Webinar insights from Greg Valliere, AGF’s Chief Political Strategist on October 3, 2024
October 11, 2024
Here are our key takeaways from the Webinar held on Thursday, October 3rd on the US Election with Greg Valliere, AGF’s Chief Political Strategist. Greg is AGF’s ‘boots on the ground’ and Washington insider, offering excellent information and perspective on key storylines happening on Capitol Hill and their impact on the markets and the global economy.
Here’s a quick summary of the key takeaways. We’ve also included the recording and password below.
- Be cautious about what the poll takers say. Their track record in the past few Elections has been mediocre at best. Trump historically does better than what the polls suggest. Keep that in mind.
- Our biggest fear is a tie on November 5th and no clear winner. That would give the markets uncertainty and some anxiety. We’ve seen this movie before.
- Ultimately, the stock market can live with Trump or Harris. We feel Congress will be split/divided, which means less change and less regulatory uncertainty.
- The key issues where they have the same opinion are i) the Deficit and ii) Trade Protectionism. Both candidates will keep spending, and the deficit will continue to grow.
- The key issues where they are different are i) Monetary Policy, ii) Regulatory Policy, and iii) Trade agreements. It’s no secret that Trump could ask J. Powell for his resignation if he wins, and with respect to trade relations with Canada, we feel Harris would be more favourable.
- Unfortunately, geo-political tensions and war will continue between Russia/Ukraine and Israel/Hamas. We don’t see an off-ramp anytime soon where there might a ceasefire or truce.
- Finally, the biggest surprise was the Strong and Resilient US economy. The economy is on a solid footing, the job market is healthy, inflation is coming down, GDP growth in the high 2’s, and the stock market is at record highs.
To Replay the Webinar,
click here and enter the password: XarUJxX5.
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An overview of United States and Canadian capital goods and retail sales figures as at September 2024.
Here are our key takeaways from the Webinar held on Thursday, October 3rd on the US Election with Greg Valliere, AGF’s Chief Political Strategist. Greg is AGF’s ‘boots on the ground’ and Washington insider, offering excellent information and perspective on key storylines happening on Capitol Hill and their impact on the markets and the global economy.
VANCOUVER, BC, and TORONTO, ON, June 24, 2024 – Ventum Financial Corp. (“Ventum” – formerly PI Financial Corp.) is pleased to announce the successful completion of its amalgamation with Echelon Wealth Partners Inc. (“Echelon”), marking a significant milestone that solidifies its position as a leading independent investment advisory, wealth management, and capital markets firm in Canada. David Cusson, former CEO of Echelon, has assumed the role of CEO of Ventum. Jean-Paul Bachellerie, former CEO of Ventum, has assumed the role of President and COO of Ventum. This strategic alignment of leadership combines the expertise and vision of both firms to enhance client service and operational efficiency. “With offices across Canada, and strong anchors in the east and west, we are well positioned to deliver comprehensive financial solutions tailored to meet the diverse needs of our clients,” said David Cusson, CEO of Ventum. “This amalgamation represents a significant step forward in our commitment to excellence and towards becoming the leading independent investment dealer in Canada.” “Our combined Private Client Services and Capital Markets teams provide us with the scale needed for future success, enabling continuous investment in our platform and the provision of leading-edge tools and technology for our advisory teams,” said Jean-Paul Bachellerie, President & COO of Ventum. For more information about Ventum, please visit our website at ventumfinancial.com. About Ventum Financial Corp. Ventum Financial Corp. is headquartered in Toronto, ON with key operational functions in Vancouver, BC, and is a leading independent investment advisory and capital markets firm with fifteen offices across Canada. With a steadfast commitment to integrity and client service, Ventum provides a wide array of financial services to individual, institutional, and corporate clients through our team of experienced professionals. Media Contact: David Cusson CEO Ventum Financial Corp. Email: media@ventumfinancial.com Phone: (416) 572-5523
It seems like just yesterday that you could buy a pint of Stella for $7 or so. Now, more often than not, it is closer to $10. Yep, inflation. It is kind of like a tax on doing things, as just about everything has cost more over the past few years. Hop on a flight, eat at a nice restaurant, refinance your mortgage, the list goes on. With the benefit of hindsight, the current higher inflationary environment can be blamed on a few pretty big factors. Changes in behaviour during and coming out of the pandemic blew up supply changes, as capacity was unable to keep pace with demand. Then, of course, unprecedented money printing magnified the situation, as it made everyone wealthier and more willing to pay $10 for a pint. Of course, the textbook solution is to raise interest rates, which is clearly occurring around the world. These monetary policy shifts are effective but do work with variable lags. Making those lags longer, or even temporally offsetting them, was fiscal policy. It doesn’t take an economist to understand if the monetary policy is trying to slow the economy to tame inflation; materially elevated fiscal spending in an economy that is still growing at a decent pace is counterproductive for the inflation fight.
If the wealth advice service were in the manufacturing industry, the portfolio would be akin to what we make. Sure, there are many value-added services in addition to the portfolio, but it’s the portfolio that has to succeed for the client to reach their long-term goals. So, the more we can think about portfolio construction, the better. One challenge is that while portfolio construction is often based on as long a historical time period as possible, things never remain static. Markets evolve and change over time, relationships change, and the available tools in the portfolio construction toolbox also change over time. One recent change that has been a challenge is the bond/stock correlation. After a couple of decades of very low or even negative correlations between these two core building blocks, correlations are back to being positive. The following chart shows the 2-year monthly correlation between Canadian equities and bonds. It looks rather similar for the U.S. and global markets, but we just thought some Canadian content would be nice. The higher correlation means that, more often, equities and bonds are moving in the same direction. Nobody complains when both are moving higher, like in the past 12 months, but when they move lower together, everyone starts getting grumpy, like in 2022. The 2nd line, beta, measures not just the direction of the two asset classes but the magnitude of the relative move.
The US market is up a little over 10% this year, Canada +6%, Europe +10%, and Japan +15%, while bonds are down about -1%. Huh, that sure does look like asset allocation is working well again after the car crash of 2022. Even better news is that the market is moving higher thanks to good fundamental news, not simply because central bankers are jamming more money into the financial system. Recession risk has continued to fade, as evidenced by the survey of economists. For the UK, Canada, US, Eurozone, China & Japan, the average probability of a recession hit a high in late 2022 at about 60% and has fallen down to a mere 25% of late. The UK, which was as high as 90% and suffered two negative quarters of GDP growth, is now down to 30%, winning the most improved ribbon. Even Canada, which is clearly struggling with higher rates, has improved from over 60% to 30%. Most are clustered around the 30% zone.
Should it be any surprise how calm markets have become? Global equities are up 9.2% year to date. Apart from a 2% decline in January and a 5% drop in April, the trend has been steadily up to the right on the chart. We can easily slap a financial narrative on this, such as improving economic growth globally, a decent Q1 earnings season, or maybe it's just the AI frenzy. More than a third of the advances in global equities are attributed to Nvidia, Microsoft, Amazon, Meta, and Alphabet. Whatever the cause, equity volatility has been very calm so far in 2024. But it is more than this, as it isn’t just equities. The volatility in the bond market has gone super low (2nd panel in chart). The MOVE index measures volatility in U.S. Treasury Bonds [actually at-the-money options on interest rate swaps, but let’s not go down that rabbit hole]. Even though bond yields moved higher this year, the 10-year started at 4%, gradually up to 4.75%, then back down to 4.5%; these moves pale in comparison to the last couple of years. In case you forgot, the same bond in 2022 went from 1.5% to 4.0% and in 2023, yields oscillated between 3.5 to 5.0%. Looking beyond Treasuries, credit spreads are back down to or close to historical lows. Investment Grade spreads in the U.S. are 50bps. Lows in past mini-credit cycles have been 40-60bps.
I think we might be in that very unique market mood when bad news is good news. The equity market weakness in April can probably be attributed to bond yields moving higher, so any economic data on the weaker growth side is welcome news at the moment. The S&P started to recover on May 3rd, rising 1.3% when the ever-important non-farm payroll labour report came in softer than expected, helping 10-year yields fall back down to 4.5%. Then, over the past few weeks, we have seen generally weaker economic data for the ever-important U.S. economy; bond yields have continued to come down, and equity prices have moved up. Of course, all eyes were on the U.S. inflation print for April, which was marginally softer than expected (soft CPI is truly good news), helping bond yields fall and pushing the S&P 500 to a new all-time high. But really, 0.3% vs. expectations of 0.4% is not huge, especially given that the core reading was in line at 0.3%. This still has the annualized 3-month change running a hot 4.5%. To be fair, there was some good news beneath the surface on the CPI print. But on that day, helping, and less talked about, was a really weak Empire manufacturing survey and weak retail sales.
The normal narrative for encouraging investors to look at emerging markets typically goes like this: The valuations are cheap, the demographics/rising incomes are supportive of growth, and they offer diversification. Perhaps this is more the marketing narrative. Kind of how, like for infrastructure strategies, they always talk about how many bridges need repairing. We are not refuting any of the above reasons, as they have been rather perennial for many, many years. And yet, for those who know us, we have been rather negative or at least cool on emerging markets for a long time. How long? Well, this negative view persisted for well over a decade. This is us giving ourselves a pat on the back since Emerging Markets (EM) have done roughly nothing for the past 12 years as Developed Markets (DM) have charged higher (chart).
Take your pick. There is no shortage of both good and bad news floating about the financial markets. To be fair, this is always the case. The hard part is understanding which side is stronger today and which side will be stronger tomorrow. With markets up low to mid-single digits following a very strong Q4 finish to 2023, most would agree the optimists are carrying the day at the moment. It is not just rose-coloured glasses; there is good news out there. Economic growth signs or momentum appear to be improving year-to-date. Dial back a few quarters, and the U.S. economy remained resilient while other economies softened or were rather lacklustre, including Canada, Europe, Japan, and China, to highlight some of the biggies. Today, while Canada is struggling, momentum in the U.S. has moved even higher, and there are signs of improvement in most jurisdictions.
