The Bull Market Anniversary + Peak Keynesianism + A NEW INTERVIEW with Fidelity's Ilan Kolet

What happened this week?

There are two types of economists in the world…demand-siders and supply-siders. ?Without digging too deeply, one huge difference shows up in government policy. ?Supply-siders want low tax rates, high savings rates (and investment), and minimal regulation. ?Why? Because wealth and higher living standards come from entrepreneurship and invention – i.e. Supply.

When most people hear the word “risk,” they think about wild market swings, scary headlines, and losing money overnight, but Howard Marks, Co-Chairman and Co-Founder of Oaktree Capital Management, takes a different approach. In his new video series How to Think About Risk, Marks digs deep into what risk is and how investors should handle it. Spoiler alert: It’s not just about volatility.

One would think the escalating conflict in the Middle East, combined with the lead-up to an uttermost consequential Presidential and Congressional election would skew the market to the downside. Indeed, it’s tempting to theorise that these events should have been directly disruptive to equities. They haven’t, but have raised volatility because of the tariff, anti-trust and tax threats attached to them. The VIX, a reliable indicator of fear, is trading about 20, making an 18 months high.

In markets, a year can feel like a lifetime. Ditto for two years, which is how old the S&P 500's current bull market now is (as of a couple days ago). While that calls for celebration, it perhaps begs for a deeper analysis into the unique nature of this run, what sets it apart from prior bull markets, and the outlook for its longevity.

Saturday, October 12 officially marks the second anniversary of this bull market. It is hard to believe that only two years ago the S&P 500 closed at 3,577 as investors feared inflation was entrenched after wholesale inflation data unexpectedly ticked higher that day. Barron’s ran an article after the market closed titled, “Experts Say Disaster Could Be Near. Details Are Slim.” The next day, consumer inflation came in hotter than expected, and after an initial sell-off in the morning, stocks rallied to close up 2.6% on the day.

This cyclical bull market was born exactly two years ago on October 13th, 2022, and fitting with that milestone the major averages notched another all-time high last week.? Since the start of the bull market, the cap-weighted S&P 500 index has now gained 68%, while the equal-weighted index is up 46% and the Russell 2000 is up 36%. The MSCI ACWI index is up 62%, MSCI EAFE is up 57%, and the MSCI EM index is up 42%.? The Bloomberg US Agg index is up 11% and the Bloomberg T-Bill index is up 10%.? Gold is up 60%.

Earnings season has just begun, with 6% of the companies in the S&P 500 Index having reported earnings so far. S&P 500 earnings growth for the third quarter is currently expected to be 4.1%. However, there are significant differences between sectors — technology earnings growth expectations are 14.9%, while earnings growth for the materials and energy sectors are forecast to be negative.1 In addition to the financial data being reported, the transcripts from earnings calls are giving us some interesting insights into the economy as corporate executives share their observations and outlooks.

One would think the escalating conflict in the Middle East, combined with the lead-up to an uttermost consequential Presidential and Congressional election would skew the market to the downside. Indeed, it’s tempting to theorise that these events should have been directly disruptive to equities. They haven’t, but have raised volatility because of the tariff, anti-trust and tax threats attached to them. The VIX, a reliable indicator of fear, is trading about 20, making an 18 months high.

Many investors, including myself, were frustrated with the performance of gold in 2021 and 2022. Amidst the biggest surge in inflation in 40 years, gold traded sideways, with a total return close to 0. In contrast, in the current year when inflation is finally normalizing gold is having a stellar year.

Top Performing

1. Virgin Galactic Holdings Inc ▲23.26%
2. Coinbase Global Inc ▲23.13%
3. Uranium Energy Corp ▲20.94%?
4. United Airlines Holdings Inc ▲20.74%
5. Riot Platforms Inc ▲17.03%

Bottom Performing

1. Coty Inc ▼-16.50%
2. Kla Corp ▼-16.00%
3. Centene Corporation ▼-14.24%
4. Lam Research Corporation ▼-12.37%
5. Nabors Industries Ltd ▼-10.34%

This week in the Canadian investment industry saw several significant developments:

• TD Bank's Challenges: TD Bank faced a notable setback as it was downgraded by S&P due to concerns over its risk management practices, particularly related to U.S. settlements. This comes at a time when the bank is also expected to face pressure on its earnings due to regulatory sanctions.

• Sustainable Investment Guidelines: The Canadian government made strides in promoting sustainable investments by advancing the "Made-in-Canada" sustainable investment guidelines. These guidelines are designed to align investments with the country’s net-zero emissions goal by 2050. The framework will focus on key sectors such as electricity, transportation, buildings, agriculture, and heavy industry, offering new opportunities for investors aligned with climate objectives.

• Canadian Investment Landscape: The Ontario Securities Commission shared insights from the 2024 Investor Index, highlighting the evolving investment landscape in Canada. Younger investors, especially those between 18-24 years old, are increasingly engaging in investment activities, while the total assets managed by investment funds in Ontario reached $4 trillion. This reflects a growing interest in diversified and tech-driven portfolios.

• Rate Cuts and Market Outlook: Central banks, including the Federal Reserve and the European Central Bank (ECB), continued their rate-cutting cycles, which is expected to have a positive effect on equity markets, particularly in interest rate-sensitive sectors like technology and resources. However, there are concerns that prolonged rate cuts without economic improvement could lead to increased volatility. While inflation has eased, the potential for a recession continues to loom, particularly in the U.S., making investors cautious about long-term returns.

• Private Market Growth: StepStone Private Wealth, a firm specializing in private markets, has been making headlines as it continues to expand after reaching $5 billion in assets under management. The firm brought in two industry veterans to lead its growth push, signaling continued interest in private investments despite a robust stock market.

• Philanthropy and Fintech: On the fintech front, Foundation Source, a fintech firm supporting donor-advised funds, made a significant acquisition to expand its capabilities. This move reflects the ongoing integration of technology in managing wealth, particularly in philanthropic services.

Pierre welcomes back Ilan Kolet, Institutional Portfolio Manager at Fidelity Investments. This episode delves into Ilan's expert analysis on U.S. and Canadian economies amid ongoing global economic shifts. Discover insights on the Fed's unprecedented rate cuts, the productivity expansion in the U.S., challenges facing the Canadian economy, and Fidelity's tactical asset allocation positioning. Ilan also shares his experience and insight from the NABE conference and thoughts on the future of fiscal and monetary policy. Explore investment strategies and gain valuable perspectives on navigating today's markets.

Watch it HERE

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