Before diving into our usual Q3 market summary, we are thrilled to share two exciting announcements.
Twenty years ago, The Steele Group Financial & Workplace Services Inc. led by Norm Steele, moved from downtown Galt to Bishop Street in Cambridge. Today, with nearly $470 million in investor assets under management, we have relocated to 544 Hespeler Road, Cambridge, and are excited to continue servicing our growing client base from this new space. Residents of Waterloo Region may recognize this building as the former Scotiabank Branch on Hwy 24; but it is our new home. After completing renovations in September, we are once again open to welcoming in-office client meetings. Stay tuned for more information as we plan an official Grand Opening for early 2025!
We are also proud to share that in October, our own Cliff Steele was honored nationally by
Assante as the top advisor under 40 for 2024. Congratulations Cliff!
Bringing our attention back to Q3 where we witnessed notable growth in US equities, driven by previously underperforming stock categories, such as real estate stocks, US value stocks, and US small-cap stocks. After a sudden increase in market volatility in early August, the implied volatility of large-cap US stocks quickly subsided, finishing Q3 below the historical average for election cycles. Equities rallied in September, adding to double-digit year-to-date gains across most domestic stock categories.
In the S&P 500, the top seven stocks by market capitalization advanced in Q3, but for the first time this year, they lagged behind the broader index without those top constituents. Gains outside the top seven stocks were largely due to valuation multiple expansions rather than earnings growth. With valuations near historical highs, future equity leadership may hinge on earnings growth, particularly for smaller companies.
Domestically, Canada's economy presented mixed signals in Q3 2024. GDP growth was estimated at an annualized rate of approximately 1%, short of the Bank of Canada’s forecast of 1.5%. High interest rates continued to weigh on consumer and business spending, particularly in manufacturing, utilities, and transportation sectors. However, a 0.3% month-over-month GDP increase in September suggests some sectors may be adjusting to the higher interest rate environment.
While immigration-driven population growth bolstered total GDP, it has not translated to higher GDP per capita, underscoring productivity challenges. Inflation hovered around the Bank of Canada’s 2% target, prompting a half-point interest rate cut as inflation cooled and economic weakness persisted.
Interest rate cuts influenced markets globally. Favorable momentum and easier financial conditions characterized Q3, as the US Federal Reserve and the Bank of England implemented their first rate cuts of the current economic cycle. The nominal yield on 10-year US Treasury bonds declined over 60 basis points, ending Q3 at 3.8%, due to falling real yields, as investors anticipated further Fed easing. Inflation expectations remained within the past decade's average range, while real yields were at the higher end.
Major global economies showed resilience amid improved financial conditions and stable employment dynamics, despite softening in manufacturing. The US and several developing economies—India, Mexico, and Brazil—demonstrated mid-cycle growth characteristics, with the US also displaying late-cycle traits. Recession risks, however, increased in Canada relative to other developed markets.
In China, new policy announcements toward the end of Q3 buoyed stock prices, thanks in part to liquidity-supportive measures for equity markets. However, it remains uncertain if these policies will drive economic reacceleration, given China’s structural imbalances and cautious consumer sentiment.
*above diagram is a hypothetical illustration of the current business cycle from Fidelity as of Sept 30th 2024
In corporate news, TD Bank, N.A., which is the American subsidiary of the Toronto-Dominion Bank (TD Bank Group), faced significant legal consequences for violations of anti-money laundering laws in the United States. Over a period from 2014 to 2023, TD Bank failed to implement adequate anti-money laundering (AML) programs, allowing for significant illicit activities. Regulators found complaints that moved upwards to senior management which were not only ignored, but internally joked about. This has resulted in a $3billion+ series of fines and the US government establishing a department within TD bank which is expected to impact TD for years to come.
On the political front, the fallout from the recent Biden/Trump debate has been significant. Despite previous assurances from White House staff that Biden showed no signs of mental decline, the debate performance fueled widespread concerns. As a result, Democratic leadership selected Kamala Harris as Biden’s replacement to avoid any internal infighting within the party that could come from allowing voting within their primaries. Early polling initially favored Harris, and by the end of Q3 (September 30th) the average polling had Harris at 48.5% to Trump’s 45.7%.
The outcome of the November election will shape the economic policy landscape in 2025, with both parties proposing contrasting agendas. Republican proposals include investor-friendly corporate tax cuts and reduced regulation for some industries, alongside higher tariffs and stricter immigration policies with potential inflationary effects. Democratic proposals focus on increased taxes to support public spending. Regardless of the winner, it's worth noting that markets have historically rewarded long-term investors irrespective of political outcomes.
We remain dedicated to helping you achieve your financial goals. If you need assistance or have questions, please feel free to reach out to Cliff, Mario, Mark, or any member of The Steele Group team.