From this chair, last year’s top story was what has been coined “U.S. exceptionalism.” Catalyzed by the impact of an unprecedented amount of fiscal stimulus and ongoing ample liquidity, U.S. growth topped consensus estimates for the third straight year. Handily so for 2024, causing global investors to pile into U.S. stocks, in turn fueling a second consecutive year of >20% price gains for the S&P 500 (SPX) and a bull market in the U.S. dollar (USD). The ‘Magnificent 7’ (M7) accounted for 53% of last year’s price appreciation for the SPX (46% of total return) while the value of the equal-weighted SPX increased +13%. Price gains for Canada’s TSX totalled 17.8% (21.5% total return). This commentary will recap some highlights of last year, discuss our macro-outlook, the positioning of our funds, and the double-digit net gains of our funds.
Without doubt, the U.S. Presidential election was the catalyst for strong equity prices last month. Predictive polls were wrong once again as the race was called in President-Elect Trump’s favour early the morning after the election (Nov. 6th), and the expected too-close-to-call results became a clear Trump victory. The initial market reaction to the results featured a broad market advance lead by high beta factors and cyclical sectors, ones expected to benefit from the presumed stronger economic growth catalyzed by a Trump Presidency. The list of winners included Financials and small cap stocks while the losing side of the ledger included solar power companies, issuers dependent upon imports from China, including dollar stores, along with some housing and real estate issues.
Thanks to the relative overweight in Resource stocks in the Canadian market, the S&P TSX index was able to buck the first losing month in U.S. markets of the past six months. While the monthly decline was attributable to a rough last day of the month, arguably the negative month was not unexpected given that 32% of the worst 25 trading days in index history have occurred during the month of October. Gold continued to shine while bonds were smacked, as yields on 10-year U.S. government bonds climbed more than 50 basis points. As for our funds, the Class F Lead Series of our Multi Strategy LP advanced +1.60% net of fees, boosting its year-to-date net gain to +12.27% while the Class F Lead Series of our Long Short LP squeaked out a +0.10% net gain such that its year-to-date net stood at +12.29%. But then the U.S. election happened. Hence, post some comments on key drivers for our funds and markets during the month, we’ll offer up a few thoughts about the outlook for markets on this day after President Trump’s historic non-consecutive second term victory.
While the historically challenging month of September (average decline for S&P 500 of -1.2% since 1926) started on the wrong foot (down -4.25%), the trend turned quickly enabling stocks (and bonds) to post another winning month. The intra-day graph below of the S&P 500 (red line, left axis) and long term U.S. bonds (white line, right axis) highlights their flip-flopping correlation, from negative to positive to negative. After the fourth trading day of the month, several items catalyzed the change in investor sentiment.