It was a positive start to 2024 for stock markets, helped by stronger-than-expected economic news and company earnings. Canada’s economy managed to keep growing slowly despite the headwinds of higher interest rates, and the US economy grew strongly. Stock markets in both countries ran with the good news, leading to strong gains for the Encasa Equity Fund, which was up 14.0% for the year to the end of March.
The other side of the economic coin was inflation. Although inflation in Canada has come down from the 8.1% that it briefly hit in 2022, it remains above the 2% level that the Bank of Canada aims for. The Bank of Canada therefore held its policy interest rate steady at 5% and has commented that it needs to see more data confirming that inflation is likely to stay low before making cuts.
Bond investors had started 2024 hoping for lower interest rates to boost the price of their bonds, but the stronger-than-expected inflation data and comments from the Bank of Canada has left them disappointed for now. As a result, the Encasa Canadian Bond Fund ended the first quarter down 1.3%. The Encasa Canadian Short-Term Bond Fund, with its emphasis on shorter-dated bonds, was less affected by the rise in interest rates and ended the quarter up 0.2%.
As always, given the unpredictability of markets in the short term, we recommend making sure that portfolios are aligned with long-term objectives. If you have any questions about your organization’s investments, please contact your Encasa advisor.