I had breakfast with the Chief Investment officer David Sykes of TD Bank last week and here is a summary of his comments.

The first comment is that no one can predict the future for the economy, markets, etc. We all make our best guesses, but so much is out of our control, and there are many influences. If someone tells you what they ‘know’ is going to happen, they are typically wrong!

Canada has done a good job of reducing inflation. If we exclude rent and mortgage payments, year over year it is up 0.5%, so very low, and our unemployment rate is creeping up and is now 6.6%. It’s possible the Bank of Canada will do a bigger rate cut at their next meeting. They are lowering interest rates to try to stimulate the economy and keep things growing. All banks expect there to be continued cuts by the Bank of Canada, and interest rates should be lower next year, which is good if you have a renewing mortgage or a line of credit.

In the US, their inflation is 2.5% headline and 2.7% core. Goods inflation (stuff) has decreased, but there are still higher prices around services.

Around the world, central banks are cutting interest rates, and the US Federal Reserve did their first 0.5% cut. Their next meeting could also have them cutting their central interest rate further.

The US economy continues to grow; there are no signs of a recession, so they appear to be having a soft landing—growth is slowing but still positive. Their unemployment rate is 4.4%. It may be that during COVID, a lot of folks received payments that they saved and are now spending this money. Seventy percent of the US GDP is from people spending.

At the same time, corporate profits are increasing (as inflation and interest rates are decreasing), which is a good setup for stocks. Earlier this year, the technology/AI stocks were the strong gainers, but now there is a rotation for more companies to have their stock prices increase.

In the Canadian real estate market, there is still a major supply issue. It’s very costly to build with the permits, taxes, and fees, which discourages developers, and we continue to grow our population.

The US election doesn’t really have as much of an impact on the stock market as you would think. Markets prefer a divided Congress.

What is a concern, which isn’t discussed much, is the level of debt the US (and Canadian) governments have.

The outlook is pretty positive for stocks as long as unemployment stays relatively low and corporate profits continue to grow. Bonds are also decent as their interest rates/yields are higher than they have been.

Here are the year to date performance numbers:

TSX/S&P (Canada): 17.72%

S&P500 (US): 21.9%

Canada Aggregate Bonds: 2.4%

Sources: Ycharts

TD Asset Management