MONTHLY MARKET MUSINGS

November 2024

Clear Skies Ahead

The Bank of Canada (BoC) recently cut rates by 50-basis points bringing the overnight rate to 3.75% as many anticipated. This signals that inflation has basically reached their 2% target rate and the BoC can turn its focus back towards economic growth. The BoC has been cutting rates since June in an attempt to tame inflation without stunting economic growth. Now that inflation is no longer a major concern, they have the freedom to be more aggressive in their rate cuts to spur growth. CIBC Economics believes that there will likely be another 50-basis point cut this December with the overnight rate settling at 2.25% in the second quarter of 2025. This should produce positive results for the markets and the Canadian economy.

This fall has been quite positive for the markets as they have managed to post positive returns in the historically worse portion of the year, September to October but many are now focused on the U.S. Presidential election given that it is only a few days away. As we noted back in August, over the longer term, the direction of the markets is not dictated much by the President. The financial markets and the economy's underlying fundamentals are what drive long-term market performance. While volatility will likely remain elevated, especially in the days following the election, investors are best served by remaining invested and not being scared out of the market. Going back to 1984, it has been shown that the day following an election saw the market drop on 6 out of 10 occasions[1] by a median total return of 0.7%. However, in the months that followed, the markets have historically gained quite a bit. Since 1984, in the year after an election, the markets have produced positive results 9 out of 10 times with a median total return of about 21.5% in those twelve months. Based on a study by T. Rowe Price dating back to 1928, the average total returns one year after the election has been 15.1% when the incumbent party wins and 17.2% when the incumbent party loses[2]. This further asserts the necessity of remaining in the market to realize the best possible returns. Markets rise regardless of which political party holds the White House and returns can be significantly worse if an investor attempts to time the markets by only investing when one party is in office[3].

For most investors, the focus should remain on the longer-term picture and on the growth of the U.S. economy rather than the temporary volatile spikes associated with the U.S. Presidential election. As we have noted in the past, market timing simply does not work and therefore should not be the basis of an investing strategy. Corporate profits continue to remain strong, and companies are continuing to beat consensus earnings estimates. The strong earnings should endure as the U.S. Federal Reserve (Fed) continues its interest rate easing cycle and inflation stays down near its target level. Barring any unforeseen negative event, all of these key trends lead us to believe that the markets should remain healthy for the foreseeable future.

JAY SMITH, CIM®, FCSI

Senior Portfolio Manager & Senior Wealth Advisor    

jay.smith@cibc.ca

BRAD BROWN, MBA, CFA
Portfolio Manager & Associate Investment Advisor

brad.brown@cibc.com