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  • Mario Mota

The Steele Group's Q4 2023 Newsletter


Wrapping up the fourth quarter of 2023, both the United States and Canadian economies have shown resilience in the face of various challenges. In addition, 2023 gave us another reminder to avoid short term market timing. Many predictions from news outlets at the end of 2022 had additional economic market pain expected throughout 2023 as the increasing interest rates were expected to lead to a market downturn. Instead the December 31st 2023 ending returns were as follows: TSX 8.1%, S&P 500 24.2% MSCI World Index (excluding the US) 14.78%.


The global markets were volatile in the fourth quarter. The S&P 500 also posting a mixed performance. The technology sector has continued to outperform, driven by the excitement surrounding artificial intelligence and big tech companies. However, the energy sector has struggled due to concerns over slowing demand and falling oil prices.



In Q4, inflation information showed that the global economy was facing a mixed bag of challenges such as a slowdown in consumer spending and opportunities such as strong labour participation . The Bank of Canada maintained its key interest rate at 4.5% in Q4, as inflation continued to ease and economic growth slowed. The central bank expects inflation to reach its 2% target by the middle of 2024, as supply chain disruptions from the Russia/Ukraine continue to ease and global energy prices stabilize.


The United States continued to experience economic growth in Q4, however it’s expected GDP growth is projected to slow to a below-trend pace in 2024 as the impact of higher interest rates weighed on demand. Unemployment was expected to rise to 4.4% in Q4 2024, helping inflation to gradually decrease over the next few years.

The European economy faced ongoing challenges at the end of 2023 due to the conflict in Ukraine and the energy crisis, but the European Central Bank maintained its focus on price stability and signaled that it may continue to raise interest rates in the coming months.

While 2023 started with many debates and questions as to interest rate increases, now that inflation appears to have peaked, we expect 2024 to flip the conversations to rate cuts. Stock and bond markets have priced in the idea of both the Bank of Canada and the US Federal Reserve cutting rates to moderate their respective economies in the later half of 2024.


The primary goal of raising rates was to slow down customer spending/economic activity to return inflation to normal levels. It’s important to note that the sensitivity of Canadian borrowers to interest rates may result in a slower return to growth compared to other countries, such as the United States. Canadian household debt is currently the highest among the G7 countries, with a debt-to-GDP ratio of 102.1% as of June 2023. This is significantly higher than the United States, which had a debt-to-GDP ratio of 77.2% in the same period. The other G7 countries, including Germany, France, and the United Kingdom, all had debt-to-GDP ratios below 70%.


This elevated level of household debt in Canada may be a cause for continued concern. As interest rates remain high, Canadian households are likely to face increased debt burdens, in turn leading to reduced consumer spending domestically and slower economic growth. Experts are predicting a slowdown in the Canadian economy in 2024, with a possible rebound in the second half of the year in expectation of interest rate decreases.

From an investment standpoint, the US economy and stock market has the largest impact on most investors. While not suggested as strongly as in Canada, the US has also signaled the idea of rate cuts. This had led to fears of inflation returning once rate cuts start, in a comparable manner as to what was seen in the US during 1970s. Some news outlets have used charts to illustrate Consumer Price Index (CPI) data over the same period as today as seen in the upper section of this chart. It is important to note that in the 1970s the US Federal Reserve cut rates at the peak of inflation. The current Federal Reserve has repeatedly stated that one of their primary reasons for holding rates longer was to avoid a return of inflation which has been the case in the bottom table.



As the year progresses, market news will shift to the discussion of the upcoming US presidential election. Currently President Biden’s approval rating is below 40% with some polls showing lower than Donald Trump. Historically no president has won re-election at these poll levels, however, there has never been an election when the opponent had a similarly low approval rating.


It does seem easier to predict long term market growth over who will be the next president, as seen in the table below. But as always, past performance is not an indication of future performance. More importantly, politics and investing rarely mix well together. However there has been a trend of positive market growth in the 12 months prior to a US election.

Regardless of personal preference of candidate, market activity primarily has less to do with who is elected and more to do with real economic activity. Expect the continuing theme of AI/language models to persist by providing various industries the ability to improve operations, increase services, and reduce costs.


Overall, the global economy and markets are always facing periods of uncertainty. Currently growth is slowing in many regions. However, there were signs of resilience, with some sectors and regions showing signs of strength combined with the concept that rate cuts traditionally drive future economic growth by decreasing the cost of future capital.


We are here to support you in achieving your financial goals. If you require any assistance or have any questions please do not hesitate to reach out to Cliff, Mario, Mark, or our TSG team.

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