A mid-week analysis of what’s happening in global financial markets from the perspective of AGF’s investment management team.
Topped Out?
Global equity markets continue to be volatile after last week’s surprisingly hot Consumer Price Index (CPI) and Purchaser Price Index (PPI) prints in the United States created more uncertainty about the U.S. Federal Reserve’s interest rate path going forward.
It feels like the market is in a “topping” mode and a pullback should not be ruled out by investors. We are also entering a historical seasonal soft spot in the market, so, again heightened volatility could be in order in the near term.
Cut and Dry
Approximately two-thirds of U.S. Real Estate companies have reported earnings thus far, with nearly half beating Q4 2023 estimates. Guidance for 2024 has been a little less impressive, with the majority of companies guiding below consensus at the midpoint. But these numbers are reflecting delays in rate cuts and disappointing trends in occupancy and rental growth.
All is not lost for the sector, though. While the current high rates remain an impediment to accessing capital for new investments, we do believe that rate cuts are on the horizon, leading to less balance sheet scrutinization. For the near term, we believe investment dollars will be focused on companies with strong balance sheets and healthy industry backdrops.
Back to Basics
For consumer staples companies, key topics of debate coming into this year included the ability to drive topline momentum through pricing against the impact of slowing goods inflation, other rising costs (such as labour) and the potentially weaker consumer environment. With roughly 70% of Consumer Staples companies in the U.S. having reported fourth quarter earnings, these dynamics were clearly in play with just under half of the companies posting a topline miss relative to expectations.
Many of these U.S. companies have responded in kind by striving to spur profitability through supply chain optimizations, inventory management and diversifying into alternative revenue streams such as advertising/membership revenue, resulting in 85% of companies beating on earnings per share (EPS) so far.
Looking forward, we believe some of the same companies are cautious about the consumer environment but are optimistic about their ability to drive topline growth with a more balanced approach: leveraging strong brand equity and consumer value proposition to drive volumes, while employing new technologies such as generative artificial intelligence (AI) to both increase customer engagement as well as optimize operational efficiency.
The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds, or investment strategies.
Commentary and data sourced from Bloomberg, Reuters and other news sources unless otherwise noted. The commentaries contained herein are provided as a general source of information based on information available as of February 21, 2024 and are not intended to be comprehensive investment advice applicable to the circumstances of the individual. Every effort has been made to ensure accuracy in these commentaries at the time of publication, however, accuracy cannot be guaranteed. Market conditions may change and AGF Investments accepts no responsibility for individual investment decisions arising from the use or reliance on the information contained here.
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Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.
TORONTO – One expert predicts Ottawa‘s changes to mortgage rules will help spur demand among potential homebuyers but says policies aimed at driving new supply are needed to address the “core issues” facing the market.
The federal government’s changes, set to come into force mid-December, include a higher price cap for insured mortgages to allow more people to qualify for a mortgage with less than a 20 per cent down payment.
The government will also expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody buying a newly built home.
CIBC Capital Markets deputy chief economist Benjamin Tal calls it a “significant” move likely to accelerate the recovery of the housing market, a process already underway as interest rates have begun to fall.
However, he says in a note that policymakers should aim to “prevent that from becoming too much of a good thing” through policies geared toward the supply side.
Tal says the main issue is the lack of supply available to respond to Canada’s rapidly increasing population, particularly in major cities.
This report by The Canadian Press was first published Sept. 17,2024.
OTTAWA – The Canadian Real Estate Association says the number of homes sold in August fell compared with a year ago as the market remained largely stuck in a holding pattern despite borrowing costs beginning to come down.
The association says the number of homes sold in August fell 2.1 per cent compared with the same month last year.
On a seasonally adjusted month-over-month basis, national home sales edged up 1.3 per cent from July.
CREA senior economist Shaun Cathcart says that with forecasts of lower interest rates throughout the rest of this year and into 2025, “it makes sense that prospective buyers might continue to hold off for improved affordability, especially since prices are still well behaved in most of the country.”
The national average sale price for August amounted to $649,100, a 0.1 per cent increase compared with a year earlier.
The number of newly listed properties was up 1.1 per cent month-over-month.
This report by The Canadian Press was first published Sept. 16, 2024.
MONTREAL – Two Quebec real estate brokers are facing fines and years-long suspensions for submitting bogus offers on homes to drive up prices during the COVID-19 pandemic.
Christine Girouard has been suspended for 14 years and her business partner, Jonathan Dauphinais-Fortin, has been suspended for nine years after Quebec’s authority of real estate brokerage found they used fake bids to get buyers to raise their offers.
Girouard is a well-known broker who previously starred on a Quebec reality show that follows top real estate agents in the province.
She is facing a fine of $50,000, while Dauphinais-Fortin has been fined $10,000.
The two brokers were suspended in May 2023 after La Presse published an article about their practices.
One buyer ended up paying $40,000 more than his initial offer in 2022 after Girouard and Dauphinais-Fortin concocted a second bid on the house he wanted to buy.
This report by The Canadian Press was first published Sept. 11, 2024.
