Your Financial Review of January 2024

Cathy Duval |

Economic Resilience and Uncertainties: A look back at 2023

Regional banking turmoil, conflict in the Middle East, advances in artificial intelligence, record fluctuations in interest rates, hopes for a soft landing: once again this year, the economic environment has been anything but smooth sailing for investors.


After a year marked by the resilience of the U.S. economy and stock markets, what can we expect for 2024? One thing’s for certain: while economists were convinced that a recession was imminent 12 months ago, the consensus now seems to be that a soft landing is on the horizon.


Along the way, there were a few patches of black ice that could have caused the situation in the United States to get out of hand, with, in this case, the failures of certain regional American banks last March. However, rapid intervention by the American Federal Reserve (Fed) helped stabilize the situation without much collateral damage.


Therefore, with an economy holding up and the Fed steering clear of accidents, markets concluded that rates could stay “higher for longer.” Generally, central banks do not lower interest rates because “things are going well.”


In Canada, the core inflation measures officially favoured by the Bank of Canada certainly remain above the 2% target despite a significant decline since their peaks in June 2022.


This has led some, including members of the central bank's Governing Council, to wonder whether a further increase in the policy rate might not be in order. This would be ill-advised, as core inflation reacts with some delay to the economic context. Moreover, other measures of core inflation indicate a much less overheating economy.


Despite a rapid cooling of the Canadian economy in recent months, our economists believe that the effects of monetary policy are far from having been fully felt. They therefore anticipate economic lethargy and rate cuts in Canada in the next 12 months.


In summary, resilient economic growth, an orderly recalibration of the job market, a sustained slowdown in inflation, and advances in artificial intelligence are generating a great deal of optimism. The question remains: will this optimism continue in 2024?



Market review as of December 29, 2023


Fixed Income

  • A positive year across all bond markets which have greatly benefited from the change in tone of central banks having opened the door to potential rate cuts in 2024. This therefore puts an end to two consecutive years of losses for the Canadian universe (FTSE Canadian Bond Universe) which ended the year with an annual gain of 6.7%.



  • A highly favourable end to the year for global equity markets was fuelled by hopes of lower interest rates and a soft landing.


  • In terms of leadership, 2023 belongs to American equities (S&P 5001) which posted an annual return of 26.3%, propelled mainly by its technology stocks which rebounded strongly after a difficult year in 2022.


  • The last few months of the year were favourable for international equities (MSCI EAFE1,2) helping the stock index to post an annual return of 18.9%. Finally, the drop in oil prices weighed on the performance of Canadian equities (S&P/TSX3) in 2023. Despite this headwind, the flagship Canadian index still posted an annual gain of 11.8%.


Oil & Gold

  • Oil prices fell significantly in the fourth quarter against a backdrop of downward pressure on global economic growth and inflation. The WTI4 ($US/barrel) fell 20.8% in the last quarter, bringing its annual performance to -10.4% in 2023.


  • At the same time, the price of gold remained strong throughout the year in a tense geopolitical context. The price of an ounce of gold stood at US$2,065 as of December 29, representing annual growth of 13.8%.



  • Widespread market optimism resulted in a weaker U.S. dollar against a majority of currencies at year-end, including the Canadian dollar. All in all, the pair ends 2023 at 1.334 CAD per USD, an annual decline of 2.2% compared to the same time last year (1.355).


1. S&P500 and MSCI EAFE returns are expressed in US currency.
2. The MSCI EAFE Index is an equity index designed to measure the performance of equity markets in developed economies other than the United States and Canada.
3. The S&P/TSX Index is the primary Canadian stock index measuring the performance of the Toronto Stock Exchange.
4. West Texas Intermediate (WTI) Crude oil is the North American standard for pricing oil.


Investment Outlook


Like a mountain climber reaching the summit, taking interest rates this high without causing too much economic damage is cause for celebration. However, while rate hikes are visibly behind us, it's often the descent that's the riskiest phase, with fatigue piling up and oxygen running low.


On the economic front, with inflation potentially within the Fed's comfort zone as early as April, we can expect to see central banks gradually shift their narrative to pave the way for rate cuts in the second half of 2024 in the U.S., and probably even earlier in Canada. Quantifying the extent of the economic slowdown that will accompany this process is not obvious. But, with the most restrictive monetary policy since the 1980s and three recession signals now triggered, this is no time for complacency.


On a prospective basis, the determining elements to monitor for the markets are likely to be the evolution of inflation, consumption, but above all employment. After all, when businesses are asked about their “biggest problem,” the most popular answer is not “inflation” or “interest rates,” but “labour.”


At this time, we believe a defensive asset allocation is still appropriate in the current context.


From a geographic perspective, we maintain our underweight in international equities due to the strength of the US dollar, weakening global growth and restrictive monetary policies. On the other hand, the Canadian stock market still appears to be a good candidate for outperformance, benefiting from already compressed valuations.


Do not hesitate to contact us if you would like more information regarding our outlook and/or the positioning of your portfolio. We will be happy to clarify everything at your convenience.




Cathy, Guillaume, Marc-Antoine and Inuk



Disclaimer: I have written this commentary to provide you with my thoughts on various investment solutions and considerations that may be relevant to your investment portfolio. This commentary reflects my opinion only and may not reflect those of National Bank Financial Group. In expressing these opinions, I try to apply my judgment and professional experience to the best of my ability from the perspective of a person called upon to follow a wide range of investments. Therefore, this report represents my informed opinion and not a research analysis produced by the Research Department of National Bank Financial. National Bank Financial is an indirect wholly owned subsidiary of National Bank of Canada. National Bank of Canada is a public company listed on the Toronto Stock Exchange (NA: TSX). National Bank Financial is a member of the Canadian Investor Protection Fund (CIPF).