By Kyle Prevost on July 5, 2024 Estimated reading time: 8 minutes
Making sense of the markets this week: July 7, 2024
By Kyle Prevost on July 5, 2024 Estimated reading time: 8 minutes
So far this year, we’ve seen higher stock market valuations, skyrocketing U.S. tech stocks, cheap oil and rising bitcoin prices. Let’s check in on the predictions for 2024.
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Kyle Prevost, creator of 4 Steps to a Worry-Free Retirement, Canada’s DIY retirement planning course, shares financial headlines and offers context for Canadian investors.
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Checking in on our 2024 market predictions
As we celebrated Canada Day this past week, the first half of 2024 is officially in the books.
Being that it was a bit of a slow week in the markets due to Canada Day here and Independence Day in the U.S., we decided that this would be our opportunity to check in with some of our 2024 predictions we made six months ago.
Asset performance highlights for 2024
Here’s how some major assets have performed so far this year (all in Canadian dollars).
Prediction: Canada’s TSX 60 will gain 15%, outperforming the 8% gain for the S&P 500
So far, this forecast isn’t going so great. I think there’s still a solid chance the TSX60 will hit 15% by year end, and that the U.S. stock market will unlikely keep up its incredible rate of return it had so far in 2024. However, I don’t think we’ll see the U.S. market pull back to just an 8% gain for the whole year. The biggest U.S. stocks continue to roll along and drag the U.S. market average upwards despite negative small-cap returns.
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Prediction: Tech stocks will underperform the TSX Composite
This prediction was even worse than the first one! If we use the Nasdaq 100 as our measuring stick for U.S. tech stocks, then its 21.4% return dwarfs the 6.6% return of the TSX Composite Index. We continue to think U.S. tech valuations will sink back to Earth—but it might be later when this happens, not sooner.
We think this margin will close a bit by the end of 2024, but there are definitely animal spirits at play right now when it comes to the meteoric growth of Nvidia and other AI stocks. Consequently, it’s tough to tell just how high they will go. Going forward, lower interest rates should help big Canadian companies like banks, telecoms, and utilities.
What are animal spirits?
Animal spirits is a term used by economist John Maynard Keynes to explain irrational behaviour by investors. Traditional economics views people as rational beings who act logically based on facts. In real life, however, investors often act on emotions, rumours or gut instinct.
Prediction: Canadian GDP per capita would continue to go down
Sadly, this remains quite accurate. While the Canadian economy grew about 1% so far in 2024, it doesn’t really tell the story of how average Canadians are feeling about their finances. Considering how many new residents Canada is welcoming, our GDP should be growing at a substantially faster rate. Our GDP per capita is in the negative territory, with some economists calling it a recession. When you consider that Canada’s GDP per capita is down 3% since 2022, and that GDP per capita when adjusted for inflation is down to 2013 levels, maybe Canadian politicians will get serious about increasing productivity. With Canada’s unemployment rate ticking up to 6.1% from 5.7% at the start of the year, there will continue to be a low ceiling on GDP growth in the short term.
What is GDP?
Gross domestic product (GDP) is a statistic economists use to measure the total amount of goods and services produced in a country during a specific time period, usually a quarter or a year. This number is calculated in one of three ways.
Read the full definition in the MoneySense Glossary: What is GDP?
Prediction: Oil prices will stay below USD$85 per barrel
This one is mostly right. Oil prices did climb above the USD$85-per-barrel mark briefly in April, but it’s below USD$85 at the moment, and it’s only been able to maintain that strength due to supply cuts from OPEC.
Let’s wait and see how this one goes. If I wrote this column a week ago, I would have said Tesla looked like an excellent bet to be down 30% by year end. But shares jumped more than 10% this week on its positive second-quarter news. Despite the high numbers for vehicle deliveries, it has been a volatile year for Tesla shareholders, with prices down 42% at one point. Our central thesis was that decreased profit margins and increased competition would lead to lower profit projections. That still feels solid to me.
Prediction: Crypto might be volatile, but could finish 2024 up 50%
This one hit the bullseye. After going on a tear in February, bitcoin was down almost 20% between mid-March and the beginning of May.
Overall, bitcoin only has to go up slightly over the next six months to meet that 50% return prediction. Of course, I believe the asset will be ultimately worth very little in the long term. Admittedly, I’m quite skeptical about crypto.
Prediction: U.S. election in November will be chaotic
We also predicted that this election year would be more chaotic than most, even though U.S. election years are historically quite positive for U.S. stock markets. We shied away from making too many specific predictions about how a Biden/Trump victory would impact stock-market prices, but said many market-watchers would be cheering for a split government.
Well, it’s certainly been chaotic in the headlines. As the rest of the world watches in disbelief, the 2024 U.S. election has so far proven to be the most volatile campaign in recent memory—and maybe of all time. At this point, betting markets think it’s a coin toss as to whether Biden even makes it as the Democratic Party nominee. Ordinarily, a political candidate running against a convicted felon would be an easy win. Then again, ordinarily, a candidate running against an incumbent whose own party isn’t sure he’s still right for the job would be an easy win as well.
Given all the variables, we don’t even know how to measure the degree of accuracy of this prediction. We did reluctantly predict a very slim Biden victory, and that doesn’t look like such a great prognostication now that Trump is a fairly strong betting favourite. However, our strong feeling was that a split government would lead to a robust end of the year for U.S. stocks. That scenario could still be very much in play. We’re going to wait to fully assess this one.
After a very accurate round of 2023 predictions, we were statistically unlikely to repeat the feat in 2024. While we may have called it wrong about U.S. tech, I think there’s a good chance we’re going to get the big picture stuff right—by the end of the year. Despite a ton of negative headlines and general “bad vibes” over the last six months, one of my big takeaways is that the world’s stock markets (and especially America’s) should continue to reward patient Canadian investors.
Kyle Prevost is a financial educator, author and speaker. He is also the creator of 4 Steps to a Worry-Free Retirement, Canada’s DIY retirement planning course.
