The global outlook will be shaped largely by fiscal and monetary choices, the intensity of geoeconomic fragmentation forces, and the ability of governments to implement long-overdue structural reforms.  Notable revisions have taken place at the International Monetary Fund, with upgrades to the forecast for the United States offsetting downgrades to those for other advanced economies, including the largest European countries. In emerging market and developing economies, disruptions to production and shipping of commodities (especially oil) conflicts, civil unrest, and extreme weather events have led to downward revisions.¹ In October we maintained the FGAM U.S. twelve-month forward outlook to reflect our view for Growth (U.S. Real GDP growth greater than 2.5%) over the next twelve- month period, in response to the strong U.S. annualized 3.0% growth.

The Chinese economy expanded 4.6% year over year in Q3 of 2024, amid persistent property weakness, shaky domestic demand, deflation risks, and trade frictions with the West. China’s trade surplus widened to USD 81.71 billion in September 2024 from USD 75.5 billion in the same period a year earlier.² Annual inflation in the Euro Area was revised lower to 1.7% in September 2024. Inflation is now at April 2021 lows, and below the ECB target of 2%.³ Unemployment in the Euro Area remained unchanged at 6.4% in August.⁴

The U.S. economy grew at an annualized rate of 3% in the second quarter of 2024.⁵ The annual inflation rate in the U.S. slowed for a sixth consecutive month to 2.4% in September, accelerating for food (2.3% vs 2.1%) and transportation (8.5% vs 7.9%).⁶ The unemployment rate in the United States fell to 4.1% in September.⁷ The trade deficit in the U.S. narrowed to $70.4 billion in August, the lowest in five months. Exports increased 2% while imports dropped 0.9%. During the month of September, the deficit narrowed with China (to $27.9 billion from $30.1 billion) and Canada (to $3.1 billion from $8.1 billion).⁸ The Bank of Canada cut its key interest rate by 50 basis points to 3.75% in its October 2024 decision, increasing the pace of rate cuts following three 25 basis points slashes.⁹ Headline price growth fell to 1.6% in September, below the target of 2% for the first time in three years.¹⁰ The bank noted that consumption slowed on a per capita basis and the labor market continued to soften, as the unemployment rate rose to 6.5% for the first time in over two years.¹¹ Canada posted a trade deficit of CAD 1.10 billion in August, driven by a 1.0% decline in exports to CAD 64.3 billion. Shipments of energy products slumped by 3.0% in August, driven primarily by a 4.1% drop in crude oil exports.¹²

Optimism surrounding a U.S. soft landing, encouraging inflation results, and recent Fed rate cuts contributed to rising U.S. markets in Q3. The S&P 500 finished the quarter up 5.9% while the S&P mid and small cap were up 6.9% and 10.1% respectively. Canadian equities finished the quarter with the S&P/TSX Composite up 10.5%. The S&P Europe 350 recovered most of the losses suffered in the first week of September to close the month down just 0.4%. Asian equities had a strong rally in September, as China’s central bank unveiled the most aggressive stimulus package since the pandemic to boost the country’s weakening economy.

In October we removed exposure across all models to U.S. Small Cap equities and added the allocation to U.S. large Cap equities. This reflects our expectation of a slower U.S. recovery. We continue to maintain short duration U.S. fixed income exposure as we are in early growth. Gold is held across all models as a long-term strategic asset as it will continue to benefit our portfolio models in the early stages of Growth. Central bank holdings of gold reserves remain strong as the primary incentive is investing for security over returns. The metal usually does poorly when real yields on safe government bonds are high. Since the end of 2021, the correlation has collapsed. Gold has climbed in price even as yields on ten-year inflation-protected American Treasuries rose from minus 1% to around 1.8%.

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. World Economic Outlook. October 2024.

² Trading Economics. China GDP. October 14, 2024.

³ Trading Economics. Europe Inflation. October 17, 2024.

⁴ Trading Economics. Europe Unemployment. October 2, 2024.

⁵ Trading Economics. U.S. GDP. September 26, 2024.

⁶ Trading Economics. U.S. Inflation. October 10, 2024.

⁷ Trading Economics. U.S. Unemployment. October 4, 2024.

⁸ Trading Economics. U.S. Trade. October 8, 2024.

⁹ Trading Economics. Canada Bank Rate. October 23, 2024.

¹⁰ Trading Economics. Canada Inflation. October 15, 2024.

¹¹ Trading Economics. Canada Unemployment. October 11, 2024.

¹² Trading Economics. Canada Trade. October 8, 2024.

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

Global economies are experiencing synchronised stimulus. In June the European Central Bank reduced rates for the first time since before the Covid-19 pandemic. In July policymakers at the Bank of England voted to cut rates. Other central banks, ranging from those in Canada and Chile to Denmark, are also in on the action with the U.S. expected to follow. In the second quarter of this year the combined real GDP of the OECD grew by 1.8% year on year, the fastest since the end of lockdowns. Unemployment in the OECD remains around 5%. It has edged up from earlier in the year, but job growth remains reasonably strong. This likely reflects the fact that modern economies are less sensitive to interest-rate changes, owing to a decline in capital-intensive industries such as housebuilding and manufacturing.¹ In August we maintained the FGAM U.S. twelve-month forward outlook to reflect our view for Growth (U.S. Real GDP growth greater than 2.5%) over the next twelve- month period, in response to the strong U.S. annualized 3.0% growth.

China’s annual inflation rate climbed to 0.5% in July,² while the surveyed unemployment rate increased to 5.2% from 5% in each of the previous three months.³ China’s trade surplus widened as exports rose 7.0% year-on-year, while imports rose 7.2%, rebounding from a 2.3% fall in the previous month.⁴ The Euro Area GDP expanded 0.3% in Q2 2024. Key economies were France, Italy, and Spain. Germany, the largest economy, contracted 0.1%, as the industrial sector continues to be strained by high interest rates.⁵ The annual inflation rate in the Euro Area rose to 2.6% in July, followed by a decline to 2.2% in August.⁶ The unemployment rate in the Euro Area decreased to 6.4% in July.⁷

Real gross domestic product (GDP) in the U.S. grew at an annual rate of 3.0% in the second quarter of 2024, up from 1.4% in the first quarter.⁸ The annual inflation rate in the U.S. slowed for a fourth consecutive month to 2.9% in July 2024,⁹ while the unemployment rate rose to 4.3% from 4.1% in the previous month.¹⁰ The Canadian economy advanced by 0.5% in the second quarter of 2024, marking its second consecutive quarter of expansion.¹¹ Canada recorded a trade surplus of CAD 0.64 billion in June, the first since February. Exports surged by 5.5% while imports rose by 1.9%.¹² The core inflation rate in Canada rose 0.3% from a month earlier in July,¹³ while the unemployment rate was 6.4%.¹⁴

The U.S. market witnessed a rotation towards smaller-cap stocks in July. The S&P 500 was up 1.2% while the S&P Mid-Cap 400 was up 5.8% and the S&P Small-Cap 600 was up 10.8% in July. Canadian equities finished July on the upside. The S&P/TSX Composite increased 5.9%. The S&P Europe 350 started the second half on the front foot, gaining 1.3%, in July. 11 of 16 countries contributed positively to the pan-European equity returns, with the United Kingdom the biggest positive contributor with +0.8%. At the opposite end of the spectrum, the Netherlands subtracted 0.5% from the S&P Europe 350’s return. Pan Asia equities marched higher in July, with the S&P Pan Asia BMI rising 2.4%.

In August we maintained the asset allocation from July. This reflects our expectation of a broader recovery across all market capitalizations as the U.S. economy strengthens. We continue to maintain short duration U.S. fixed income exposure as we are in early growth with interest rates in the U.S. holding at current levels. Gold is held across all models as a long-term strategic asset as it will continue to benefit our portfolio models at this transition point from Stagnation to Growth.

Fiscal policy and electoral cycles will continue to dominate our outlook. Our twelve- month forward outlook will continue to monitor the size and scale of the U.S. budget deficit, coupled with the substantial Treasury debt issuance required to address it. 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 The Economist. “Inflation is down and a recession is unlikely.” August 3, 2024.

² Trading Economics. China Inflation. August 9, 2024.

³ Trading Economics. China Unemployment. August 15, 2024.

⁴ Trading Economics. China Trade. August 7, 2024.

⁵ Trading Economics. Europe GDP. August 14, 2024.

⁶ Trading Economics. Europe Inflation. August 20, 2024.

⁷ Trading Economics. Europe Unemployment. August 30, 2024.

⁸ Trading Economics. U.S. GDP. August 29, 2024.

⁹ Trading Economics. U.S. Inflation. August 14, 2024.

¹⁰ Trading Economics. U.S. Unemployment. August 2, 2024.

¹¹ Trading Economics. Canada GDP. August 30, 2024.

¹² Trading Economics. Canada Trade. August 6, 2024.

¹³ Trading Economics. Canada Inflation. August 20, 2024.

¹⁴ Trading Economics. Canada Unemployment. August 9, 2024.

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

Global economic momentum continues to improve with mixed results among the G7. The U.S. FOMC met in early June, focusing on inflation that has remained higher than target, supporting the position to leave rates unchanged. The Bank of Canada and European Central Bank, however, began rate-cut cycles in June; the first G7 central banks to do so. While the Canadian economy will benefit from interest rate relief, overall economic momentum is forecast to remain subdued as indebted consumers continue to adjust. In June 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 Consumer Price Index in China decreased 0.10% in May of 2024 over the previous month to 0.3%.¹ China’s surveyed unemployment rate stood at 5%, unchanged from April’s five-month low.² China’s trade surplus widened to USD 82.62 billion in May. Exports advanced 7.6% from a year earlier, while imports increased by 1.8%.³ The Eurozone economy expanded 0.3% on quarter in the first three months of 2024, recovering from a 0.1% contraction in each of the previous two quarters.⁴ Annual inflation in the Euro Area increased to 2.6% in May 2024 from 2.4% in each of the previous two months. Prices rebounded for energy (0.3% vs -0.6%) and rose faster for services (4.1% vs 3%).⁵ The unemployment rate in the Euro Area was 6.4% in April 2024, down from 6.5% in each of the prior five months. Across the major Euro Area economies, Spain continues to grapple with the highest unemployment rate, standing at 11.7%, followed by France at 7.3% and Italy at 6.9%. In contrast, Germany recorded the lowest rate at 3.2%.⁶

It was confirmed that the U.S. economy expanded an annualized 1.3% in Q1 2024, mainly due to a downward revision in consumer spending.⁷ The annual inflation rate in the U.S. slowed to 3.3% in May, the lowest in three months.⁸ The unemployment rate in the United States rose to 4%.⁹ The trade deficit in the U.S. widened to $74.6 billion in April 2024. Imports increased 8.7% to $338.2 billion while exports edged up 0.8% to $263.7 billion.¹⁰ The Canadian economy was confirmed to have expanded by 0.4% in the first quarter of 2024.¹¹ Canada’s annual core inflation rate accelerated to 1.8% in May from April’s three-year low of 1.6%.¹² The unemployment rate in Canada rose to 6.2% in May from 6.1% in the earlier month, the highest since October of 2021.¹³ 

U.S. Large Cap equities posted their best performance since February, up 5.0% in May. Mid- Caps and Small- Caps were up 4.4% and 5.0% respectively. Canadian equities finished the month on the upside. The S&P/TSX Composite increased 2.8%. The S&P Europe 350 was up 3.5% in May to extend its YTD gain to 10.9%. All 16 countries contributed positively to the pan-European equity return, with Switzerland the biggest positive contributor, up +0.9%. Pan Asia equities rebounded along with global equities, with the S&P Pan Asia BMI rising 1.6% in May. Emerging market regions of the S&P Pan Asia BMI continued to outperform their developed counterparts, widening their year-to-date return differential to 5%.

In June we maintained the asset allocation from May. Due to an underperforming Canadian economy, we continue to avoid Canadian exposure as we expect the BoC to cut interest rates earlier and more than the Fed this year. We continue to focus on short duration U.S. fixed income exposure across all models. Gold is held across all models as a long-term strategic asset as it will continue to benefit our portfolio models during stagnation.

 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 Trading Economics. China Inflation. June 12, 2024.

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

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

⁴ Trading Economics. EU GDP. June 7, 2024.

⁵ Trading Economics. EU Inflation. June 18, 2024.

⁶ Trading Economics. EU Unemployment. May 30, 2024.

⁷ Trading Economics. U.S. GDP. May 30, 2024.

⁸ Trading Economics. U.S. Inflation. June 12, 2024.

⁹ Trading Economics. U.S. Unemployment. June 7, 2024.

¹⁰ Trading Economics. U.S. Trade. June 6, 2024.

¹¹ Trading Economics. Canada GDP. May 31, 2024.

¹² Trading Economics. Canada Inflation. June 25, 2024.

¹³ Trading Economics. Canada Unemployment. June 7, 2024.

Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. May 31, 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.

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.