for the emergence of new and sudden risks to financial markets as fiscal stimulus is reined in, credit provisions contract, and asset prices are constrained by higher real yields. The confluence of these factors should allow the FOMC to begin lowering policy rates in the second half of 2024. Our approach to portfolio management is nimble, opportunistic, and deliberate in identifying asset classes that are best placed to generate returns in a new world order. Our focus is on protecting portfolios from downside risk, and we believe that our investment process is working to achieve that goal.

Deborah Frame, President and CIO

Drew Millard, Portfolio Manager

1 Trading Economics. China GDP. October 18, 2023.

2 Trading Economics. China Trade. October 13, 2023.

3 Trading Economics. EU Inflation. October 18, 2023.

4 Trading Economics. EU Unemployment. October 2, 2023.

5 Trading Economics. U.S. Trade. October 5, 2023.

6 Trading Economics. U.S. Inflation. October 12, 2023.

7 Trading Economics. U.S. Unemployment. October 6, 2023.

8 Trading Economics. Canada Inflation. October 17, 2023.

9 Trading Economics. Canada Unemployment. October 6, 2023.

Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. September 30, 2023. Index performance is based on total returns and expressed in the local currency of the index.

Reassured by the resilience in macro data, and frustrated that inflation isn’t falling fast enough, major central banks have continued with monetary tightening. The result has been eroding purchasing power, a rising cost of living, and persistent inflationary pressures. For those facing mortgage term renewals, the higher rates remove purchasing power from their discretionary budget. The cost of rent is soaring as landlords push through higher carrying costs to renters. This creates a self-perpetuating inflationary cycle. The recent upturn in oil prices and the widening federal budget deficit in the U.S. have led to the government’s net interest outlays soaring. Bond yields might have to rise higher to attract buyers for the mounting supply of Treasuries. The inverted U.S. Treasury yield curve is suggesting bond market participants have taken up longer-dated Treasury bonds in anticipation of a dramatic economic and/or inflation slowdown. As the lagging impact of the aggressive rate hikes ripples through economies, the trend remains for slowing growth with rolling recession and recovery in the back half of the year. In September, we maintained our twelve-month forward outlook for the U.S. economy of six months of Stagnation, followed by three months of Recession and then, three months of Stagnation.

China’s consumer prices rose by 0.1% year over year in August.1 China’s surveyed urban unemployment rate inched down to 5.2% in August.2 China’s trade surplus slumped to USD 68.36 billion in August 2023 from USD 78.65 billion in the same period a year earlier, as exports dropped more than imports. Exports shrank 8.8% year over year, the fourth straight month of decline, while imports fell by 7.3%.3 The annual inflation rate in the Euro Area was revised lower to 5.2% in August.4

The U.S. economy grew at an annualized rate of 2.1% in the second quarter of 2023. Exports experienced the largest decline since the aftermath of the COVID-19 outbreak.5 The annual inflation rate in the U.S. accelerated for a second straight month to 3.7% in August. Oil prices have been on the rise in the previous two months, which coupled with base effects from last year.6 The unemployment rate in the U.S. rose to 3.8% in August.7 The U.S. trade deficit widened to $65 billion in July 2023. Exports were up 1.6%. Imports increased 1.7%.8 Canadian GDP stalled in the second quarter of 2023.9 The annual inflation rate in Canada rose to 4% in August from 3.3% in the previous month. The increase was largely attributed to a rebound in the cost of transportation (2.3% vs -0.8% in July), as the extension of crude oil production cuts from OPEC nations and limited capacity in North American oil refiners pushed gasoline prices higher. The CPI also accelerated for shelter (6% vs 5.1%), lifted by higher rent costs, as soaring interest rates by the BoC disfavored home ownership and saturated the rental market. Despite remaining high, prices continued to subdue for food (6.8% vs 7.8%). The unemployment rate in Canada was at 5.5% in August of 2023.10

Despite a strong recovery in the latter part of the month, the U.S. market rally took a breather in August, with the S&P 500 down 1.6%. Smaller caps performed even worse, with the S&P SmallCap 600 down 4.1%. Canadian equities finished the month on the downside. The S&P/TSX Composite posted a decline of -1.4%. The S&P Europe 350 retreated 2.4% in August. 14 of 16 countries detracted from pan-European equity returns this month. Denmark was a bright spot, contributing +0.3%, while the Netherlands was the biggest detractor with a contribution of -0.6%. The S&P Pan Asia BMI plunged 4.2% in August, erasing most of its quarter to date gains. All S&P Pan Asia BMI regions ended August in the red, with China the largest detractor from the regional benchmark’s return with -1.5%.

In September, we maintained exposure to all asset classes, reflecting the prolonged interest rate tightening cycle and the impact that it is having on the economy. Our view remains that a U.S. recession will occur. We continue to maintain gold exposure across all models. The recent changes in yields have led to a ‘bear steepening’ of the yield curve. But the expectation of a slowdown is a scenario in which gold has historically performed well. Gold is considered a long-term strategic asset alongside bonds as it provides excellent returns in a wide range of economic conditions.

As the cost of capital becomes more expensive, banks are likely to be more selective in lending, driven by the potential for increased regulation, as well as heightened competition for deposits. We anticipate that economic deterioration will drive an increase in defaults and other unintended consequences. Production capacity is expected to be constrained in the new regime of higher macro and market volatility. Historically, such periods have resulted in significant stock market pullbacks, and an overall appetite for high quality, liquid assets such as gold. Our approach to portfolio management is nimble, opportunistic, and deliberate in identifying asset classes that are best placed to generate returns in a new world order. Our focus is on protecting portfolios from downside risk, and we believe that our investment process is working to achieve that goal.

Deborah Frame, President and CIO

Drew Millard, Portfolio Manager

1 Trading Economics. China Inflation. September 9, 2023.

2 Trading Economics. China Unemployment. September 15, 2023.

3 Trading Economics. China Trade. September 7, 2023.

4 Trading Economics. EU Inflation. September 19, 2023.

5 Trading Economics. U.S. GDP. August 30, 2023.

6 Trading Economics. U.S. Inflation. September 13, 2023.

7 Trading Economics. U.S. Unemployment. September 1, 2023.

8 Trading Economics. U.S. Trade. September 6, 2023.

9 Trading Economics. Canada Inflation. September 1, 2023.

10 Trading Economics. Canada Unemployment. September 8, 2023.

Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. August 31, 2023. Index performance is based on total returns and expressed in the local currency of the index.

The global expansion underway continues to show resilience to synchronised monetary tightening.  The dynamics of higher rates put constraints on demand and credit availability, undermining business sector health and expansion, resulting in downturns that are more globally synchronized, with higher terminal policy rates, leading to global recession. Evidence of moderation in global inflation such as the deterioration in the developed market purchasing manager indices (PMI) suggests that higher interest rates are slowly beginning to take their toll on economic activity. Weakness now appears to be spreading to the services side of the economy as tailwinds from pent-up services demand moderate and the headwind from aggressive tightening intensifies. While inflation may come down from the highs of 2022, it is expected to stay above 2% and more likely 3% over the next decade. Among the likely sources of price pressure are the end of the China-led low-cost labour boom, the reversal of globalisation, the expanded role of fiscal spending that began during the pandemic, and underinvestment in commodity supplies in recent years. We continue to anticipate a mild contraction in the U.S. in late 2023 and slow growth in other developed markets. In August, we maintained our twelve-month forward outlook for the U.S. economy of six months of Stagnation, followed by three months of Recession and then three months of Stagnation.

The Chinese economy expanded by 6.3% year-on-year in Q2 2023, showing faster growth compared to the 4.5% recorded in Q1.1 China’s surveyed urban unemployment rate inched up to 5.3% in July 2023.2 China’s trade surplus plunged to USD 80.6 billion in July 2023 from USD 102.7 billion in the same period a year earlier, as exports fell more than imports. The trade surplus with the U.S. widened to USD 30.3 billion in July from USD 28.72 billion in June.3 The consumer price inflation rate in the Euro Area was confirmed at 5.3% in July 2023.4 The Euro Area seasonally adjusted unemployment rate was at a record low of 6.4% in June. Amongst the largest Euro Area economies, the lowest jobless rate was recorded in Germany (3%), while the highest rates were registered in Spain (11.7%).5 The Eurozone posted a trade surplus in June. Among major trade partners, imports declined mainly from Russia, China, the U.K., and the U.S.6

The U.S. economy expanded at an annualized 2.4% in the second quarter of 2023.7 The annual inflation rate in the U.S. accelerated to 3.2% in July compared to the year earlier inflation peak of 9.1%.8 The annual inflation rate in Canada rose to 3.3% in July. The mortgage interest cost index (+30.6%) posted another record year-over-year gain and remained the largest contributor to headline inflation.9 The unemployment rate in Canada edged higher to 5.5% in July. A net 6,400 jobs were removed from the Canadian economy, surprising markets that expected a 21,100 gain.10 

Extreme optimism towards stock markets throughout 2023 has given way to growing skepticism in August. Global government bond yields extended their upward climb as resilient economic data challenged the view that central banks rates are peaking. Treasuries have been a key driver of the global debt selloff. The U.S. market rally gained steam in July, with the S&P 500 up 3.2%. The breadth of the market continued to widen as a result of small-cap momentum, with the S&P SmallCap 600 up 5.5% vs 4.1% for Mid-Caps. Commodities outperformed U.S. equities, with the S&P GSCI posting a stellar gain of 11%, boosted by Energy and Industrial Metals. The S&P/TSX Composite posted an increase of 2.6%. The S&P Europe 350 extended its year-to-date gains by 2.1% in July to 14.2%. Thirteen of sixteen countries contributed positively to pan-European equity returns. The U.K. was the brightest spot, contributing +0.6%, followed by Switzerland and Germany with 0.4% and 0.3%, respectively. The S&P Pan Asia BMI soared 4.9% in July, extending its YTD gain to 11.5%. All S&P Pan Asia BMI regions ended July in the black, with China the largest contributor to the regional benchmark’s return with 1.7%.

In August, we maintained exposure to all asset classes, reflecting the prolonged interest rate tightening cycle and the impact that it is having on the economy. Our view remains that a U.S. recession will occur. We continue to maintain gold exposure across all models as we expect gold to remain supported on the back of rangebound bond yields and a weaker dollar.

We anticipate that economic deterioration will drive an increase in defaults and other unintended consequences following tighter credit conditions. Long-term trends will keep production capacity constrained in the new regime of higher macro and market volatility. Historically, such periods have resulted in higher volatility, significant stock market pullbacks, and an overall appetite for high quality, liquid assets such as gold. Our approach to portfolio management is nimble, opportunistic, and deliberate in identifying asset classes that are best placed to generate returns in a new world order. Our focus is on protecting portfolios from downside risk, and we believe that our investment process is working to achieve that goal.

Deborah Frame, President and CIO

1 Trading Economics. China GDP. July 17, 2023.

2 Trading Economics. China Unemployment. August 15, 2023.

3 Trading Economics. China Trade. August 8, 2023.

4 Trading Economics. E.U. Inflation. August 18, 2023.

5 Trading Economics. Europe Unemployment. August 1, 2023.

6 Trading Economics. Europe Trade. August 17, 2023.

7 Trading Economics. U.S. GDP. July 27, 2023.

8 Trading Economics. U.S. Inflation. August 10, 2023.

9 Trading Economics. Canada Inflation. August 15, 2023.

10 Trading Economics. Canada Unemployment. August 4, 2023.

Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. July 31, 2023. Index performance is based on total returns and expressed in the local currency of the index.