To help you better understand the funds in which you’ve invested, Bâtirente’s Investment Strategy Manager, Jean-François Dumais,* offers his analysis here of the economic conditions for the second quarter of 2023.
Central bank interest rate hikes had an impact on worldwide inflation, which continues to decrease. For example, in the United States, this rate dropped from its peak of 9.1% in June 2022 to 4.0% by May 31, 2023.
We’re approaching the end of this money tightening measure (increased central bank rates). However, uncertainty remains as a result of inflation, which still hovers well above the 2% target of North American central banks. With economic growth being stronger than anticipated, the rates could stabilize at high levels for a prolonged period. Until recently, the market predicted rate drops for the second half of 2023—now pushed back to 2024.
The more difficult monetary conditions will likely unleash a recession by the end of 2023, but this should be limited on either side of the border, primarily due to the labour shortage.
In addition, the difficult negotiations around raising the American debt ceiling came to a successful conclusion in the second quarter, thereby avoiding negative impacts on the economy.
Lastly, artificial intelligence, which is now front and centre on the economic stage, is raising many hopes. The potential increased productivity generated by this could reduce inflation.
There is a sense of positivism on stock markets thanks to the expectations of an imminent end to the money tightening policy and of a moderate recession, resolution of the American debt-ceiling crisis, and buzz around artificial intelligence.
The all-country equity index recorded a return of 3.8% (in Canadian dollars). Meanwhile, Canada’s main index (S&P/TSX) posted a performance of 1.1%.
Sectors performed quite differently compared to last year at this time. In fact, the technology sector (related to artificial intelligence) currently leads the pack despite lagging far behind in 2022. In contrast, the energy sector is now one of the weakest, even though it was at the top in 2022.
Unlike the stock markets, bond markets recorded negative yields in the second quarter due to the expectation that central bank interest rates would remain high for a prolonged period. As such, the FTSE Canadian Universe Bond Index saw a -0.7% return.
*Jean-François Dumais has worked as an Investment Strategy Manager at Bâtirente since 2019. Along with a Master of Business Administration (MBA) degree (Finance specialization), he has nearly 20 years’ experience in financial markets.