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AFS Insights

Investment Commentary – Dec 31, 2023

Thank you for choosing Arbutus Financial as your financial advisory firm. We appreciate your trust and the business that comes with it. We hope you and your family are doing well and had a wonderful Christmas and holiday break. We want to share the following comments with you about investment markets.

Investors faced many challenges in 2023 including elevated inflation, interest rate hikes, geopolitical conflicts, and a slowing global economy. Those who were patient and rode out the volatility were rewarded. After several years of challenging returns, equity and bond prices rose amid signs of a slowing global economy and the possibility that central banks will begin to cut interest rates in 2024. The S&P 500, S&P/TSX Composite, and MSCI World Index were up 24.2%, 8.1%, and 21.8%, respectively in 2023. Bonds were also invited to the party—Canadian and U.S. bonds (measured by the FTSE Canada Universe Bond Index and Bloomberg US Aggregate Bond Index) were up 6.7% and 5.5%.[1]

Here’s a deeper look at the factors at play and what we might expect in the new year:

Global economy. The strong global economy at the beginning of the year was weakened by high interest rates. We believe we’re likely to experience a further slowdown in early 2024. Low unemployment and strong business growth in the U.S. means they’ll probably slip into a mild to moderate recession. Canada’s economy is much more sensitive to interest rate changes and therefore more vulnerable.

Inflation. Higher interest rates have slowed the economy and decreased inflation as intended, but the last leg of the inflation battle may be more difficult. As it stands, inflation at current levels could set the stage for central banks to pause and eventually cut interest rates in 2024.

Geopolitics. Investors have been losing sleep over the Middle East conflict which erupted in October, and the ongoing situation in Ukraine. Historical market trends often show that geopolitical events can cause short-term volatility, but markets tend to recover over the longer term.

Over the coming year, we believe both equity and bond investors will benefit from falling interest rates, translating to rising stock and bond prices. However, there’s likely to be fluctuations along the way as the market responds to unexpected economic data.

Now is not the time to feel paralyzed as an investor. In fact, historical trends suggest that this could be an opportunity. While past performance is not an indicator of future returns, history shows that investing in robust, resilient companies during periods of volatility can lead to favourable outcomes over the long term.

As you reflect on 2023 and look forward to 2024 we recommend your New Year’s resolutions include the re-evaluation of your financial goals, savings or income needs, asset mix, and insurance protection. This will provide you with a better sense of where you are now, and where you are going. To get you started, below are documents outlining important information for this year.

Important Information 2024

Money Facts 2024 – BC

Money Facts 2024 – AB

As always, if you have any questions about the markets, your investments, or any financial matter, please reach out to your Arbutus Financial team member.

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 [1] Bloomberg, as of December 29, 2023