September 2024
The world is changing rapidly and in ways that can be hard to predict. The frequency of unexpected political and economic shocks has accelerated. Heightened geopolitical risks favour assets that are considered safe havens such as the US dollar, Swiss franc, Treasuries, and gold. The US dollar remains the world’s reserve currency. In September 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 edged up to 0.6% in August 2024 from 0.5% in July,1 while their surveyed unemployment rate was at 5.3% in August.2 The GDP in the Eurozone expanded 0.6% year-on-year in the second quarter of 2024. Exports were up 1.7% while imports declined 1.1%.3 Annual inflation rate in the Eurozone eased to 2.2% in August 2024,4 while unemployment in the Euro Area decreased to 6.4% in July from 6.5% in June of 2024.5
Final sales of domestic product in the United States increased an annualized 2.2% in the second quarter of 2024, accelerating from the 1.8% in the first quarter and above the flash estimate of a 2% growth.6 The annual inflation rate in the U.S. slowed for a fifth consecutive month to 2.5% in August 2024,7 while the unemployment rate in the United States eased to 4.2% in August of 2024.8 The trade deficit in the U.S. widened to $78.8 billion in July 2024. Exports increased 0.5% while imports soared 2.1%, the highest value since March 2022. The deficit with China increased as exports decreased $1.0 billion to $11.5 billion and imports were up $3.9 billion to $38.7 billion. The trade gap with Canada also widened by $3.0 billion to $7.6 billion, as exports fell and imports rose.9 The Canadian economy advanced by 0.5% in the second quarter of 2024. On an annualized basis, Canadian GDP grew by 2.1% in Q2.10 The annual inflation rate in Canada decelerated for the third month to hit 2% in August 2024, reaching the central bank’s target for the first time in over three years,11 while the unemployment rate in Canada rose to 6.6% in August of 2024 from 6.4% in the earlier month.12 Canada recorded a trade surplus of CAD 0.68 billion in July as exports dropped by 0.4% to CAD 65.7 billion and imports fell by 1.7% to CAD 65 billion.13
Optimism surrounding a soft landing and encouraging inflation results led U.S. large cap equities to finish August with a gain of 2.4%. The S&P Mid Cap and the S&P Small Cap were down 0.1% and 1.4% respectively. Canadian equities finished the month on the upside with the S&P/TSX Composite up 1.2%. The S&P Europe 350 recovered the 6% drop it suffered in the first three trading days of August to close the month up 1.6%. All but one of 16 countries contributed positively to the pan-European equity returns this month, with Portugal the only detractor.
In September we maintained the asset allocation from August. 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. While geopolitical turmoil leads to greater volatility, history has shown that periods of volatility create the opportunity to deploy capital in asset allocations that recognise the nature of the economic environment. 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 Trading Economics. China Inflation. September 9, 2024.
2 Trading Economics. China Unemployment. September 14, 2024.
3 Trading Economics. EU GDP. September 6, 2024.
4 Trading Economics. EU Inflation. September 18, 2024.
5 Trading Economics. EU Unemployment. August 30, 2024.
6 Trading Economics. U.S. GDP. August 29, 2024.
7 Trading Economics. U. S. Inflation. September 11, 2024.
8 Trading Economics. U.S. Unemployment. September 6, 2024.
9 Trading Economics. U.S. Trade. September 4, 2024.
10 Trading Economics. Canada GDP. August 30, 2024.
11 Trading Economics. Canada Inflation. September 17, 2024.
12 Trading Economics. Canada Unemployment. September 6, 2024.
13 Trading Economics. Canada Trade. September 4, 2024.
Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. August 31, 2024. Index performance is based on total returns and expressed in the local currency of the index.
