Last week at the Jackson Hole Summit the chairman of the federal reserve Jerome Powell said, "the time has come for policy to adjust." Indicating that it's time to start cutting rates. With that short phrase, the market priced in a 100% chance of a rate cut in September along with a full one percentage point rate cut between now and the end of the year.

There is currently $6.4 trillion invested in cash and money market instruments. As rates go down, this money needs to find a home. People have become used to earning 4% returns on their money market instruments so they'll likely look for investments that have a similar yield. If we look at the Dow Jones dividend Index, we see that the average dividend yield is 3.4%. It looks like it could be a good investment alternative!

If we look at the chart below, we also begin to realize that dividend paying stocks are cheap relative to the rest of the market. As you can see, the Dow Jones dividend 100 Index is trading at 13.08 times price-to-earnings while the S&P 500 and the Magnificent Seven are trading at 20.31 and 28.55 times price-to-earnings respectively. When interest rates start to drop, dividend paying stocks historically go up. We believe this is creating a very good opportunity.

The same scenario is currently playing out in Canada. The bank of Canada has already cut rates twice and will likely continue to do so for the foreseeable future. In Canada, the Canadian selected dividend Index is currently up 6.5% year to date and should continue to benefit as the bank of Canada cuts rates more.

I have also included a piece from our CIBC economics team entitled “Labour days”.

As always, if you have any questions, please feel free to give us a call at any time.

Have a great weekend.

Milan