November 2024 Strategy Notes

The full results of the U.S. House have yet to be settled, but the expectation is the completion of the ‘Red Wave’ with the GOP taking control of the White House, Congress and House. As we stated in our previous newsletters, financial markets are largely agnostic and generally tend to chug along no matter which party is in office. What markets do not like is uncertainty, and we have a much better idea of what the next four years may look like compared to a few months ago when Kamala Harris announced her campaign, and even a few weeks ago when polls indicated it would be a close race. (Once again, the polls proved to be wrong with the GOP handily winning some of the swing states, but we digress).

With a smooth voting process, a clear winner and an expected peaceful transfer of power, markets had one of its best weeks ever. All major indices surged with the S&P 500 hitting an all-time high. Historically, under the GOP, and given President-elect Trump’s own campaign rhetoric, we are looking at an expansionary fiscal policy, lower taxes and less regulation – all of which builds pro-business sentiment.

While Canada’s economy has floundered with an approximate 1% GDP growth over the past year, note the Bank of Canada’s rate cuts have paced the rest of the world. Canada’s economy is interest-rate sensitive and lower interest rates should help Canada’s economy strengthen. Furthermore, with the U.S. being Canada’s biggest trade partner – merchandise exports to the U.S. represented 76.2% of Canada’s total exports last month, per BMO Economics – a strong U.S. economy typically leads to a stronger Canadian economy. Following Trump’s win in 2016 and prior to worldwide COVID shutdowns, Canada had a real GDP growth of 2.5%. Indeed, the TSX made gains following the election in anticipation. The question going forward now is how Trump’s promise to raise broad tariffs will affect Canada.

Our portfolios have continued to participate in the rise of the financial markets. The start of interest rate cuts and a new government indicates the charting of a new economic path, which will become clearer in the coming weeks and months. We’ve adjusted our portfolios and continue to collect dividend and interest income, ensuring your money keeps working while we actively search for new growth opportunities.

For more information regarding the impact of the U.S. Election from BMO Economics, click here.

Further Reading:

Historically, a divided House is better for stock markets. The reason why isn’t clear – there are a lot of factors that affect market performance – but the general idea that a house with equal representation of Democrats and Republicans keeps each other in check. Legislation and policies cannot be pushed to extremes and drastic changes are uncommon. Per CNBC.com: From 1951 through 2023, the S&P 500 has returned an additional 2% (approx.) annual average when different parties control the presidency and at least one chamber of Congress.

While politics has dominated the conversation lately – as it should with the potential impact of Trump’s second term supported by the ‘Red Wave’ still being realized and analyzed as he fills out his government – the better indicator of stock market performance is still the economy. With interest rates expected to tick lower, unemployment rates also getting lower, inflation cooling and earnings looking quite strong, it’s setting up the promise of positive returns. On the other hand, Trump’s proposed tax cuts and tariffs generally drive up interest rates, making rate cuts potentially more difficult. We continue to invest with a long-term time horizon to ride out volatility in the markets, with exposure to both equity and fixed income markets. Our dynamic approach and focus on blue-chip stocks and liquidity ensures we can adjust our equity to fixed income allocation with ease, ensuring we capture the best of both worlds and provide more steady returns.