Harvest ETFs Monthly Insights (October 2024 Summary)
Harvest ETFs
Consistent monthly income and growth-focused investment solutions designed for Canadian investors.
Red October: Bond volatility and US election implications
For October, the S&P 500 recorded its first month of negative returns since April. That followed the best three quarters since 1996.
Despite the market’s overall negative performance, earnings growth was positive for almost 70% of the companies that reported over the past month. This is a healthy sign for the economy and the broader market.
Rate Expectations
The US Federal Reserve (the Fed)? cut interest rates by 50 basis points in September 2024. It moved forward with another 25-basis point reduction on November 7.
Bond prices have been impacted by many factors in this environment. The reaction of bond yields of similar durations (a measure of prices sensitivity to interest changes) has been key. A bond with a 10-year duration, which is on the longer end of the maturity spectrum, will be impacted by changes in 10-year interest rates. Those rates are typically driven by other macro-economic factors.? On the flip side, the Fed controls interest rates at the shorter end of maturity spectrum.
Rates at the longer end moved up due to strong economic data. Moreover, there were growing concerns that either political party would pursue inflationary policies. In this scenario, rates would need to stay higher to combat inflation.
We remain at the pivot point as we transition from a rate hiking cycle to an easing interest rate environment. There are two takeaways right now. One – the directionality of Fed rates remains taking rates lower, and two – market forecasts will be very sensitive to day-over-day data. These will translate to continued volatility in bond yields, exacerbated by the election of Donald Trump to his second term. Elevated volatility (more noticeable up and down market swings) provides the ideal opportunity for our team to generate high monthly premiums from our active covered call strategy.
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Trump Trade 2.0?
Donald Trump and the Republican Party overperformed polling once again, winning the Presidency and the Senate. Votes are still being tallied for the House. Winning the Senate and the House would put Trump and the Republicans firmly in control of policy making for the next two years.
Coming into the election, the prevailing narrative was that Trump’s protectionist trade policies (one that seeks to discourage the importation of goods and services from other countries) would drive massive inflationary pressures, trigger major upheaval in world trade, and result in yields moving higher. Meanwhile, deregulation is expected to drive windfall profits for banks, energy companies, and selected firms in the healthcare space.
Taking a step back, we have noted every new Presidential term starts with speculation about winners and losers. When Trump won the White House in 2016, deregulation and energy were amongst the biggest expected movers. Instead, Financials and Energy were the worst performing sectors during Trump’s first term. In 2020, Joe Biden was going to sweep away big energy and renewables would reign supreme. The best performing sector during Biden’s Presidency? You guessed it – Energy. Obama’s Affordable Care Act (ACA) was set to be a big win for healthcare, while utilities were set to win from renewable regulations. In reality – both lagged.
What about George Bush’s wins in 2000 and 2004? Financials were set to benefit from deregulation. Instead, we all remember the financial sector led “economic bloodbath” of 2008.
As always, in politics, there is a lot that is said. However, there is usually a distant relationship between what is said and what is done. It remains to be seen what a second Trump presidency will mean for the economy and the broader market.
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ABOUT HARVEST ETFs:
Founded in 2009, Harvest Portfolios Group Inc. is an independent Canadian Investment Fund Manager. At Harvest, our guiding principles are premised on building wealth for our clients through ownership of strong businesses that have the potential to grow & generate income over the long term. Harvest has an established track record with its stable of Equity ETFs and Fixed Income ETFs. Now, in 2024, Harvest has expanded its income philosophy to introduce Balanced Income ETFs to our innovative lineup. These portfolios are invested in ETFs listed on a recognized North American stock exchange that provide exposure towards large capitalization equity securities, investment grade bonds or money market instruments issued by corporations or governments and will include ETFs that engage in covered call strategies. Read More
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For information purposes only and does not constitute an offer to sell or a solicitation to buy the securities referred to herein or used to engage in personal investment strategies. Please consult your investment advisor.
Certain statements in this document are forward looking. Forward-looking statements (“FLS”) are statements that are predictive in nature and depend upon or refer to future events or conditions. Statements that look forward in time or include anything other than historical information are subject to risks and uncertainties, and actual results, actions or events could differ materially from those set forth in the FLS. Unless required by applicable law, Harvest Portfolios Group Inc. does not undertake, and specifically disclaim, any intention or obligation to update or revise any FLS, whether as a result of new information, future events or otherwise.
Commissions, management fees and expenses all may be associated with investing in Harvest Exchange Traded Funds (managed by Harvest Portfolios Group Inc.). Please read the relevant prospectus before investing. The indicated rates of return are the historical annual compounded total returns including changes in unit value and reinvestment of all distributions and do not take into account income taxes payable by any security holder that would have reduced returns. The funds are not guaranteed, their values change frequently, and past performance may not be repeated. Tax, investment and all other decisions should be made with guidance from a qualified professional.