January 08, 2024
Commentary: NCM Dividend Champions
On January 8, 2024, Portfolio Manager Michael Simpson, CFA recapped some market highlights for 2023 and shared his somewhat divergent outlooks for Canada and the US heading into 2024.
Good day to everyone and I would like to wish all of our viewers a happy and healthy New Year.
2023 was a year when external events shaped the investment universe and society at large. The war in Ukraine continued, and a new war erupted in October between Israel and Hamas.
The market was focused on a Federal Reserve pivot, and the market believed they received a pivot message in December. To the layperson, a pivot was a signal of the end of interest rate hikes and the start of a cycle of lower interest rates.
The stock market is always a leading indicator. And as the strategists and economists look to 2024, they see lower interest rates, which are good for the market. The other key driver for the market is earnings.
The markets in 2023 forgot about a recession and were up, led by the technology heavy Nasdaq. The Nasdaq increased +44%, the S&P 500 +23% and the TSX +11%.
It is important to note that the Bloomberg index of the Magnificent Seven, the largest and most prominent technology companies in the world, all domiciled in the U.S., was up 107%. That's correct. 107%, and accounted for approximately two thirds of the gain of the S&P 500. Although these are fantastic companies, we do not believe they will repeat the performance that they had in 2023.
On the TSX, the star performer were Celestica up +154%, Shopify + 119%, Cameco, a uranium producer, up +86%, and the former SNC Lavalin increasing +57%.
What to Expect In 2024? We learned that it is very difficult to be an economist or strategist in 2023. Fully convicted views of a recession in 2023 did not come to fruition. We are not here to disparage the economy, the economists or strategist profession, but merely to pinpoint how hard it is to accurately pinpoint the exact start of a recession. Many economists and strategists are dedicated, hardworking professionals, but predicting a large, complex entity like the economy with precision is fraught with error and incorrect timing.
We do have business cycles and the business cycle has not been eliminated. In Canada, we are not creating jobs at the same rate as in the U.S.. Stats Canada recently released employment numbers that showed for the month of December that approximately zero net new jobs were created in the month of December. Canada's unemployment rate held steady at 5.8%.
In Canada, more part time jobs were created than full time jobs. The U.S., in contrast, added 216,000 full time jobs. With all economic data, there are some data points that do not fit or blend with others. In December, Canada, on a year over year basis, average hourly earnings grew at a 5.7% rate.
When we look at all the evidence, statistical, factual and conversations with company management teams, we see the economy slowing at a much greater rate than the U.S. economy.
Going back to our discussion on the economy and GDP growth, we are not going to hazard a prediction on when a recession will start. But we do believe there are structural factors in Canada, such as higher personal and corporate debt, lower productivity and a large amount of lower interest rate mortgages maturing over the next 2 to 3 years. These mortgages will be renewed at higher rates and thus will dampen consumer spending. The Bank of Canada will be watching and we believe will act by lowering rates to ease some of the self-inflicted debt burden that we have in Canada.
As mentioned earlier, there are macro geopolitical events that are known. These are the known knowns. In November 2024, there will be a US presidential election. But again, don't look here for a prediction. We manage to any political or economic outcome.
How we act in 2024 will be more of the same. We will roll up our sleeves and look for dividends - look for Dividend Champions. Those companies that pay dividends on a regular basis and grow their dividends.
Themes that we all pay attention to are increasing electrification of transportation and the overall economy, growing populations and geopolitical events, both new tensions and old ones.
We encourage you to stay invested in 2024 and watch for rate reductions first in Canada, then the U.S., and the impact it will have on dividend stocks. We believe they will have a positive impact on dividend stocks.
The information in this video is current as of January 8, 2024 but is subject to change. The contents of this video (including facts, opinions, descriptions of or references to, products or securities) are for informational purposes only and are not intended to provide financial, legal, accounting or tax advice and should not be relied upon in that regard. The communication may contain forward-looking statements which are not guarantees of future performance. Forward-looking statements involve inherent risk and uncertainties, so it is possible that predictions, forecasts, projections and other forward-looking statements will not be achieved. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.
Michael Simpson, CFA
Michael is one of Canada's most accomplished dividend investors and the Portfolio Manager of NCM Dividend Champions.