Click here for the PDF: The Monthly August 2024

With this commentary, we plan to communicate with you every month about our thoughts on the markets, some snapshots of metrics, a section on behavioral investing and finally an update on MacNicol & Associates Asset Management (MAAM). We hope you enjoy this information, and it allows you to better understand what we see going on in the marketplace.

Condemnation without investigation is the height of ignorance.”
— Albert Einstein

 

Bilaterally loose with more to follow soon…

Canada is Switzerland’s second-largest economic partner in the Americas in terms of bilateral trade and direct investment. The two countries often take a similar stance in multilateral forums, and although we tend not to think of Canada and Switzerland as economic individually, the two countries share currencies that are constituents in the US Dollar Index and therefore punch above their respective economic weights. Both the Central Bank of Canada and the Swiss National Bank have already begun monetary easing campaigns that are likely to continue into 2025. Central banks in Brazil, Chile and Peru had first move advantage around rate cuts, but Canada and Switzerland are what we would describe as more majors in global currency markets. Of course, more importantly from a global financial market context is presumed rate cuts in the United States, which are now a seemingly foregone conclusion. US Federal Reserve Chair Jerome Powell confirmed at a speech in Jackson Hole Wyoming last week that the time has indeed come to begun easing, and we suspect that the forthcoming gathering of the US Federal Open Market Committee or FOMC1 on September 17th and 18th will be when Mr. Powell updates the world on the United States’ monetary policy position with a bombshell announcement highly unlikely. The Chicago Mercantile Exchange’s Fed Watch Tool pegs the probability of an interest rate cut at a stout 100%. The Fed will assuredly cut next week because of what it suggests is continued progress on the inflation front. Of course, such action itself suggests a tailwind for stocks and bonds, but two questions remain in our minds: does their exist the potential for a policy error that hinges upon the misreporting of inflation or a surprise pop in inflation down the road, and just how much have stocks and bonds priced in a rate cut of 25 or even 50 basis points (0.25% or 0.50%)? Time will tell, but the year 2024 should continue to resemble the polar opposite of 2022, a nightmare year that was frustrating for traditional balanced investors as both stocks and bonds declined right before investors’ eyes. Assuming this is the first time your eyes have heard about the Fed Watch Tool, let’s briefly map it out for you a bit before turning to our thoughts and perspectives later. The Chicago Mercantile Exchange’s Fed Watch Tool calculates the unconditional probabilities of FOMC meeting outcomes to generate a binary probability tree. Federal funds futures, prices of which incorporate market expectations of the average daily Effective Federal Funds Rates (EFFR) during the futures contract months are published by the Federal Reserve Bank of New York each day. And the EFFR represents a transaction-volume weighted average of the previous day’s rates on trades arranged by major brokers in the market for overnight unsecured loans between depository institutions.

1 The FOMC is the Federal Open Market Committee, the body that sets the US fed funds rate.