2023 Year-end Review

2023 Year-end

We would first like to express, on behalf of the entire team, our sincere wishes for good health, happiness, and success in 2024.

Just like 2022, the year 2023 will have brought its share of volatility. However, unlike the previous year, it will have ended on a positive note! Overall consensus revolved around a slowdown in economic activity and weak corporate results due to the unprecedented interest rate increases. Ultimately, quite the opposite happened. The global economy has proven to be very resilient, with companies delivering results above expectations. Inflation has declined to an acceptable level, while the labour market has remained very strong. The unemployment rate in the United States remains near historic lows, at 3.7%.

Everything changed on November 1st when the Chairman of the US Federal Reserve (Fed) claimed he was generally satisfied with inflation levels and that they were no longer considering further rate increases. The news was music to investors’ ears, which propelled stock markets higher and interest rates lower. Investors are now waiting for the next interest rate cut, but the timing will be very difficult to predict. Rate cuts can also be seen as a risk, especially if the economy proves weaker than anticipated. Central bank leaders, including the Bank of Canada, will continue to monitor consumption and employment trends to determine the right time to implement their planned rate cuts.

Stocks weren’t the only ones that benefited from the news. Bonds and other fixed-income securities also generated acceptable returns in the last quarter of the year, providing a much-needed break for conservative investors. The US markets delivered exceptional returns, but they weren’t uniform. The vast majority of performance was generated by a handful of technology companies that we know well (Apple, Microsoft, Meta, Nvidia and Google). Value stocks underperformed the broader market, despite stable cashflows excellent brand power. In short, the S&P500 saw 10 companies excel in 2023, and 490 struggle.

What’s in Store in 2024

In our opinion, interest rates and inflation will remain hot topics this year. However, unlike what we experienced in 2022 and 2023, discussions will focus more on expected cuts in interest rates and stabilizing inflation. Central banks have completed (barring any major surprises) the tightening of economic conditions, but it remains to be seen when they will ease. Desjardins Group expects six reductions of 0.25 basis points in the key rate in Canada and four in the United States. The rate is currently at 5.00% here and 5.50% south of the border, and our economists expect to end the year at 3.50% and 4.50%, respectively. These declines could be a wonderful lift to conservative and balanced portfolios, as their asset classes (notably bonds) tend to react positively to rate cuts.

It is important to remember that interest rate cuts occur when economic growth is slowing. Automatic portfolio rebalancing is a winning strategy in this context, allowing us to take profits and reinvest them into promising sectors of the economy. Economists expect an earlier slowdown in Canada, due in particular to our high level of debt, while the decline will be less pronounced in the United States. It is therefore important to maintain good portfolio geographic diversification.

Conclusion

The message we want to convey in this year-end summary is that regardless of analyst expectations and forecasts (negative or positive), it is essential to stick to a sound and often boring investment strategy. The media will always generate eye-catching headlines. The hardest part is to ignore them and stay focused on our goals. Below you will find real headlines that attracted attention in 2023. Despite them, stock markets have generated returns ranging from 10% to 20%. This is proof that it is very difficult, even for experts in the field, to predict future performance. It is even more difficult to accurately determine the best time to buy or sell our securities. Holding our investments for the long term remains the key to success.

We thank you for your trust and look forward to seeing you again this year!

Each Desjardins Securities advisor named on the front page of this document, or at the beginning of any subsection hereof, hereby certifies that the recommendations and opinions expressed herein accurately reflect such advisor’s personal views about the company and securities that are the subject of this publication and all other companies and securities mentioned in this publication that are covered by such advisor. Desjardins Securities may have previously published other opinions, including ones contrary to those expressed herein. Such opinions reflect the different points of view, assumptions and analysis methods of the advisors who authored them. Before making an investment decision on the basis of any recommendation made in this document, the recipient should consider whether such recommendation is appropriate, given the recipient’s particular investment needs, objectives and financial circumstances.