Counting on 24-Karat Rate Cuts

June 17 to 21, 2024


Counting on 24-Karat Rate Cuts

June 17 to 21, 2024


Market Recap

  • Equity markets churned out gains this week alongside firm U.S. economic data and rate cuts by the Bank of Canada and ECB.
  • The S&P 500 rose 1.3%, led by technology and health care, although the Roaring Kitty hoopla sapped most of the attention. The index closed the week just off a record high, along with the Nasdaq, and is now up a cool 12.1% on the year.
  • The TSX slipped 1.2% on the week, with energy and materials dragging against gains in consumer stocks, technology and telecom.

Interest Rates

Market expectations on rate cuts have seemingly diverged from the U.S. Federal Reserve’s (Fed) dot plot—its projection on the interest rate trajectory—once again. What the latest dot plot reveals is that the Fed is expecting two fewer interest rate cuts this year than had previously been projected, and one additional one next year; in essence, they’ve wiped out one cut and deferred another. This is largely in line with what we’d been expecting, and also isn’t surprising given that U.S. inflation remains higher than expected, and the economy continues to hold up fairly well. At present, there is no real urgency for the Fed to move faster and potentially make a mistake by cutting too early. Their preference is to move carefully and push cuts out further if necessary. Given that reality, the market’s reaction was relatively calm, as most investors and analysts already assumed that some rate cuts would be deferred. While there has been some speculation that the Fed could consider raising rates given the strength of the U.S. economy, we continue to think that’s unlikely. A rate hike would be a big message—one that the Fed would prefer not to send if they don’t have to. In our view, it would take a significant spike in inflation for the Fed to consider changing course.

Bottom Line: The Fed’s dot plot didn’t do much to alter the market’s interest rate expectations, since higher-for-longer rates were already being assumed.


With interest rates now beginning to moderate, at least in some regions, have gold prices hit their ceiling? Quite the opposite, in our view. Last month, we increased the overweight exposure to gold in our portfolios. If rate cuts continue (or commence in the United States), we expect gold to benefit. Several other factors are also providing some lift to gold prices. For one, governments are buying more of it at the expense of the U.S. dollar. Also, demand among retail investors has picked up as people are increasingly looking to it as a store of value. As I mentioned in a New York Times article back in April, Costco introducing gold bars in their stores has made it incredibly convenient for individuals to purchase, and sales have reportedly been through the roof. Finally, gold serves as a hedge against market downturns—for instance, when markets fluctuated back in September and October, gold was up approximately 7%, while markets were down by a similar amount. That’s exactly the kind of movement you’d want and expect to see from a hedge and ‘safe haven’ asset.

Bottom Line: We’re bullish on gold and think there is still room for prices to move even higher.


The recent European elections and surprise announcement of an upcoming election in France sent European stock markets tumbling last week, but before that, Eurozone equities had undergone something of a positive correction. With the continent in political flux, what is the outlook for the rest of 2024? For now, we’re maintaining a neutral view. The European economy has been an underachiever, which has lowered expectations. At this stage, we think expectations may be too low, making valuations a bit more attractive, and there’s a possibility we could see some upside surprises. That said, not all European countries are the same. Germany may be starting to bottom out (which doesn’t necessarily mean that they’re ready to lift off just yet), while other markets are starting to show some benefits. If we do decide to take some money off the table in the U.S., we’d be likely to reallocate it to International (EAFE). Recent political developments have certainly increased economic and market uncertainty in the near term but won’t necessarily have major implications in the longer term. The one risk that we believe isn’t being fully priced into European markets, however, is the U.S. election. Much has been made of potential negative sentiment toward China under either Biden or Trump, but not nearly as much attention has been paid to the potential for negative sentiment toward Europe under a Trump administration. In our view, that could be a meaningful headwind for European growth.

Bottom Line: We’re still neutral on Europe, but we’re starting to warm up to it despite political uncertainty.


For a detailed breakdown of our portfolio positioning, check out the latest BMO GAM House View Report, titled Shifting to Neutral: The Case for Optimistic Caution.


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