Equity markets rose further this week, with solid growth data setting the backdrop.
The S&P 500 gained 0.4% on a broad mix of strength across utilities, banks and health care, while the high-fliers—technology and telecom services—lagged.
The TSX added 0.8% with strength in health care, materials and energy, and the latest rally has lifted the index a solid 5.8% year-to-date.
Notably, each of the TSX, S&P 500 and Nasdaq were pushing record highs this week.
Supply Chains
Recently, supply chains have been tested by conflict and piracy in the area around the Suez Canal, and by the tragic collapse of the Key Bridge in Baltimore, which has temporarily blocked access to the Port of Baltimore. The bridge collapse is a major disruption to one of America’s busiest shipping hubs, but we don’t expect it to have a significant long-term impact on inflation or markets in general. In the short run, the lack of access to the port and the effect it will have on local transportation (the bridge was part of a major highway) is likely to put some pressure on prices. The silver lining, however, is that the impacts of supply chain problems tend to be short-lived. The U.S. Federal Reserve (Fed) recently noted that though inflation spiked up in January and February, it was likely temporary rather than part of a larger trend. We’d expect disruptions related to the bridge collapse to be similarly temporary. Supply chain issues in the Middle East are a bit more of a concern, as ongoing conflicts in the region have the potential to cause disruptions over a much longer period of time. Given the situation’s uncertainty, we believe it’s too early to tell what kind of long-term impact on global supply chains it may have.
Bottom Line: The Baltimore bridge collapse is unlikely to significantly impact inflation, while the longer-term impacts of conflicts in the Middle East are less certain.
China
To investors’ dismay, problems in China’s property market don’t appear to be subsiding, and this has affected our view on the country’s growth prospects. On the positive side, the Economic Surprise Index—which tracks the differences between economic forecasts and actual results—is beginning to look a bit better for China, especially in terms of consumer spending. But there is not yet any stabilization in the property sector, which is keeping many investors on the sidelines. In our view, there are two key aspects to a potential turnaround: improving sentiment and stimulus. The government needs to provide the right amount of stimulus, and while some measures have already been taken, they haven’t yet been as robust as what we’d typically see in North America. Looking ahead, we’ll be watching for mortgage rates to continue to come down, which will be necessary for the market to become attractive to investors again. We’ll also be looking out for a pickup in home purchases—that would be another positive sign that buyers are coming back.
Bottom Line: In the long term, we think the Chinese economy will be fine, but in the near term, headwinds from the property sector are still a significant concern.
Europe
We’re definitely warming up on European equities. Last year, we shifted from being underweight Europe to being neutral, and we’ve believed for a while that we’d gradually shift to an overweight positioning over the course of 2024. What we’d still like to see is greater economic stability from the region—recent numbers from Spain and Portugal have been better, but the U.K. and Germany are still dealing with various issues. That said, Economic Surprise indicators have been positive, and valuations are very attractive. In particular, we like the European Healthcare and Financials sectors; though we may not yet be overweight the broader region, we’re certainly on the lookout for opportunities in those spaces. In fact, our global equity funds already have a tilt towards European Financials.
Bottom Line: For now, the U.S. equity market remains more attractive than Europe, but we’re not far from shifting to an overweight position on European equities.
Positioning
We remain fairly optimistic about the direction of markets based on the state of the consumer. Recently, we have seen more signs that the consumer is becoming more cautious in how they spend their money; for instance, Lululemon’s recent earnings report highlighted that demand has softened. For now, the consumer remains relatively strong. But going forward, we’ll be monitoring Consumer Discretionary spending across the board for signs of further weakening.
The viewpoints expressed by the Portfolio Manager represents their assessment of the markets at the time of publication. Those views are subject to change without notice at any time without any kind of notice. The information provided herein does not constitute a solicitation of an offer to buy, or an offer to sell securities nor should the information be relied upon as investment advice. Past performance is no guarantee of future results. This communication is intended for informational purposes only.
BMO Global Asset Management is a brand name under which BMO Asset Management Inc. and BMO Investments Inc. operate.
Any statement that necessarily depends on future events may be a forward-looking statement. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Although such statements are based on assumptions that are believed to be reasonable, there can be no assurance that actual results will not differ materially from expectations. Investors are cautioned not to rely unduly on any forward-looking statements. In connection with any forward-looking statements, investors should carefully consider the areas of risk described in the most recent simplified prospectus.
This article is for information purposes. The information contained herein is not, and should not be construed as, investment, tax or legal advice to any party. Investments should be evaluated relative to the individual’s investment objectives and professional advice should be obtained with respect to any circumstance.
Commissions, management fees and expenses (if applicable) all may be associated with investments in mutual funds. Trailing commissions may be associated with investments in certain series of securities of mutual funds. Please read the fund facts, ETF facts or prospectus of the relevant mutual fund before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Distributions are not guaranteed and are subject to change and/or elimination.
For a summary of the risks of an investment in the BMO Mutual Funds, please see the specific risks set out in the prospectus. ETF Series of the BMO Mutual Funds trade like stocks, fluctuate in market value and may trade at a discount to their net asset value, which may increase the risk of loss. Distributions are not guaranteed and are subject to change and/or elimination.
BMO Mutual Funds are managed by BMO Investments Inc., which is an investment fund manager and a separate legal entity from Bank of Montreal.
®/™Registered trademarks/trademark of Bank of Montreal, used under licence.
The view from 10,000 feet is that the economy is still in fairly good shape. That said, it is important to understand that we are beginning to see more signs of underlying economic weakness.
Given recent inflation numbers, are markets resetting rate cut expectations, and is a soft landing is still possible? How will the state of the consumer impact earnings season?
What do Fed Chairman Jerome Powell’s recent comments mean for the interest rate outlook? And what impact are they having on equity and fixed income markets?
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The Supply Chain Problem Rears its Ugly Head
April 1 to 5, 2024
The Supply Chain Problem Rears its Ugly Head
April 1 to 5, 2024
Sadiq S. Adatia, CFA, FSA, FCIA
Market Recap
Supply Chains
Recently, supply chains have been tested by conflict and piracy in the area around the Suez Canal, and by the tragic collapse of the Key Bridge in Baltimore, which has temporarily blocked access to the Port of Baltimore. The bridge collapse is a major disruption to one of America’s busiest shipping hubs, but we don’t expect it to have a significant long-term impact on inflation or markets in general. In the short run, the lack of access to the port and the effect it will have on local transportation (the bridge was part of a major highway) is likely to put some pressure on prices. The silver lining, however, is that the impacts of supply chain problems tend to be short-lived. The U.S. Federal Reserve (Fed) recently noted that though inflation spiked up in January and February, it was likely temporary rather than part of a larger trend. We’d expect disruptions related to the bridge collapse to be similarly temporary. Supply chain issues in the Middle East are a bit more of a concern, as ongoing conflicts in the region have the potential to cause disruptions over a much longer period of time. Given the situation’s uncertainty, we believe it’s too early to tell what kind of long-term impact on global supply chains it may have.
Bottom Line: The Baltimore bridge collapse is unlikely to significantly impact inflation, while the longer-term impacts of conflicts in the Middle East are less certain.
China
To investors’ dismay, problems in China’s property market don’t appear to be subsiding, and this has affected our view on the country’s growth prospects. On the positive side, the Economic Surprise Index—which tracks the differences between economic forecasts and actual results—is beginning to look a bit better for China, especially in terms of consumer spending. But there is not yet any stabilization in the property sector, which is keeping many investors on the sidelines. In our view, there are two key aspects to a potential turnaround: improving sentiment and stimulus. The government needs to provide the right amount of stimulus, and while some measures have already been taken, they haven’t yet been as robust as what we’d typically see in North America. Looking ahead, we’ll be watching for mortgage rates to continue to come down, which will be necessary for the market to become attractive to investors again. We’ll also be looking out for a pickup in home purchases—that would be another positive sign that buyers are coming back.
Bottom Line: In the long term, we think the Chinese economy will be fine, but in the near term, headwinds from the property sector are still a significant concern.
Europe
We’re definitely warming up on European equities. Last year, we shifted from being underweight Europe to being neutral, and we’ve believed for a while that we’d gradually shift to an overweight positioning over the course of 2024. What we’d still like to see is greater economic stability from the region—recent numbers from Spain and Portugal have been better, but the U.K. and Germany are still dealing with various issues. That said, Economic Surprise indicators have been positive, and valuations are very attractive. In particular, we like the European Healthcare and Financials sectors; though we may not yet be overweight the broader region, we’re certainly on the lookout for opportunities in those spaces. In fact, our global equity funds already have a tilt towards European Financials.
Bottom Line: For now, the U.S. equity market remains more attractive than Europe, but we’re not far from shifting to an overweight position on European equities.
Positioning
We remain fairly optimistic about the direction of markets based on the state of the consumer. Recently, we have seen more signs that the consumer is becoming more cautious in how they spend their money; for instance, Lululemon’s recent earnings report highlighted that demand has softened. For now, the consumer remains relatively strong. But going forward, we’ll be monitoring Consumer Discretionary spending across the board for signs of further weakening.
For a detailed breakdown of our portfolio positioning, check out the latest BMO GAM House View Report, titled The Bulls Keep Running: Why Markets Remain Upbeat.
Disclosures:
The viewpoints expressed by the Portfolio Manager represents their assessment of the markets at the time of publication. Those views are subject to change without notice at any time without any kind of notice. The information provided herein does not constitute a solicitation of an offer to buy, or an offer to sell securities nor should the information be relied upon as investment advice. Past performance is no guarantee of future results. This communication is intended for informational purposes only.
BMO Global Asset Management is a brand name under which BMO Asset Management Inc. and BMO Investments Inc. operate.
Any statement that necessarily depends on future events may be a forward-looking statement. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Although such statements are based on assumptions that are believed to be reasonable, there can be no assurance that actual results will not differ materially from expectations. Investors are cautioned not to rely unduly on any forward-looking statements. In connection with any forward-looking statements, investors should carefully consider the areas of risk described in the most recent simplified prospectus.
This article is for information purposes. The information contained herein is not, and should not be construed as, investment, tax or legal advice to any party. Investments should be evaluated relative to the individual’s investment objectives and professional advice should be obtained with respect to any circumstance.
Commissions, management fees and expenses (if applicable) all may be associated with investments in mutual funds. Trailing commissions may be associated with investments in certain series of securities of mutual funds. Please read the fund facts, ETF facts or prospectus of the relevant mutual fund before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Distributions are not guaranteed and are subject to change and/or elimination.
For a summary of the risks of an investment in the BMO Mutual Funds, please see the specific risks set out in the prospectus. ETF Series of the BMO Mutual Funds trade like stocks, fluctuate in market value and may trade at a discount to their net asset value, which may increase the risk of loss. Distributions are not guaranteed and are subject to change and/or elimination.
BMO Mutual Funds are managed by BMO Investments Inc., which is an investment fund manager and a separate legal entity from Bank of Montreal.
®/™Registered trademarks/trademark of Bank of Montreal, used under licence.
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