Welcome to the 2024 spring edition of Perspectives.

2024 started with a flourish. Economic resilience has persisted in the US and green shoots of economic spring have emerged in other countries, including Canada. Thoughts of global recession, widespread at this time last year, are now relegated to a more distant possibility. A common thread is the collective health of consumers, who are navigating the higher interest rate environment more robustly than expected through a combination of higher real incomes, robust labour markets, and strong wealth effects. We expect this relatively good growth backdrop to persist through the remainder of 2024. Efforts to return inflation to central bank policy targets has also made substantial progress. But the last mile is proving the hardest, as expected, and service sector inflation has remained sticky, particularly in the US and parts of the emerging markets.

The combination of higher growth and sticky inflation has caused market participants to reign in exuberant rate cut expectations. Cuts are still being signaled by central bankers, even as economic resilience raises a question whether policy stimulus is actually needed, particularly in a world of still-plentiful liquidity. This resilience, allied to rising public indebtedness and various investment tailwinds discussed in our latest Long-term Annualized Capital Market Expected Returns report, suggests that the equilibrium level of interest rates will remain higher than was common during the 2010s. This underscores the renewed attractiveness of a range of fixed income opportunities, from developed country sovereign to corporate and emerging market (EM) debt.

We also remain cautiously optimistic for equity markets. Investment sentiment has remained high and equity markets have looked through the pullback in rate cut expectations and instead responded positively to the improved growth outlook. Equity performance has also been encouraged by continued excitement around artificial intelligence. There are some warning signs on the horizon. Monthly inflation prints will be important in determining the extent and timing of policy easing; we doubt equity markets will shrug off another marked increase in bond yields as easily as they have in recent months. Valuations are stretched in some markets. Geopolitical risks remain elevated. And market volatility is expected to rise as we approach US elections. Investors will likely be rewarded for selectivity, and we continue to emphasize a focus on strong fundamentals and relatively attractive valuations. Canada and several emerging markets, excluding China, remain noteworthy in this regard.

We hope you find the insights in this edition of Perspectives additive to your continued efforts to navigate markets in 2024.

At CIBC Asset Management, we’re committed to providing market insights and investment research. We hope our quarterly market recap and economic outlook are helpful as you find the right investment strategies that align with your portfolio goals and expectations. If you have any questions or would like to discuss our insights and commentary, please contact your advisor or CIBC representative anytime.

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