Market Commentary – Third Quarter 2024

The following market commentary is courtesy of the Plan’s Fossil Fuel Free Equity and Bond investment manager, Jarislowsky Fraser Global Investment Management.

Economic Review
In the third quarter, the global macroeconomic environment was characterized by continued, albeit steeper, downward moves in both headline and core inflation, as well as market-based measures of inflation expectations. This triggered a shift in the reaction of many central bank policymakers towards an explicit monetary-easing bias. The U.S. Federal Reserve’s policy shift played out through Q3, led by discussion at Jackson Hole and its outsized rate reduction in September.

The downward shift in goods-based inflation was helped by a more notable easing of the services-based inflation in Q3, which buoyed the decline of global inflation from its peak. Services inflation remains elevated in many developed economies particularly in the shelter component; however, a moderation in labour market conditions and mixed consumer demand have curtailed support for elevated price impulse in some main services.

Bond Markets
Fixed-income markets delivered strong absolute performance in the third quarter. Supported by successive quarter-point overnight interest rate reductions by the Bank of Canada, and the continued downward momentum in the realized headline and core inflation prints, Canada’s domestic bond market return was almost 4.7%. After two mixed quarters of returns in 2024, a material rally in real and nominal yields combined with a large overnight interest rate reduction by the U.S. Federal Reserve in September helped to propel the U.S. bond market to healthy positive returns. Along with notable policy decisions in North America, the European Central Bank lowered its deposit rate by 0.25% (to 3.5%) as weakness in eurozone economic growth and reduced inflationary pressure provided the backdrop for eurozone bond markets to post positive quarterly returns. Risk markets were infused by monetary stimulus and expectations for additional support for economic growth, which helped support corporate bond returns where corporate spreads narrowed modestly quarter over quarter.

Equity Markets
Global equity markets were strong in the third quarter, with key central banks reinforcing the trajectory for easing monetary conditions. Canadian equity markets were amongst the strongest, as financials and gold-linked equity sectors rallied strongly. Within emerging markets, strong performance was driven by China, where incremental measures were announced to stimulate consumption and stabilize the property sector. International developed markets were also strong due to easing monetary conditions alongside the policy support in China. Japan was an outlier versus other developed markets, where the 11% rise in the yen led to meagre local currency equity returns. The U.S. market, while positive, relinquished its post as the regional leader as index heavyweights such as NVIDIA pulled back slightly from record levels. Nevertheless, U.S. indexes continue to outpace most others year to date.

From a sector standpoint, those offering attractive yield characteristics were the top performers. Real Estate notably climbed off its lows in the quarter as investors began to price in relief from lower interest rates. The financial sector and utilities also rallied in most geographies as yields declined. Conversely, energy lagged in most markets as benchmark crude prices fell during the quarter. The technology space also underperformed during the quarter but remains well ahead of benchmarks on a year-to-date basis.

Disclaimer

Unless stated otherwise, all data is as at September 30, 2024 and stated in Canadian dollars. Source: MSCI Inc., S&P Financial Services LLC. TSX Inc., and PC Bond Analytics.