MCT March 2024 Market Commentary

  • Canada
  • MCT March 2024 Market Commentary
M-Asset

The stock market continued to rally in February with the S&P 500 Index reaching new heights for a second consecutive month. While large-cap tech stocks (e.g., Nvidia) have led to the upside, market breadth has improved with other areas outside of tech also participating in the rally. The TSX Composite is now within 2% of its all-time highs, which we believe can be breached in the near future.

The market’s recent performance is impressive when considering how much bond yields have rebounded since the beginning of the year. In Canada, 10-year bond yields have risen by nearly 40 basis points and markets have gone from pricing five to three rate cuts in 2024. Fortunately, this has been driven by the resilience of the Canadian economy rather than runaway inflation. GDP growth was 1% in Q4 and Canada added 37,000 jobs in January – both above initial estimates. Meanwhile, conditions are not as favourable in other developed markets, including Japan and the U.K., which have each slipped into technical recessions. The recent move in rates has caused yield-sensitive sectors to lag the broader market, but the impacts from higher rate expectations have been much more muted compared to last year.

Although the BoC may be on pause for longer than initially expected, we continue to expect multiple rate cuts in 2024. This view is based on recent inflation data, which continues to trend lower. The CPI rose 2.9% in January from a year ago, below consensus estimates of 3.3% and within the target range for the first time since June 2023. Importantly, the BoC’s two preferred core inflation measures also decelerated, averaging 3.3% compared to the 3.6% pace expected by economists. Housing affordability improved in January and the minimum income required to purchase a home decreased across the country.

Canadian energy stocks rallied in February and were a positive contributor to Fund performance. Canadian Natural Resources (CNQ) was among the sector’s top performers, generating a total return of 9.9%. CNQ delivered strong results in 2023 highlighted by record oil sands production and the achievement of its $10 billion net debt target earlier than anticipated. The company raised its quarterly dividend by 18% in 2023 and increased it by an additional 5% in Q1 2024 – the first of several bumps we anticipate this year. CNQ continues to demonstrate best-in-class shareholder alignment and is now expected to allocate 100% of its free cash flow to shareholders since achieving its stated leverage goals.

Manulife Financial (MFC) was another big contributor to performance this month with a total return of 9.7%. In its Q4 earnings, the company reported double-digit sales growth while achieving its medium-term ROE target of 15%, underpinned by positive flows in wealth management. MFC is also committed to shareholder returns through dividend increases and share buybacks. The company raised its quarterly dividend by 10% in February, resulting in a dividend yield of c. 5%. The decision was supported by the recent disposition of its long-term care underwriting business for $13 billion. The transaction also freed up capital that can be allocated to wealth and asset management which are strategically positioned in attractive Asian end-markets including Hong Kong, Japan and Singapore. We have a positive view on MFC’s recent capital allocation decisions, and it remains one of our preferred stocks within the Canadian financials sector.

 

 

 

Disclaimer

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. You will usually pay brokerage fees to your dealer if you purchase or sell units/shares of investment funds on the Toronto Stock Exchange or other alternative Canadian trading system (an “Exchange”). If the units/shares are purchased or sold on an Exchange, investors may pay more than the current net asset value when buying and may receive less than the current net asset value when selling them. There are ongoing fees and expenses associated with owning units or shares of an investment fund. An investment fund must prepare disclosure documents that contain key information about the fund. You can find more detailed information about the fund in these documents. Mutual funds and investment funds are not guaranteed, their values change frequently and past performance may not be repeated. Certain statements in this disclosure are forward-looking. Forward-looking statements (“FLS”) are statements that are predictive in nature, depend upon or refer to future events or conditions, or that include words such as “may”, “will”, “should”, “could”, “expect”, “anticipate”, “intend”, “plan”, “believe”, or “estimate”, or other similar expressions. Statements that look forward in time or include anything other than historical information are subject to risks and uncertainties, and actual results, actions or events could differ materially from those set forth in the FLS. FLS are not guarantees of future performance and are by their nature based on numerous assumptions. Although the FLS contained herein are based upon what Middlefield Funds and the portfolio manager believe to be reasonable assumptions, neither Middlefield Funds nor the portfolio manager can assure that actual results will be consistent with these FLS. The reader is cautioned to consider the FLS carefully and not to place undue reliance on FLS. Unless required by applicable law, it is not undertaken, and specifically disclaimed that there is any intention or obligation to update or revise FLS, whether as a result of new information, future events or otherwise.

This material has been prepared for informational purposes only without regard to any particular user’s investment objectives or financial situation. This communication constitutes neither a recommendation to enter into a particular transaction nor a representation that any product described herein is suitable or appropriate for you. Investment decisions should be made with guidance from a qualified professional. The opinions contained in this report are solely those of Middlefield Limited (“ML”) and are subject to change without notice. ML makes every effort to ensure that the information has been derived from sources believed to reliable, but we cannot represent that they are complete or accurate. However, ML assumes no responsibility for any losses or damages, whether direct or indirect which arise from the use of this information. ML is under no obligation to update the information contained herein. This document is not to be construed as a solicitation, recommendation or offer to buy or sell any security, financial product or instrument.

  • Canada
  • MCT March 2024 Market Commentary
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