Q2 2023 Market Commentary

Following a strong Q1 performance, global markets continued their upward trend in Q2 2023. The US market led the way, displaying decent performance, while Emerging markets lagged.

At a glance

  • The major US indices had varying performances in USD terms: NASDAQ 100 (12.8%), S&P500 (8.3%), DOW (3.4%), and Russell 2000 (4.8%). However, factoring in the appreciation of the Canadian Dollar against the USD, returns in US dollars were somewhat subdued.
  • The All Country World Index showed a modest increase of 3.1% in Canadian dollar terms. Emerging Markets and European markets were down in the quarter in Canadian dollars, falling -1.8% and -1.0%, respectively. 
  • Most major central banks, except the Bank of Japan, raised interest rates over the quarter. The Fed and Bank of Canada signalled potential further rate increases to combat inflation.
  • Bond markets experienced volatility due to interest rate fluctuations, with the Canadian Bond Universe and the Barclays US Treasury 1-5 year index recording losses.
  • The disruption in the markets in 2022, with large-cap tech stocks and the bond market experiencing substantial declines, marked the initial phase of a prolonged adjustment period for all assets to reestablish their valuation ranges under new economic regime and interest rate normalization.
  • The current bull market is unlike any we have witnessed before. One would have to look back quite far in history to see a comparable concentration of returns experienced in the first half of 2023.
  • A contraction in corporate capex and consumer spending is expected in the latter half of 2023. Industrial growth remains supported, but inflation and potential tightening measures pose risks.
  • We have a great collection of companies in our portfolios. They are extremely well-diversified. All of our valuation metrics have never looked more promising, instilling a strong sense of confidence in our portfolios and their global exposure.
  • Inflation remains stubborn, and we believe that even as it stays steady or declines into the 2.5-3.0% range, central banks will maintain a restrictive policy for longer than the market anticipates.
  • We are committed to exercising patience with the outstanding companies we own and refraining from chasing short-term returns and momentum. Our goal is to achieve positive returns this year while remaining vigilant in the face of significant risks.

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