After three years of elevated readings, inflation finally started to cool down, setting a stage for major central banks to start cutting interest rates.
The Bank of Canada delivered two, 25 basis point (bps) cuts in the third quarter of 2024, bringing its policy interest rate down to 4.25% and increasing emphasis on a weakening economy and melting inflation. The U.S. Federal Reserve also cut its rates by 50 bps in September, with experts expecting additional cuts for both countries this year.
When looking at equities, falling rates coupled with a relatively resilient economy are expected to positively impact corporate profits, which has been reflected in rising stock prices.
Despite a handful of volatile days in the third quarter, equity markets have continued to post new all-time highs this year. U.S. equities, and more specifically, the S&P 500, was up 5.9% thanks to optimism surrounding a soft-landing. With the exception of energy, all sectors posted gains, with utilities and real estate leading the pack at 19.4% and 17.2%, respectively. Year-to-date, U.S. equities are up 22.1%.
Canadian equities (as measured by the TSX Composite) had a strong quarter as well, rising 10.5%. All sectors posted positive performance, with real estate leading, up 23.0%, and energy trailing all others, rising 2.0%. On the YTD basis, Canadian equities are up 17.2%.
Fixed income markets have also benefited in Q3, as rate cuts positively affected bond prices. Canadian bonds (as measured by the FTSE Canada Universe Bond Index) gained 4.7% in the quarter, bringing its year-to-date (YTD) performance to 4.3%.
Head of Investments
Yelena Stepanyan is the Head of Investments at Embark. A lover of all things related to the financial markets, she is currently the Chair of the Chartered Financial Analyst Society Toronto's Institutional Asset Management Committee.
