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CC&L Private Capital’s second-quarter financial market report and outlook

July 10, 2024


Markets Overview

After a strong start to the year, global equities continued to move higher this quarter. Support for stocks is coming from resilient economic growth, lower inflation and the prospect that central banks will lower interest rates. While the highly anticipated cuts from the US have yet to materialize, rate cuts have begun throughout the world. They started in the emerging markets several months ago and the Bank of Canada was the first to cut among G7 nations this quarter, followed by the European Central Bank.

On the surface it seems stocks continue to rise without drama. Yet if we look at the sector level of the market, technology with the benefit of Artificial Intelligence (AI) is powering the much of the gains. US returns have significantly exceeded other parts of the world as this is home to the biggest names in AI. Areas of the market that are lagging are more interest rate-sensitive sectors like real estate and consumer discretionary. Current high rates and prices are slowly but surely impacting consumer spending and their preferences. 



Bond markets have not fared as well as stock markets this year. Most of this comes from changes in expectations for interest rates, both in terms of how many cuts will occur and when. The Canadian bond market is now expecting 0.75% in cuts this year, much lower than the 1.5% that was priced in at the start of the year. In addition, economic data hasn’t always been providing a clear signal which also adds to volatility in yields and performance of traditional fixed income.

Portfolio Strategy

Moderate economic growth, progress on inflation and the prospect for rate cuts have been a constructive environment for equity markets. Still, there seems to be a widening gap between the performance of a few companies and the rest. Our global equity portfolio has owned six of the mega cap companies that make up the so-called “Magnificent 7” and we have a significant overweight in five. This has been a source of strong returns for clients. Yet, we also maintain a well-diversified portfolio which includes small cap and emerging market stocks. These haven’t been magnificent performers the last few years despite having solid business fundamentals and earnings. The divergence in their financial performance and stock performance represents investment opportunity. This year our stock selection in global small caps and emerging markets has been strong. This has mitigated some of the underperformance from these asset classes relative to the large cap market.

Navigating traditional bond markets hasn’t been without its challenges as swings in market sentiment have resulted in higher-than-usual volatility. Our core and high yield bond teams have been integrating quantitative research with their fundamental investment process and this has been creating better outcomes, particularly this year. As a firm we have also been expanding the opportunity set within fixed income credit which provides valuable return and diversification benefits. Yields in credit are higher than they’ve been in years and over time a bond delivers most of its return from yield. Taken together, our positioning has improved return and reduced volatility within fixed income allocations.

As we move into the second half of the year, we believe conditions are favorable for equities and have maintained an overweight relative to long-term targets. Within equities, we favour global stocks. If inflation continues to move lower, it’s likely that more rate cuts will be coming. Yet risks remain to this outlook and we monitor events closely and will manage through choppiness in markets as we seek to deliver long-term returns.



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This material may contain information obtained from third parties such as: Merrill Lynch, Pierce, Fenner & Smith Incorporated (BofAML), S&P Global Ratings, MSCI, and Morningstar’s Wealth Forecasting Engine.

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Catherine Dorazio
Managing Director
Business Development

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