It was a mixed week on the markets with equities selling off while the bond market marked time. Bitcoin was a winner touching $72,728 mid week. Oil prices have subsided while the Canadian dollar is making cross-border shopping a challenge. Gold inched up again this week.
| Index | Close Oct. 24th 2024 | Close Oct. 31st 2024 |
| S&P500 | 5,814 | 5,705 |
| TSX60 | 24,552 | 24,157 |
| Canada 10 yr. Bond Yield | 3.27% | 3.25% |
| US 10 yr. Treasury Yield | 4.22% | 4.29% |
| USD/CAD | $1.38535 | $1.39203 |
| Brent Crude | $74.56 | $74.07 |
| Gold | $2,736 | $2,744 |
| Bitcoin | $68,444 | $70,235 |
Source: Trading Economics & Factset
Israeli strikes on Iran spared their oil and nuclear facilities, dropping oil prices dramatically. While Iran is under heavy sanctions, China buys about 90% of their exports. Other countries that buy Iranian Crude include Japan, India, South Korea, Indonesia, Taiwan, and Thailand. However, reports on Thursday that Iran was preparing a counterattack has energy traders jittery and prices starting to rise again.
Canada’s GDP growth is stalling. August’s reading was flat while July’s was revised down to 0.1%. The economy is likely to miss the Bank of Canada’s revised 3rd quarter estimates. This combined with the low inflation numbers have increased the likelihood of another 50-bps rate cut by the Bank in December. In remarks to the Finance Committee, BoC Governor Tiff Macklem left the door wide open to more cuts but said the Bank remained data dependant.
20 years ago, this would have been headline news and there would be a call for immediate government intervention. Now, with less and less coming through our mailboxes, does anyone know or care that Canada Post workers may be on strike in the next few days? Both parties remain at the bargaining table but Canada Post, a crown corporation, lost $3 billion between 2018 & 2023. The bleeding has continued into 2024 with a $490 million loss in the 1st half of 2024. They, like so many businesses, are also facing a wave of retirements in the next few years.
A quick caveat on this next story, we don’t put a lot of stock in long-term forecasts. As Yogi Berra is purported to have said, “It’s hard to predict the future, because it hasn’t happened yet.” With that out of the way, Goldman Sachs’ equity research team is predicting a miserly 3% average return from the S&P500 over the next 10 years. That is a far cry from the 13% over the past 10 years. GS bases it prediction on the Schiller CAPE (cyclically adjusted price to earnings) model. These periods of low 10 yr. results are not common but are in the realm of possibility. Ben Carlson of A Wealth of Common Sense does a good job of dissecting the Goldman prediction here.
These next 3 items are all connected. China’s economy continues to struggle. With a declining population and a post-covid hangover the country will find it hard to meet its 5% growth target but 3% may be achievable in the long run. (In line with most developed nations).
The European automotive sector has been a huge beneficiary of the growth in China’s middle class and wealth. Now it is struggling as well. Volkswagen has announced plans to close at least 3 factories, eliminate thousands of jobs, and slash wages. The unions are obviously not happy, but the company is facing declining sales in China and Europe. VW also bungled the rollout of electric vehicles while China’s car makers proved to be adept at making the transition.
In the face of all this, the European Commission has imposed import duties on EVs made in China (including those made in China by Tesla, VW, and BMW) . China built EVs jumped from a 3.9% market share in 2020 to 25% by September 2023. The Commission’s justification for the tariff is that the carmakers have received state subsidies. This is undoubtedly true, which may explain the drastically lower price points of the cars and their increasing market share. Interestingly, VW, BMW, and Mercedes-Benz have all objected to the new tariffs.
It is Halloween Night as I finish this week’s publication, so we will close off with a dance tune from Bobby “Boris” Pickett… Hope all the Tick or Treaters did well…
Russ Lazaruk, RIAC, CIWM, CIM, FCSI
Managing Director & Portfolio Manager
