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Investment update Q1 2024

Market performance

It was a solid quarter for North American equity markets. U.S. equity values, in particular, surged by US$4 trillion. Corporate earnings played a key role, with U.S.-based chipmaker and AI powerhouse Nvidia Corp. leading the way. On February 21, the tech giant reported quarterly revenue of US$22.1 billion, outpacing the US$21 billion analysts were predicting (on average), and a massive jump from the US$6.1 billion reported for the same quarter last year. To add even more perspective, Nvidia reported US$27 billion for all of 2022, highlighting the company’s historic growth as investors enthusiastically embrace the potential of AI.

Optimism that central banks will begin cutting interest rates in the second half of this year also helped drive the positive returns on both sides of the border. On March 20, the U.S. Federal Reserve (the Fed) left its benchmark interest rate steady – in the range of 5.25% to 5.5% (its highest rate since 2001). U.S. interest rates have remained unchanged for five-straight sessions. But investors were particularly pleased when the Fed announced that it would maintain its outlook for three quarter-point rate cuts this year (which would be the first rate cuts since 2020). In a statement, the U.S. central bank said: “The committee judges that the risks to achieving its employment and inflation goals are moving into better balance.”

In early March, the Bank of Canada held its overnight policy rate at 5%. Like their American counterparts, it was the fifth-consecutive monetary policy meeting where Canadian officials opted to pause rate changes. Speaking to reporters, Bank of Canada Governor Tiff Macklem said: “It’s still too early to consider lowering the policy interest rate. Looking ahead, we continue to expect inflation will be close to 3% through the middle of the year before easing in the second half. Recent inflation data suggest monetary policy is working largely as expected, but future progress on inflation is expected to be gradual and uneven, and upside risks to inflation remain.” Statistics Canada’s consumer price index (CPI) report for February was released March 19. It showed that inflation came in below economist expectations for a second-consecutive month. Headline inflation was at 2.8% year-over-year in February, a marginal decline from the 2.9% seen in January. The TSX responded on March 21, closing at its highest level since 2022, as investors now believe interest-rate relief is nearing.

The stock and bond market*

Index Close Q1
S&P/TSX Composite 22,167.03 5.77%
Dow Jones Industrial Average 39,807.37 5.62%
S&P 500 Index 5,254.35 10.16%
NASDAQ Composite 16,379.46 9.11%
10-year Canadian Bond Yield 3.49% 0.39%
10-year U.S. Treasury Yield 4.20% 0.32%
WTI Crude Oil (US$/barrel) $83.17 16.60%
Canadian Dollar US$0.7385 -2.33%
Bank of Canada Prime Rate 7.20%

*Performance ending March 28, 2024. Sources: Bloomberg.

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Co-operators Investment Analyst team provides expert economic insight, portfolio construction and recommendations to support our wealth management services. Here are their thoughts on the major factors impacting markets in Q1.

Q. The TSX had a record breaking Q1, but was outperformed by the S&P 500. What accounts for this divergence and what can investors learn?

A: Despite favorable valuations, Canadian equities underperformed relative to the comparable U.S. asset class. The differential can be attributed to sectorial weightings and their respective performance. The U.S. is more broadly diversified, but the Information Technology (IT), Financials, and Communication Services sectors represent over half of the overall American market weight. During the quarter, these areas produced strong returns. In comparison, Canada’s performance was more concentrated and varied, while lacking a similar degree of exposure to IT. The Canadian market is more heavily comprised of the Financials segment, which posted a modest return relative to U.S. Financials. Investor concerns over high mortgage renewal risks for Canadian banks were a leading factor. The heavier weighting toward energy in Canadian markets, a sector that provided strong returns both north and south of the border, partially offset the performance differential between Canadian and U.S. equities. For investors, the key takeaway is to build a diversified portfolio. This ensures a broad set of exposures is maintained, allowing investors to make the most of strong performance across many different sectors and financial markets.

S&P/TSX (7.02) and S&P 500 (11.18) denominated in domestic currencies and represented as total returns



Two line graphs showing the divergence in total returns made by the S and P slash TSX and the S and P
500 respectively in weekly increments from January 2024 to the end of March 2024.
The line depicting S and P slash TSX begins at 0.00 percent on January 2 and fluctuates across the chart,
but the overall trend is upward, peaking at 7.02 percent on March 29.
The line depicting the S and P 500 begins at 0.00 percent on January 2 and fluctuates across the chart,
but the overall trend is upward, peaking at 11.18 percent on March 29

Source: Bloomberg

Q. AI enthusiasm and blockbuster earnings reports from U.S. tech giants stole the spotlight in Q1. What role did corporate earnings play in driving the equity market rallies in the U.S.?

A: Corporate America decisively surpassed economist expectations in Q1, leading Wall Street to raise its profit forecasts for 2024. Along with rising investor confidence, this helped fuel the Q1 market rally and signaled that corporate America's profitability remains resilient despite historic interest-rate hikes by the Fed in 2022 and 2023. Nearly all sectors saw a positive price response to the upbeat quarterly earnings reports. The strong profit data also helped mitigate losses related to macroeconomic uncertainties and geopolitical conflicts, and instilled enough confidence in the market to help investors look past the reduced probability of interest-rate cuts.

The standout performer of Q1 was Nvidia. The chipmaker reported impressive earnings, clear future guidance, and eased concerns about potential slowdowns in AI growth. Other companies implemented workforce reductions to cut costs and enhance operational efficiencies, leading to improved profitability. According to Bloomberg Intelligence, companies that reported higher-than-expected earnings averaged a 3% stock-price increase higher than the S&P 500’s overall gains.

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The commentary in this report is based on current market conditions and market media sources available to the public and may change without prior warning at any time. The forecasts provided herein are not guarantees of future performance and include risks, uncertainty and assumptions. While Co-operators Financial Investment Services Inc. and Co-operators Life Insurance Company (“Co-operators”) believe these assumptions are reasonable, there is no guarantee they will be confirmed. This report is not a guarantee of future investment performance, nor should undue reliance be placed on this report. This report is provided as a general source of information for a specific point in time and should not be considered solicitation to buy or sell any investment. Nothing contained in this report constitutes investment, legal, tax or other advice. The content in this report should not be relied upon in making an investment or other decision, and individuals should obtain relevant and specific professional advice and read the terms and conditions contained in the relevant offering documents carefully before any investment decision is made. Co-operators is not responsible for any loss or damage as a result of reliance on the information contained in this report. Co-operators makes no representations or warranties as to the information contained herein and does not guarantee its accuracy, timeliness, completeness or usefulness. Co-operators is committed to protecting the privacy, confidentiality, accuracy and security of the personal information it collects, uses, retains and discloses in the course of conducting business. Please visit cooperators.ca/privacy for more information. Co-operators® is a registered trademark of Co-operators Group Limited and is used with permission. Investing in your future. Together.TM is a trademark of Co-operators Group Limited. If you are a client who has received this, and you have questions or want to discuss your investments, please contact your Financial Advisor.

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