- Global Markets Rebound in November Breaking Three-Month Losing Streak
November 2023 marked a significant rebound in global markets, ending a three-month losing streak. The S&P 500 experienced a 9.1% surge, fueled by investor confidence that the U.S. Federal Reserve might not implement further interest rate hikes, buoyed by robust U.S. consumer spending and a downtrend in inflation (Duggan, 2023). Despite a notable 20.8% rise year-to-date, analysts express concerns over a potential significant slowdown in the U.S. economy in the coming quarters, while investors maintain optimism for continued growth, particularly in December, historically a strong month for the S&P 500.
Contrasting this positive trend, Bank of Canada Governor Tiff Macklem is cautiously refraining from following market anticipations of interest rate reductions, noting that it's premature for such considerations, even as other central banks hint at possible rate decreases in the next year (Loid, 2023). Macklem acknowledges the stabilization of the Canadian economy and forecasts a gradual decrease in inflation amidst a projected weak economic growth in 2024. He highlights external risks, such as conflicts in the Middle East and Europe, and emphasizes the importance of a clear trajectory towards the 2% inflation target before policy easing. Diverging from the approach of the U.S. Federal Reserve and other banks, Macklem commits to enhancing communication with the public through regular press conferences following interest rate decisions in 2024.
- Canadian Retail Spending Defies Inflation Trends
Recent data from Statistics Canada for September reveals that Canadian retail spending is outpacing inflation, with the retail index rising to 127.9, a 5.18% increase from September 2022, compared to the annual inflation rate of 3.8% (Korstrom, 2023). However, this growth is not uniform across all sectors: building material and garden stores, health and personal-care stores, and furniture and home furnishing sectors experienced declines in their index rankings. In contrast, gasoline stations saw a significant rise in sales, with their sector rank jumping over 17.5% to 168.4 on the index. Other sectors that outperformed the average increase include clothing, food and beverage, and miscellaneous goods, with respective rises of 6%, nearly 6.2%, and 8.4%. It's important to note that this retail sales data is categorized by retail sectors, differing from commodity-retail data which is based on sales for actual products.
- Canadian Home Prices to Rise Back to Peak Pandemic Levels
A new report forecasts that by the end of 2024, Canadian home prices will recover to their pandemic peaks, with a projected 5.5% year-over-year increase elevating the aggregate price to $843,684 (Heaven, 2023). This comes after a tumultuous phase in the housing market, marked by an initial drop in sales due to the pandemic, a subsequent surge fueled by low borrowing rates, and a correction phase triggered by the Bank of Canada's significant interest rate hikes. Despite considerable sales declines in some areas, the overall reduction in home prices has been relatively modest. The report indicates a changing mindset among Canadians who are adapting to the likelihood of higher mortgage rates, anticipated to stabilize between 4-5%, with Calgary expected to lead with an 8% increase in home prices, while larger markets like Toronto and Vancouver see more modest rises.
Contrastingly, the short-term outlook for Canadian average home prices has been revised to a sharper expected decline of around 10%, as opposed to the initial forecast of a 5% drop (Caranci, et al., 2023). This more pronounced decrease is attributed to factors such as revised bond yield forecasts and notable market relaxations in British Columbia and Ontario, evident from the significant fall in the sales-to-new listings ratio. Despite this short-term dip, it's anticipated that average home prices will still be 15% above their pre-pandemic levels, supported by potential rate cuts from the Bank of Canada in the next year and robust population growth. The high borrowing costs are likely to strain but not break the job market, thereby sustaining demand and curbing forced sales.
Financial Tip of the Month:
This month, set financial goals for the upcoming year. Review your spending habits from the past year, create a realistic budget, and identify areas where you can save. This is also an ideal time to contribute to retirement accounts or tax-advantaged savings plans to maximize potential tax benefits before the year ends.
At Alpen Investment Advisors, your trusted North Vancouver iA Investia team, we are committed to keeping our valued clients informed. We trust that you have found this market recap informative and insightful. Please do not hesitate to reach out to your dedicated North Vancouver financial advisor, jonathan@alpenia.ca for any questions about your portfolio or to help navigate the process of growing and preserving your wealth.
References:
Caranci, Beata, et al. “Questions? We’ve Got Answers: Addressing Issues Impacting the Economic and Financial Outlook.” Questions? We’ve Got Answers: Addressing Issues Impacting the Economic and Financial Outlook, Toronto Dominion Economics, 22 Nov. 2023, www.economics.td.com/ca-questions-answers#question7.
Duggan, Wayne. “December 2023 Stock Market Forecast.” Forbes, Forbes Magazine, 1 Dec. 2023, www.forbes.com/advisor/investing/stock-market-outlook-and-forecast/.
Heaven, Pamela. “Posthaste: Get Ready for the ‘great Adjustment’ in Canada’s Housing Market.” Financial Post, Financial Post, 14 Dec. 2023, www.financialpost.com/news/housing-market-faces-great-adjustment.
Korstrom , Glenn. “Canadian Retail Sales Increase Faster than Inflation.” Business in Vancouver, Business in Vancouver, 18 Dec. 2023, www.biv.com/article/2023/12/canadian-retail-sales-increase-faster-inflation.
Lord, Craig. “‘still Too Early’ to Cut Rates, Bank of Canada’s Macklem Says - National.” Global News, Global News, 15 Dec. 2023, www.globalnews.ca/news/10173224/bank-of-canada-rate-cuts-tiff-macklem-dec-2023/.
