No data was found

Will Bonds Ever Take Flight?

March 4 to 8, 2024


Will Bonds Ever Take Flight?

March 4 to 8, 2024


Market Recap

  • Equity markets notched further gains this week amid a mixed run of growth and inflation data.
  • The S&P 500 rose 0.9%, led by technology and consumer discretionary.
  • The TSX added 0.7%, with energy getting a boost from a return to $80 oil. Bank earnings results were mixed, and the sector finished the week little changed when all was said and done.

Fixed Income

In the first two months of the year, we have not seen as strong of a rally in fixed income as we saw at the end of 2023. What’s behind this disappointment? The key here is that late-2023 performance was driven by the U.S. Federal Reserve’s (Fed) November pivot and the expectation that interest rate cuts would come relatively quickly; initially, markets priced them in for around March. Now, continuing strength of the U.S. economy has pushed those cuts back to June or even later. As a result, bonds’ momentum has slowed. The good news, in our view, is that the underlying thesis is still correct—as long as you believe rate cuts are coming, you can still be bullish on fixed income. When cuts do occur, they aren’t likely to be one-and-done or two-and-done; it’s a process that could play out over a few years, with the easing cycle spread out more than many were expecting. That means we could see many good years for bonds relative to cash and GICs, as rates for cash-like instruments will have to come down when cuts begin.

Bottom Line: With fixed income, patience is a virtue—the moment rate cuts appear imminent and investor sentiment changes, we could see a big lift-off.


The latest round of earnings announcements is mostly over, and investors were generally happy with what came through. The big positive was Nvidia beating expectations again, as I discussed in this space last week—that has kept markets higher than expected. You can expect some profit-taking in areas that have moved up, including companies like Nvidia at some point. But at the same time, areas like Bitcoin and crypto have caught momentum and are keeping investors tied to the market, so we wouldn’t expect any kind of massive sell-off anytime soon. We still expect more volatility this year than last year, but overall, the news for U.S. equity markets is mostly positive. In Canada, as expected, banks have experienced some headwinds from their non-performing loans, but their dividends continue to look secure. We take a long-term view of Financials—quality is important, and Canadian banks tend to be high-quality, whereas in the U.S. there is a differential between the larger, higher-quality banks and the smaller, regional banks. In our view, any dips in quality bank stocks (in Canada and globally) represent potential buying opportunities.

Bottom Line: U.S. earnings were generally positive, while in Canada, we view the banks as a long-term opportunity despite near-term headwinds.

Magnificent Seven

Since last year, U.S. equity markets have been dominated by the Magnificent Seven: Microsoft, Apple, Nvidia, Amazon, Alphabet (Google), Tesla, and Meta (Facebook). Can investors still expect to see some catch-up from names outside that group? In short, yes—we still expect good results coming from the majority of the Magnificent Seven, but as the year progresses and investors begin to examine valuations a bit more closely, a rotation to other names is likely. While Nvidia’s recent earnings announcement captured plenty of headlines, other companies also did pretty well—we saw good numbers from Walmart, for example. Another way we’re seeing money rebalancing is via options. With stock prices for the leading names so high, some investors are buying call options on the Magnificent Seven rather than buying actual shares, while going long other (non-Magnificent Seven) stocks.

Bottom Line: We’re likely to see a modest rotation to names outside the Magnificent 7 as the year progresses and the rally broadens out.


For a detailed breakdown of our portfolio positioning, check out the latest BMO GAM House View Report, titled The American Exception: How U.S. Markets Beat the Bears…Again.


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.


Steven Shepherd profile photo
April 17, 2024

BMO ETF Portfolios’ April Commentary: “Imagine there’s no rate cuts…it’s easy if you try…”

Following a strong first quarter performance from global equities, investor’s collective nerves were shaken in early April.
House view
April 16, 2024

Delayed again: The soft landing that never comes

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.
Sadiq Adatia
Sadiq Adatia
April 15, 2024

Jerome Powell Was Right

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?
Sadiq Adatia
Sadiq Adatia
April 8, 2024

Total Eclipse of the Fed

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?
Sadiq Adatia
Sadiq Adatia
April 1, 2024

The Supply Chain Problem Rears its Ugly Head

How will supply chain disruptions caused by the Baltimore bridge collapse and conflict in the Middle East impact inflation? Do continuing problems in China’s property sector affect the country’s long-term growth outlook?
Sadiq Adatia
Sadiq Adatia
March 25, 2024

Reddit Goes Public: A Good Omen for the IPO Market?

Were Fed Chairman Jerome Powell’s comments as dovish as markets thought? With the Magnificent Seven driving markets, where can investors go if they’re looking to diversify?

Website attestation

You are entering the BMO Global Asset Management (GAM) Institutional website.

Read our Terms and Conditions
Click here to contact us

This information is for Investment Advisors only. By accepting, you certify that you are an Investment Advisor. If you are NOT an Investment Advisor, please decline and view the content in the Investor or Institutional areas of the site. The website is for informational purposes only and is not intended to provide a complete description of BMO Global Asset Management’s products or services. Past performance is not indicative of future results. It should not be construed as investment advice or relied upon in making an investment decision. The opinions expressed are subject to change without notice. Products and services of BMO Global Asset Management are only offered in jurisdictions where they may be lawfully offered for sale. The information contained in this website does not constitute an offer or solicitation by anyone to buy or sell any investment fund or other product, service or information to anyone in any jurisdiction in which an offer or solicitation is not authorized or cannot be legally made or to any person to whom it is unlawful to make an offer of solicitation. All products and services are subject to the terms of each and every applicable agreement. It is important to note that not all products, services and information are available in all jurisdictions outside Canada.