The month of June saw the overall market continue to gain overall. Although we saw a market slump mid-month, we finished all of June on a higher note.
June Market Performance:
June Portfolio Performance:
Looking back over the first half of the year, the big story has been the divergence of returns in the markets, which have formed a K-shaped recovery. A K-shaped recovery indicates a two-pronged recovery; the line going up and to the right represents the NASDAQ, which is up 30% as of the end of June. The line going down and to the right represents the TSX (Canada) and the DOW in the US; both indices are up 2% as of the end of June.
Unless you are a mega-cap tech company or have ties to AI, the majority of the market is represented by the down and to the right line of the ‘K.’ It is still recovering, but currently at a slower pace. Arguably, the 2% return in the DOW and the TSX is more indicative of the current economic landscape; we are bouncing back from 2022, but just at a steadier pace.
As we look forward, the current AI-driven rally may continue to charge ahead in the face of higher interest rates. But as we all know, investing is a long-term play, and what may lead for 6 months, might not be the leader over a longer time frame. None of us have a crystal ball, but I thought it would be interesting to share a 10 year annualized outlook from Vanguard (the world’s largest fund and ETF provider). The returns use Vanguard’s Capital Markets Model, which is their own quantitative model. The projections were published on May 17, 2023, and are based on the March 31, 2023 running of the model. You can find an infographic of this projection here: https://www.visualcapitalist.com/10-year-annualized-forecasts-for-major-asset-classes/
The first point that sticks out when reading the chart is that Vanguard is forecasting that US Value (example: Coca-Cola) is to outperform US Growth (example: Apple). International equities are to outperform US equities overall. This is based on lower international valuations compared to the sky-high valuations seen in mega-cap US companies.
The forecast for bond returns is looking solid on a risk-adjusted basis. These numbers are arguably representative of what bond returns should be over the long-term. Part of these forecasted fixed income returns can be attributed to the fact that we have gone through such a massive hike in interest rates over the last 1.5 years.
Although we have seen quite a divergent market thus far this year, if Vanguard’s quantitative modelling is correct, there will be positive long-term returns on the horizon for investors.
If you have any questions on the above, please let me know and I am happy to discuss further.
Thanks,
