Your Financial Review of July 2023

Cathy Duval |

sun-setting-over-ocean.jpgPause for Breadth

Relative calm settled in the markets during the second quarter of 2023, providing some respite for investors after a prolonged period of high volatility. Indeed, apart from the good performance of the US stock market and especially its technological giants, the main asset classes ended the period without major changes, with bonds slightly underperforming equities.


Economically, the data continues to send often conflicting signals, underscoring the uniqueness of the current business cycle. Specifically, the weakness of indicators related to the manufacturing sector and the significant contraction in the price of several raw materials point to a deterioration in economic activity. However, the service sector remains resilient thanks to relatively upbeat consumers, who are supported by excess savings and a strong labour market. The end result is an economy that, for the time being, continues to show weak but positive growth, pushing recession fears to a later date.


However, the flip side of a stronger-than-expected economy is the recent persistence of inflation, much to the dismay of central banks. Although the US Federal Reserve took a break in June, it hinted that there could still be two more rate hikes this year, starting with the July meeting. Obviously, the prospects for rate cuts before the end of the year seem increasingly improbable, while the return to more accommodative policies will have to be delayed.


In Canada, although the rewording of the guidance provided by the Bank of Canada does not rule out the possibility of further rate increases, there is no specific announcement for the July meeting. The Bank is concerned about the persistence of excess demand and inflation well above target, which may necessitate further monetary tightening in the future.


Market review as of June 30, 2023


Fixed Income


  • After announcing a pause in its monetary tightening cycle in January, the Bank of Canada finally decided to raise its key rate again in June, taking the markets by surprise.


  • The Canadian fixed income universe (FTSE Canadian Bond Universe Index) has retreated slightly since our last communication. The asset class ends the second quarter of the year with slight losses characterized by the underperformance of government bonds vis-à-vis corporate securities. Indeed, the index posted a return of 3.2% year to date as of March 31 and now displays a return of 2.51% since the beginning of the year.




  • The US stock market continued to show resilience, although a closer look shows that this is mainly due to the outperformance of the few tech giants amid optimism about advances in artificial intelligence.


  • U.S. equities (S&P 5001) backed by a few tech giants gained 16.9% year to date, taking the lead. Meanwhile, international equities (MSCI EAFE2) posted a sizeable return of 12.1%, followed by Canadian equities (S&P/ TSX3) with a return of 5.7% over the same period.


Oil & Gold


  • Oil prices rose slightly in June, but still ended the second quarter with a significant decline, as China's disappointing reopening continued to weigh on the global outlook. As of June 30, the price of WTI4 was down 12% year-to-date, or 33.2% below its level at the same time last year.


  • The price of gold slowed down in the second quarter after posting an excellent monthly gain of 8.2% in March. The price of an ounce of gold fell from $1977 (USD) on March 31, to $1916 on June 30, a decline of 3%. The precious metal is now up 5.5% since the start of the year.




  • The Canadian dollar appreciated against the US dollar in the second quarter as the US Federal Reserve kept rates unchanged while the Bank of Canada raised its key rate by 0.25% in June. The pair ended the quarter at 1.32 CAD to 1 USD.


1. 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.
2. S&P500 and MSCI EAFE returns are expressed in US currency.
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

In the end, even if we can’t rule out an ideal scenario in which monetary tightening succeeds in slowing inflation further without harming economic activity, the balance of risks still prompts us to err on the side of caution. After all, even the Federal Reserve is projecting that a material rise in the unemployment rate will be needed to bring inflation back to target. In addition, several early signs of an economic slowdown point to the second half of the year, when the cumulative impact of previous rate hikes should start to be felt more acutely.


In this context, we have kept our asset allocation unchanged while the stock markets already seem to be discounting the more optimistic scenarios for the most part. Thus, geographically, we continue to favour North America over emerging markets and the EAFE region.


Going forward, we continue to closely monitor the evolution of key economic indicators in order to adjust the course as needed.


Do not hesitate to contact us if you would like more information about our outlook or the positioning of your portfolio. It will be our pleasure to review 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).