Sun. Feb 25th, 2024

Stock Markets in 2024: Risks and Opportunities

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The New York and Toronto stock exchanges had a good year in 2023.

  • Marjorie April (View profile)Marjorie April

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After an unremarkable start to the year which has seen the main indices decline very slightly so far, two experienced portfolio managers anticipate more moderate performance for 2024 compared to the previous year.

It's hard to do better than last year, especially in the United States

A quote from Martin Roberge, general manager and strategist of Canaccord Genuity wealth management

In our opinion, there is a little more risk on the downside than on the upside, says the investment fund manager of Caldwell Investment Management in Toronto, Denis Taillefer, referring to the American indices. .

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Denis Taillefer is an investment fund manager at Caldwell Investment Management.

However, it suggests that the TSX could outperform expectations this year.

The year 2023 turned out to be more positive than expected on the stock markets. The New York Stock Exchange's main index, the S&P 500, rose 24%, while the TSX, the flagship index of the Toronto Stock Exchange, gained 8%.

In 2023, the majority of stock market gains in the United States were attributable to just seven companies, nicknamed the Magnificent Seven, referring to the famous American western.

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Stocks of Nvidia, Apple, Microsoft, Tesla, Alphabet, Meta and Amazon boosted the market, benefiting from advances in artificial intelligenceand the resilience of American consumers.

An extraordinary performance, which will be difficult to repeat according to Denis Taillefer. We do not believe that they will be able to have a yield as high as last year.

A point of view shared by Martin Roberge. We have set the bar too high for these titles in 2024, he underlines, so that it will be very difficult for this sector to surprise.

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Martin Roberge, managing director and strategist at Canaccord Genuity.

This is why he expects a reversal of the best performing sectors. Those that lagged furthest in 2023, he predicts, could prove to be the sectors that do best in 2024.

There are a huge number of programs in the United States, notes Denis Taillefer, from which industrial companies will be able to benefit in the next three years.

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The scrolling strip of the Toronto Stock Exchange. (File photo)

The main index of the Toronto Stock Exchange, the TSX, is mainly composed of securities from the financial, materials and energy.

This composition, less oriented towards technologies than the American market, could contribute to the performance of the index this year, according to Denis Taillefer, who suggests that the Canadian market is perhaps in a better position than the American market.

If last year was the year of technology, this year could be the year of other sectors better represented in Toronto.

Martin Roberge believes, for example, that a recovery in the manufacturing sector, which had suffered a significant slowdown for two years, could benefit the TSX. We expect not only a catch-up in the least performing sectors, but also the least performing markets.

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Investors are closely monitoring changes to the Bank of Canada's key rate. (File photo)

Denis Taillefer and his team believe that investors in the markets are too optimistic about the number of rate cuts by central banks this year and when they could start.

We believe that inflation will perhaps fall a little slower than the market expects, he said. We believe that we will have three to four interest rate cuts and that would be in the second half of the year, while the market believes that it would be as early as March. In our opinion, it's too aggressive.

It’s going to be a year of two parts, observes Martin Roberge. In the second half of the year, rate cuts will be like a bottle of oxygen for more cyclical sectors, such as the resources sector. Next, it will be hyper-cyclical sectors, such as energy and materials, which have high sensitivity to the global economy.

If inflation doesn't come down as quickly as expected and central banks delay the start of their rate cuts, it could create a jolt in stock markets, according to the quantitative analyst. It could coincide with a season that is usually more difficult for stocks in the fall, he explains.

Several factors could also make summer and fall particularly volatile on the markets, according to portfolio managers. Martin Roberge believes that the risks will peak at the start of summer.

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A Houthi supporter brandishes his rifle during a protest against recent US-led strikes on rebel targets near Sanaa.

The attacks in the Red Sea have also led to a marked increase in container transport costs in recent weeks, which could have an impact on financial results of certain companies.

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Denis Taillefer believes that this is a risk that should not be ignored. The market does not seem too concerned about the progress [of the war] between Israel and Hamas. In our opinion, the risk is becoming greater and greater. This could have an impact on inflation and global supply chains.

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Republican voters in Iowa voted overwhelmingly for Donald Trump. This caucus launches the start of the presidential election season in the United States.

As for the American elections, the window of vulnerability on the markets is probably three months before the November election, according to Martin Roberge, since investors anticipate events. In any case, he adds, we will have enough information this summer to know if the economy is capable of making a soft landing.

Denis Taillefer, who admits that anticipation of the American elections can create volatility on the markets, is not concerned however. He emphasizes that historically, regardless of the outcome, the markets will continue to operate without much change.

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For people who adopt an asset diversification strategy, it is to make sure they have bonds in their portfolios, advises Martin Roberge. We think bonds will continue to perform well. He also suggests looking at conservative sectors, such as telephone companies, oil pipelines or the health sector in the United States.

The health sector in the United States also attracts the attention of Denis Taillefer, who sees good growth opportunities there. He also considers that this is a sector that could perform well in the event of a recession in the United States.

He advises investors who manage their portfolio themselves to focus on diversification and to carefully study the companies they choose to favor those that have strong financial balance sheets, which is particularly important in a weaker economic environment.

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