Market and economic commentary
May 2024

May saw rebounding markets paring declines from April, with both broad equity and bond markets advancing. In a reversal from April, weaker economic news throughout May renewed hopes for a US Federal Reserve cut this year. Investor sentiment overall remains skittish, looking for direction in this market. All Compass Portfolios and ATBIS Pools (the Funds) saw positive returns for the month. Find up-to-date performance data on the ATB Investment Management website here.

Below are index total returns in Canadian dollar (CAD) terms for May and year-to-date, respectively:

The Canadian economy showed some mixed signals during the month of May, although most signs are pointing to a general slowdown in activity. 

Gross domestic product (GDP) and labour market releases were positive, although less so under the surface. For the first quarter, GDP demonstrated growth of 1.6% on an annualized basis as investment in inventories fell and household consumption slowed. The previous quarter was also revised, down to roughly flat, from just under 1% on an annualized basis. The labour market rebounded, adding 90 thousand jobs in April, driven by the private sector, although 55% of that 90 thousand were for part-time workers. In addition, the participation rate—simply the total employed as a proportion of total working age-population—rose to 65.3%, rising for the first time since June 2023. 

Housing starts slightly slipped in Canada, remaining just below average for the last three years despite political appetite to close the housing gap and stabilize home prices, as higher rates are likely weighing on homebuilders. As more individuals renew mortgages at higher rates and have less to spend, the average consumer also continues to pull on retail sales, which fell in March for the third consecutive month. Ending on a positive note for Canada, headline inflation ticked down to 2.7% on a year-over-year basis thanks to falling food prices and a slight slowdown in shelter price increases.

The better-than-expected inflation data wasn’t just in Canada. The US saw similar data, which pushed rates lower over the month. Besides inflation, US GDP, personal consumption, pending home sales, and producer consumption expenditure indices all showed softer data—pointing to an earlier cut. 

Renewed optimism over cuts was good news for stocks, further bolstered by positive earnings surprises. Stock prices rallied higher through the month. Nvidia, as a standout with their May 22 earnings release, continued the bullish investor sentiment for artificial intelligence, exceeding lofty expectations. For the US as a whole, aggregate revenues and earnings maintained growth in the quarter. 

Canadian and international markets did not show the same data, with slight declines in revenues and earnings over the same period. However, stocks in these markets still rallied through the month. After all, lowered rates could be here much sooner in these markets, with the European Central Bank and the Bank of Canada looking at a likely cut in early June. The Funds overall saw positive returns from equities for the month, but did lag broader markets holding less weight in names like Nvidia, Apple, and Meta. 

Within bonds, yields fell about 20 basis-points across the curve, leading to rising bond prices for the month. Both investment grade and high-yield credit spreads were relatively unchanged during May, remaining at or near lows this year—high-yield spreads in particular, are still near all-time lows. Tight spreads necessitate careful allocation to credit with a focus on potential downside remaining a top priority for the Fund’s fixed income holdings. The Funds fixed income holdings saw positive returns on the declining yields and continue to be positive overall for this year.