Market Pulse
Major central banks showed eagerness to fend off a hard landing as the US federal reserve embarked on an aggressive easing cycle, cutting rates by 50bps, while at the same time China delivered a stimulus package, which was its largest since 2015. Both of these events led to strong growth in risk-on assets, led by China who’s Blue Chip Index (CSI 300) rose ~25% in the week after the announcement. While there may be more gains in the near term, over the long term, China is in a difficult position and gains are less likely. Similarly, the NASDAQ 100 rose 2.55% on the day of the Fed’s rate cut announcement. These indicators could support a soft-landing narrative.
The United States reported 254,000 additional jobs in September beating estimates by over 100,000 which lowered the unemployment to a rate of 4.1%. The strong labour numbers could lead to the Federal Reserve moving with less urgency than they did in September when they cut rates by 50 basis points. The CME group, who tracks the Fed’s decisions as it relates to market pricing reported that another 50 basis point cut in November has become significantly less likely, moving from an implied probability of 53% to 5% post-news. Market futures positively reacted to the news with S&P 500 futures rising 80bps while the Dow Jones rose 50bps and the NASDAQ 100 rose 110bps.
As the demand for artificial intelligence soars, Microsoft is investing heavily in the nuclear energy that is required to power the data centers. Constellation Energy Corp, the biggest US operator of reactors, shut down one of their plants in 2019 because it could not compete economically. With the extreme demand from Microsoft’s AI division, $1.6 billion is going to be invested to revive the plant. Microsoft has already agreed to purchase the energy from the plant for the next two decades, but declined to disclose the financial terms of the agreement. This relates to the bigger trend of the necessity for nuclear plants to provide sustainable power.
Oil was the worst performer amongst major asset classes in September. Aside from a geopolitical-driven shock on the supply side, both supply and demand for oil looks relatively bleak. Indications are pointing towards an increase in US oil production to combat Saudi Arabia’s attempt to regain a strong foothold in the market. However, production will likely grow only modestly as demand deteriorates. Investors shouldn’t change their long-term convictions on the commodity based on near-term geopolitically induced spikes.
The price of gold has soared in 2024, rising more than 20% year-to-date and is well positioned to climb even further in 2025 as Goldman Sachs has a price target of $2700/oz by early next year. A variety of factors have driven the price appreciation of gold. Since Russia invaded Ukraine, central banks have been increasing their reserves rapidly. This is expected to continue as increased purchasing of gold is often spurred by global uncertainty. Gold will also see price appreciation during declining interest rate environments because it doesn’t offer a yield which is a main attractor during higher interest rate periods. Lastly, geopolitical shocks such as tariffs and debt management fears can lead investors to turn towards gold.
Politicians returned back to the House of Commons in September, and one of the primary items on the agenda was making changes to mortgage policy, in order to make housing more affordable for Canadians. Going forward, Canadians purchasing homes worth up to $1.5 million can now do so without the 20% minimum down payment, as long as they purchase mortgage default insurance. Further, all first-time homebuyers and buyers of newly built homes now have 30-year mortgages available to them. Officials say the higher amortization period will reduce monthly payments for a pool of up to 24% of home buyers (20% first-time, 4% new-built), all in an effort to combat housing concerns. The announcement raised questions about whether the mortgage reforms would only push housing prices higher and strap on more debt to young Canadians.
All data sourced from FACTSET and SIACharts.
All data is for the reported month and in local currentestcy.
The Ups & Downs
- TransAlta Corporation (TA) continued to soar, gaining another 18.11% in September. Fundamentals of the business remain strong and investors are showing confidence in the company’s growth prospects. Shares of the capital intensive business were also pushed higher with the lower interest rate decision from the Fed.
- Shares of John Deere (DE) added 8.57% in the month. Despite tariff threats from Donald Trump and the recent recall of 147,900 tractors for brake failure risks, the stock continued to plod upwards. Investors are convicted in the company’s focus on revolutionizing agriculture with technology.
- Shares of JP Morgan Chase & Co (JPM) declined 6.20% in September. Shares are cooling off after their 25.9% YTD climb. JP Morgan has been the best performing large bank stock since the Federal Reserve started hiking rates in 2022, up nearly 60%. All eyes will be on how the company shifts to changing monetary policy in the future.
- Berkshire Hathaway (BRK.B) shares consolidated in September. Pulling back 3.29% in the month from their all time highs in August. Investors speculate that devastation from Hurricane Helene will likely weigh on the company’s insurance business.
All data sourced from FACTSET and SIACharts. All data is for the reported month and in local currency.
Portfolio Returns
As of September 30th, 2024
