May 2024 Monthly Market Insights

Market sentiment turned bearish in early April for both equity and fixed income markets as sticky U.S. inflation data fuelled market fears that central banks will not ease monetary policy as quickly as previously hoped. Both stock and bond markets pulled back in the first half April, only dampened by the sharp rebound in the second half when strong earnings results and robust growth expectations buoyed markets. Both equities and fixed income markets ended the month in negative territory with global bonds falling 1.68% over the month while developed market equities fell 2.25%.

A combination of rising energy prices and lower interest rate sensitivity supported the cyclical value segment of the equity market, which outperformed the growth segment on a relative basis.

After making record highs in March, the rally in Japanese and U.S. equities tapered off as they led the way lower for global equity markets in April. At the same time, higher commodity exposure and increased investor interest in cheaper Chinese equities helped emerging market equities deliver positive returns of 0.5% over the month.

Canada: MSCI Canada; U.S.: MSCI USA; International markets: MSCI EAFE; Emerging markets: MSCI Emerging Markets. Source: Morningstar Direct

Canada investment grade: Bloomberg Barclays Canada Aggregate; Global investment grade: Bloomberg Barclays Global Aggregate; U.S. high yield: Bloomberg Barclays U.S. High Yield. Source: Morningstar Direct.

April saw risk aversion rise as the market narrative changed from assumptions of ‘soft landing’ or ‘no landing’ scenario to a much more concerning ‘stagflation’ environment. Uptick in the most recent inflation data, higher energy prices, and geopolitical tensions stoke concerns that inflation may re-surface, leaving little room for rate cuts despite economic slowdown. The U.S. equity markets dropped by 5% in mid-month from the close of the first quarter at a historical high.

Source: Bloomberg LP

Tesla has been retreating year-to-date from lower demand on EVs, but a near 40% rebound into month end caught everyone off guard. Also notable was the heightening AI frenzy in April as some semiconductor companies reported strong results. Nvidia, which has yet to report earnings, saw one of the largest single-day drops in market cap in history only to recover fully in the following four trading days. Upon a strong earnings report, Google’s parent Alphabet had the largest one-day gain in market capitalization in history. These moves helped lift the S&P 500 Index back above 5000 following a brief dip below in April.

Source: Bloomberg LP

Bottomline: Uptick in inflation and geopolitical tensions caused a change in investor sentiment and led to a pullback in April, which sent the equity markets to more attractive levels. The earnings season demonstrated continued strength in corporate fundamentals, providing support for richer valuations. The sentiment may have been too pessimistic and after the pullback, current levels still present a good entry point for long term investors, as we expect the rally to resume and broaden based on strong earnings growth and economic momentum.

One of the key drivers in the continued strength of the U.S. economy has been the labour market, which has been remarkably robust and the weakening of which would also be an early indicator of economic weakness as it has been in numerous recessions in the past. The most recent jobs report in March suggest that the U.S. labour market remains robust but is beginning to cool. The number of U.S. job openings decreased, with the quits rate also declining to the lowest level since August 2020.

Source: Bloomberg LP

Other indicators also corroborate the softening in labour market conditions. The job openings rate fell to 5.1% in March, after three consecutive months at 5.3%, meaning the upward trend in hires appears to be levelling off. Along with softer labour demand, the quits rate has also continued to fall, amounting to an easing of labour market slack. The vacancy-to-unemployment rate, is yet to return to the pre-pandemic level, but remains on a path to come into balance.

Bottomline: We expect the labour market to continue to ease along with wage growth, alleviating inflationary pressures later in the year.

Aviso Wealth Inc. (“Aviso”) is the parent company of Aviso Financial Inc. (“AFI”) and Northwest & Ethical Investments L.P. (“NEI”). Aviso and Aviso Wealth are registered trademarks owned by Aviso Wealth Inc. NEI Investments is a registered trademark of NEI. Any use by AFI or NEI of an Aviso trade name or trademark is made with the consent and/or license of Aviso Wealth Inc. Aviso is a wholly-owned subsidiary of Aviso Wealth LP, which in turn is owned 50% by Desjardins Financial Holding Inc. and 50% by a limited partnership owned by the five Provincial Credit Union Centrals and The CUMIS Group Limited

This material is for informational and educational purposes and it is not intended to provide specific advice including, without limitation, investment, financial, tax or similar matters. This document is published by AFI and unless indicated otherwise, all views expressed in this document are those of AFI. The views expressed herein are subject to change without notice as markets change over time. Views expressed regarding a particular industry or market sector should not be considered an indication of trading intent of any funds managed by NEI Investments. Forward-looking statements are not guaranteed of future performance and risks and uncertainties often cause actual results to differ materially from forward-looking information or expectations. Do not place undue reliance on forward-looking information. Mutual funds and other securities are offered through Aviso Financial Inc. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Unless otherwise stated, mutual fund securities and cash balances are not insured nor guaranteed, their values change frequently and past performance may not be repeated.

The MSCI information may only be used for your internal use, may not be reproduced or re-disseminated in any form and may not be used as a basis for or a component of any financial instruments or products or indices. None of the MSCI information is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. Historical data and analysis should not be taken as an indication or guarantee of any future performance, analysis, forecast or prediction. The MSCI information is provided on an “as is” basis and the user of this information assumes the entire risk of any use made of this information. MSCI, each of its affiliates and each other person involved in or related to computing, computing or creating any MCI information (collectively, the “MSCI Parties”) expressly disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits) or any other damages.