Market Commentaries   |   May 7, 2024

Global Asset Allocation Team Market Update – May 2024

After a stellar first quarter performance, the second quarter got off to a softer start as unrelenting economic strength and persistent inflationary pressures in the United States fueled concerns the Federal Reserve will need to keep interest rates higher for longer. That dashed hopes for early and aggressive monetary policy easing and sent bond yields soaring higher – which weighed on both stock and bond market valuations in April. 

Jean-Guy Desjardins
Chairman of the Board and Global Chief Executive Officer
Candice Bangsund
Vice President and Portfolio Manager, Global Asset Allocation and Private Markets Solutions

After five straight months of gains, global stock markets retreated in April. The MSCI ACWI index lost -3.4%. The S&P 500 (-4.2%) fell back from its all-time high, while the S&P/TSX (-2.0%) also slipped – albeit less-so given positive performance in the heavyweight energy (+1.1%) and materials (+5.9%) sectors. Elsewhere, the MSCI EAFE fell by 2.8%, while the MSCI gauge of emerging market stocks managed to eke out a positive (+0.5%) monthly gain – with Chinese stocks (+6.5%) rebounding on optimism that the world’s second largest economy is stabilizing. 

Fixed income markets also generated negative results last month. Treasury yields pushed higher following hotter-than-expected inflation releases in the United States that added to evidence the Federal Reserve will begin easing later than previously thought. The 10-year treasury yield rose 48 basis points to 4.68%, while the policy-sensitive 2-year yield backed-up by 42 basis points to 5.04%. Despite softer growth and inflation data in Canada, government bond yields followed the gravitational pull of the treasury market. The 10-year government bond yield rose 35 basis points to 3.82%, while the 2-year yield rose by 17 basis points to 4.35%. For the month, the Barclays US Aggregate Bond Index fell -2.5%, while the FTSE Canada Bond Universe shed -2.0%. 

The US dollar (DXY) notched a fourth straight monthly gain (+1.7%) as investors scaled back their expectations for rate cuts from the Federal Reserve, while ebbing risk appetite also boosted demand for the safe haven currency. All major currencies declined versus a broadly stronger greenback, with the euro (-1.1%), pound (-1.0%), yen (-4.1%), and Canadian dollar (-1.7%) all depreciating last month. 

After surging to the highest level since October following Iran’s unprecedented attack on Israel, oil edged lower towards the end of the month as discussions on a possible cease-fire in the Middle East reduced the risk premium for crude. By contrast, gold posted a third straight monthly gain and breached a new all-time high amid strong demand from central banks and elevated geopolitical tensions that spurred demand for bullion – while copper rallied to a two-year high as a historic squeeze in supplies risked tilting the market into a major deficit amid an expected surge in demand from green industries. 

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Candice Bangsund
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