Middlefield Market Commentary
Macro Update
by Dean Orrico , President & CEO?and?Rob Lauzon , Managing Director & CIO
Equity markets snapped back in November, erasing losses from the previous three months. The S&P 500 Index returned 8.9%, its best monthly return since July 2022. The rise in equities was fueled by a combination of falling bond yields, subsiding inflation and lower oil prices. The Index closed just 5% below all-time highs which are now within striking distance if the Santa Claus rally continues.
Middlefield’s core strategies, which are focused on equity income, are well-positioned against the current backdrop. In November, 10-year government bond yields declined 60 basis points in the US and 51 basis points in Canada, settling at 4.33% and 3.55%, respectively. The sharp decline in yields renders GICs and other fixed income investments less attractive on a relative basis – a headwind that dividend strategies have been facing for nearly two years. Canadian Real estate, utilities and pipelines all delivered high-single-digit returns in November, yet they have still generated negative returns on a year-to-date basis. Despite the magnitude of the recent rally, we believe it represents the early stages of a prolonged recovery in dividend-paying stocks that should continue in 2024.
The final FOMC meeting of the year on December 12th will be closely watched for signs that the Federal Reserve is done raising rates. Our view is that the Fed is finished with rate hikes for the current cycle and will likely cut rates in the first half of next year. The October JOLTS report showed that job openings slid to 8.7 million, well below estimates and the lowest level since March 2021. The headline CPI inflation rate in October was 3.2% but excluding shelter, it was even lower at just 1.5%. Services inflation is also starting to fall after being stuck around 5% since the beginning of 2022. All these data points support the notion that rate hikes are achieving their desired effects. Based on the CME FedWatch Tool, the futures market is pricing a 63% chance that the Federal Reserve will cut rates at or before its March 20 meeting.
With inflation falling and the labour market trending towards equilibrium, the biggest risk to our current view on rates is the continuing strength of consumer spending. Shoppers spent $9.8 billion in the US on Black Friday and made $12.4 billion of online purchases on Cyber Monday – both all-time records. Consumer confidence in the US also saw a positive shift in November, marking its first increase in four months. While too much consumer spending may cause the Fed to delay rate cuts, we expect it to follow the path of inflation and the labour market. The Atlanta Fed’s GDPNow tracking model shows that real consumer spending is rising at 2.7% during Q4, down from Q3’s pace of 3.6%. This projection aligns with our base case for a soft landing in 2024, which we view as the optimal scenario for equities next year.
About Middlefield:
Founded in 1979, Middlefield is a specialist and independent equity income manager headquartered in Toronto, Canada. Middlefield’s actively managed, award-winning funds are designed to be “investments that work for you” by distributing consistent and high levels of income through various market cycles. Middlefield’s funds span a number of market sectors including real estate, healthcare, innovation, sustainability, infrastructure and energy. Investors can access these strategies in a variety of product types including ETFs, Mutual Funds, Closed-End Funds, Split-Share Funds and Flow-through LPs. To learn more, visit www.middlefield.com .
领英推荐
Follow Us On Social Media:
Additional Information:
Website: https://middlefield.com/
E-mail: [email protected]
Toll-Free: 1-888-890-1868
Stay Informed: https://middlefield.com/insights/
Disclaimer:
Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. You will usually pay brokerage fees to your dealer if you purchase or sell units/shares of investment funds on the Toronto Stock Exchange or other alternative Canadian trading system (an “Exchange”). If the units/shares are purchased or sold on an Exchange, investors may pay more than the current net asset value when buying and may receive less than the current net asset value when selling them. There are ongoing fees and expenses associated with owning units or shares of an investment fund. An investment fund must prepare disclosure documents that contain key information about the fund. You can find more detailed information about the fund in these documents. Mutual funds and investment funds are not guaranteed, their values change frequently and past performance may not be repeated. Certain statements in this disclosure are forward-looking. Forward-looking statements (“FLS”) are statements that are predictive in nature, depend upon or refer to future events or conditions, or that include words such as “may”, “will”, “should”, “could”, “expect”, “anticipate”, “intend”, “plan”, “believe”, or “estimate”, or other similar expressions. 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. FLS are not guarantees of future performance and are by their nature based on numerous assumptions. Although the FLS contained herein are based upon what Middlefield Funds and the portfolio manager believe to be reasonable assumptions, neither Middlefield Funds nor the portfolio manager can assure that actual results will be consistent with these FLS. The reader is cautioned to consider the FLS carefully and not to place undue reliance on FLS. Unless required by applicable law, it is not undertaken, and specifically disclaimed that there is any intention or obligation to update or revise FLS, whether as a result of new information, future events or otherwise.
This material has been prepared for informational purposes only without regard to any particular user’s investment objectives or financial situation. This communication constitutes neither a recommendation to enter into a particular transaction nor a representation that any product described herein is suitable or appropriate for you. Investment decisions should be made with guidance from a qualified professional. The opinions contained in this report are solely those of Middlefield Limited (“ML”) and are subject to change without notice. ML makes every effort to ensure that the information has been derived from sources believed to reliable, but we cannot represent that they are complete or accurate. However, ML assumes no responsibility for any losses or damages, whether direct or indirect which arise from the use of this information. ML is under no obligation to update the information contained herein. This document is not to be construed as a solicitation, recommendation or offer to buy or sell any security, financial product or instrument.