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Client Letter Q4 2023

2023—the year in review

Investors faced many challenges in 2023 including elevated inflation, interest rate hikes, geopolitical conflicts, and a slowing global economy. Those who were patient and rode out the volatility were rewarded. After several years of challenging returns, equity and bond prices rose amid signs of a slowing global economy and the possibility that central banks will begin to cut interest rates in 2024. The S&P 500, S&P/TSX Composite, and MSCI World Index were up 24.2%, 8.1%, and 21.8%, respectively in 2023. Bonds were also invited to the party—Canadian and U.S. bonds (measured by the FTSE Canada Universe Bond Index and Bloomberg US Aggregate Bond Index) were up 6.7% and 5.5%.[1] 


Here's a deeper look at the factors at play and what we might expect in the new year:


Global economy. The strong global economy at the beginning of the year was weakened by high interest rates. We believe we’re likely to experience a further slowdown in early 2024. Low unemployment and strong business growth in the U.S. means they’ll probably slip into a mild to moderate recession. Canada’s economy is much more sensitive to interest rate changes and therefore more vulnerable.


Inflation. Higher interest rates have slowed the economy and decreased inflation as intended, but the last leg of the inflation battle may be more difficult. As it stands, inflation at current levels could set the stage for central banks to pause and eventually cut interest rates in 2024.


Geopolitics. Investors have been losing sleep over the Middle East conflict which erupted in October, and the ongoing situation in Ukraine. Historical market trends often show that geopolitical events can cause short-term volatility, but markets tend to recover over the longer term.


Over the coming year, we believe both equity and bond investors will benefit from falling interest rates, translating to rising stock and bond prices. However, there’s likely to be fluctuations along the way as the market responds to unexpected economic data.   


Now is not the time to feel paralyzed as an investor. In fact, historical trends suggest that this could be an opportunity. While past performance is not an indicator of future returns, history shows that investing in robust, resilient companies during periods of volatility can lead to favourable outcomes over the long term.


As always, if you have any questions about the markets or your investments, I'm here to talk.






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   [1] Bloomberg, as of December 29, 2023

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