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Points in Time, Q4 2023

From a market perspective, last year finished on an unexpected high. What do we see in looking ahead to this year? Consensus estimates call for modest growth in 2024, along with lower inflation, higher unemployment, and lower rates. But there are many factors to consider. And as last year showed, there are always some surprises on the horizon.

In this commentary:

The futility of the yearly forecast | Canadian Equities | U.S. | International | Fixed Income

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The futility of the yearly forecast

Scott Blair, CFA
Chief Investment Officer

Last March, I was honoured to participate in the Edmonton CFA Society’s Annual Forecast Dinner. Along with two other panelists, we fielded questions from the moderator and audience on a variety of topics. The mood was downbeat. The U.S. banking crisis that would see three of the largest U.S. bank failures in history was just beginning. Inflation was raging. Interest rates had risen rapidly the previous year and were still rising. A recession seemed inevitable.

In general, the panel agreed that a mid-single digit return for equity markets would be a good result given all the downside risks.

Getting it wrong

Surprisingly, our caution was unnecessary. In fact, most major stock markets were up double digits on a total return basis for 2023. Economic growth proved more resilient than expected. Inflation started to move towards a more suitable level, which caused a pause in interest rate hikes and a look towards cuts. All good news for markets.

Figure 1: Wall Street’s Projected Annual Change for S&P 500

: Wall Street’s Projected Annual Change for S&P 500

Source: Bloomberg, Charlie Bilello

We weren’t alone in our caution. Wall Street strategists were more pessimistic than we were (see figure 1), and on average forecasted that 2023 would be a negative year for returns in the U.S. as defined by the S&P 500 index. According to Bloomberg, this is the only time since 1999 that strategists have forecast a negative annual return for the U.S. market going into the year. Yet the S&P 500 posted a total return of over 26% during the year! Talk about a swing and a miss.

What to expect in 2024

Our collective misses notwithstanding, the forecasting goes on. The consensus economic outlook for this year has four main planks that are relatively uniform across the globe:

  • Lower economic growth with a possibility of two consecutive quarters of negative economic growth in some economies (i.e., a technical recession), but still growth overall on the year.
  • Lower inflation trending towards the “magic” target level of 2% that many central banks (including the Bank of Canada) are shooting for.
  • Higher unemployment, which contributes to lower growth and helps inflation by keeping wages in check.
  • Lower interest rates. For Canada and the U.S., the current market consensus is 100bps (1%) of rate cuts by the end of 2024.

From a market perspective, strategists’ forecasts are fairly rosy. Corporate earnings are expected to grow by 14% in the U.S., 8% in Canada and 5% in Europe. Accordingly, stock market returns in Canada and Europe are forecast to deliver a 12% return with the U.S. lagging with 9%. The cherry on top is that expected falling interest rates have also raised expectations for another strong year for bonds (Canadian bonds were up 6.7% in 2023). Not bad for a slowing economy!

Focus on what you can control

Although we generally agree with the direction of the economic outlook above, we don’t necessarily agree with the market forecast. There are just too many factors and unknowns to accurately predict what will happen in any given year. For instance, there was no recession in 2023 and stock markets had a very strong year. In 2022, a positive market was expected but we got a negative one. Of course, the granddaddy of all post-COVID-19 predictions that didn’t pan out was that inflation was transitory. A lot of rate hikes and a much longer time period were needed to get inflation to a point where it’s just now starting to come under control.

As professional investors, we do need to cautiously forecast the future and do so in a risk-controlled way. For instance, we consider multiple scenarios before we purchase securities and combine different asset classes and solutions to client portfolios to mitigate risk. We always make sure “we know what we own” by doing extensive research and stress testing on our holdings.

Most importantly, we invest for the long term. Anything can happen in a year, and while it can be fun to pull out the crystal ball, we know that wealth generation and preservation are long-term propositions.

Sources: FactSet, Bloomberg

Canadian Equities

Gil Lamothe, CFA
Senior Portfolio Manager, Canadian Equities


The Canadian equity market finished strong in 2023, with the S&P/TSX Composite Index returning 8% in Q4 and 12% for the year. That said, volatility was quite high throughout the year. The Index hit a 52-week low in October, quickly followed by a 52-week high at the end of December.

One of our investment philosophy pillars is to have a long-term time horizon. Timing the market is a mug’s game, and we believe that investors who hold high quality businesses through volatile times will be rewarded in the long run. This philosophy paid off, again, in the latter part of 2023.

The strong price performance in Q4 was partly due to lower bond yields and positive reported earnings. During the quarter, the Canada 10-year bond yield dropped sharply from 4.0% to 3.1% (see figure 2). Inflation is currently still elevated at 3.1%, but has declined significantly since the beginning of 2023. The consensus expectation is that the Bank of Canada will start cutting the overnight rate in the first half of 2024, which would bring some relief to consumers and businesses.

The technology sector in particular responded positively to these macro-driven improvements. Companies such as Shopify, Descartes Systems and Constellation Software all reported good business results and were up strongly in the quarter.

Figure 2: S&P/TSX composite vs. 10Y Canadian bond yield

S&P/TSX composite vs. 10Y Canadian bond yield

Source: FactSet

Canadian banks performed well during the last two months of the year despite mixed financial results. There were challenges throughout the year, including increasing their provision for credit losses (money set aside for loans that might become impaired). Notwithstanding this, the banks continued to increase their dividends and are in the process of matching expenses with slowing revenue growth, which should improve earnings in 2024.


Last June, Canada’s banking regulator (OSFI) increased the amount of capital Canadian banks need to hold. In December, OSFI announced they would maintain these capital levels. As stated by OSFI, “banks have each reached a level of reserve capital that’s sufficient to absorb losses if current vulnerabilities materialize into actual losses”. This is a positive development, and confirmation that the Canadian banks are well capitalized.

Enbridge announced the sale of their ~50% stake in Alliance Pipeline and Aux Sable to Pembina for $3.1 billion. This sale closes the funding gap related to Enbridge’s previously announced $19 billion purchase of natural gas assets from Dominion Energy. From Pembina’s perspective, they’re increasing ownership in assets they understand very well. We view both sides of this transaction positively.

Despite rapidly rising interest rates, it was a relatively good year for dividend growth in Canada. Clients invested in our CWB LFA Canadian Dividend strategy, saw 28 out of 31 companies increase their dividend at a weighted-average increase of 5.8%. These increases affirm our focus on companies with strong free cash flow generation capability, which allows them to either increase their dividend, or significantly grow their business.


During the quarter, we made a few adjustments to the portfolios, which included some rebalancing of companies that had moved materially away from our target weight. As we have a long-term time horizon, stocks we hold which temporarily underperform present good buying opportunities. In Q4 we purchased additional shares of Brookfield Renewables, Canadian Pacific and Methanex. Similarly, we trimmed our Canadian Natural Resources position as energy stocks had surged in November.

Late in the quarter we sold our Allied Properties position. The company has successfully exited a group of data center properties, but we don’t believe this to be a big enough catalyst to overcome the drag of out-of-favour office properties, which looks set to continue into 2024.

Sources: Bloomberg, Statistics Canada, Office of the Superintendent of Financial Institutions (OSFI), FactSet

Q4 2023 Dividend Performance Summary

Canadian Dividend Portfolio
Number of companies in the equity portfolio 31
Number of companies that declared an increased dividend 28
% of companies that declared an increased dividend 90.3%
Weighted average of dividend increase 5.77%
Consumer Price Index increase (YoY*) 3.10%
Equity portfolio dividend yield** 4.61%
S&P/TSX dividend yield 3.15%


Top 10 Dividend Growers

* Estimate from Statistics Canada, November 30, 2023
** The dividend yield is based on the Leon Frazer Canadian Dividend Fund which includes a target weight for cash

Source: CWB Wealth



Liliana Tzvetkova, CFA Co-Head of U.S. Equities & Portfolio Manager

Saket Mundra, CFA, MBA
Co-Head of U.S. Equities & Portfolio Manager


Last year was a strong one for U.S. equities, with the S&P 500 surging 23%, while our U.S. equity portfolio had a fantastic year, generating returns above 30% (both figures in CAD) . Notable sectors leading the way included information technology and communication services, which both posted gains of over 50%, followed closely by consumer discretionary with an increase of over 40%. Some top-performing stocks in these sectors included NVIDIA (+239%), Meta Platforms (+194%), Amazon (+81%), Alphabet (+58%), and Microsoft (+57%).

As we reflect on 2023 – an eventful year to say the least – the recurring theme is the swiftness with which market narratives can emerge, fade, and shift. The year started with concerns about instabilities in the U.S. financial system and the looming possibility of a recession. However, these worries were swiftly overshadowed by the emerging excitement surrounding Artificial Intelligence, which propelled technology stocks to considerable gains.

Subsequently, the market’s narrative again shifted gears, focusing on higher interest rates and speculations about the timing of a potential interest rate cut by the U.S. Federal Reserve. In the final twist in the last month of 2023, the market’s attention began pivoting towards the possibility of an early rate cut.

This carousel of narratives is a good reminder that in the ever-changing landscape of the market, the more things appear to change, the more they stay the same. Market narratives shift frequently, sometimes several times a year. But most of these shifts are noisy distractions from what matters most: maintaining a long-term orientation.


Some of the worst performers of 2022 turned out to be some of the best performers in 2023.

In 2022, we purchased NVIDIA and added to our holdings in Alphabet, Microsoft, and Amazon to take advantage of attractive valuations after these stocks posted negative returns: they were among the worst-performing stocks that year (see figure 3). When we added to these holdings, we wish we could say we foresaw the AI boom and that they would become some of the top-performing stocks of 2023. The reality is we did not.

Our decision to add or increase these holdings in those sectors was based on our belief that the market’s concerns were largely short-term, whereas we assessed that the long-term potential of these individual businesses remained intact. Maintaining intellectual honesty is a critical part of our investment ethos. We want to be truthful in our communications with clients, whether our decisions turn out well or not.

Looking ahead, we recognize that the market’s focus on interest rates and the decisions of the U.S. Federal Reserve contribute to market volatility.

Figure 3: Tech weakness in 2022 presented opportunities for 2023

Tech weakness in 2022 presented opportunities for 2023

Source: FactSet
*Returns in U.S. dollars based on $100 invested at start of 2022

In our recent quarterly notes, we described examples such as our holdings in an automotive parts retailer (AutoZone) and discount retailers (Dollar Tree and Dollar General). We outlined how these examples align with our investment process, and how short-term market concerns temporarily overshadowed what we believe are the fundamental strengths inherent in these businesses. Our objective for the coming year remains unchanged: continuing to identify strong businesses, understanding their long-term potential, and ensuring these investment opportunities align with our process.


During the quarter we added to our holdings in Dollar General, Union Pacific, and Johnson & Johnson. Our performance in 2023 was primarily driven by our holdings in NVIDIA, Microsoft, and Amazon.

Despite the favourable results, we reiterate our stance on not fixating on short-term outcomes, whether strong or weak. Our focus remains on investing in high-quality companies with good growth prospects, solid management teams, healthy balance sheets, and predictable cash flows – all while trading at reasonable valuations.

Sources: FactSet, CWB Wealth



Ric Palombi, CFA
Senior Portfolio Manager, International Equities and Alternative Income


One year ago, analysts were predicting that stocks would underperform as the Federal Reserve would be unable to avoid a policy mistake and drive the economy into a recession to manage inflation.

However, in December, the Fed surprised markets by performing a dovish pivot by signalling interest rates increases are likely over and that 2024 will see rate cuts. As we start the new year, the once unthinkable soft-landing scenario is now the base case. Markets consequently continued their strong rally in December to end the year at, or near, new highs.

Across the Atlantic, the European Central Bank (and the Bank of England) adopted more hawkish tones, and economists and investors are predicting multiple cuts for both regions as well (see figure 4).

Figure 4: Forecast poll - how far will the European Central Bank cut rates?

 Forecast poll - how far will the European Central Bank cut rates?

Source: Financial Times


Our process considers various outcomes and risks. While our International Equity portfolio should perform well in a soft-landing scenario, its diversity of end-driver exposures, balance between growth, cyclicality and defensiveness, and focus on valuation, balance sheet strength and business resilience should provide protection in the event of additional surprises.

In Europe, the performance of Italian (+36%) and Spanish (+31%) stocks placed them amongst the top-performing indices in comparison to broader European markets (+17.5%). Both economies demonstrated a robust recovery from the devastating impacts of the COVID-19 pandemic. Our portfolio benefited from these trends by its exposure to companies in the regions such as Intesa Sanpaolo, Enel, and BBVA.

Other noteworthy surprises on the international front included the underperformance of China and the outperformance of Emerging Markets (EM) ex-China. EM central banks’ proactive policy actions and early rate hikes to counter inflation was a key reason explaining the resilient performance trends in those markets. The fact that they were ahead of the game, relative to developed markets, places them in a good position to continue generating positive total returns going forward. The portfolio benefited from these trends by its exposure to Brazilian companies CCR and Banco Bradesco.

The reasons for China’s under-performance have been well documented in our recent outlooks. We believe the low valuations of Chinese equities sufficiently discounts the bad news, leaving them well-positioned for outperformance when the economy starts to improve again.


We initiated a position in Adyen N.V., an Amsterdam-based “fintech”. If you’ve done any shopping online on the websites of Nike, Domino’s, Airbnb, or Etsy, there’s a good chance that Adyen’s software handled the seamless process from taking your payment method details to fully approving your transaction.

The founders of Adyen, when starting the firm in 2006, had extensive experience in the sector and fully understood the many technology shortcomings offered by the incumbents. They established Adyen with an aim to fix these shortcomings by writing the entire software code base from scratch, and by doing so in-house.

This approach led to the company having one of the best software stacks in the industry. Consequently, Adyen has operating margins of close to 50%, a return on equity (after excluding excess cash) of over 100%, and is expected to grow net income at over 20% annualized over the next several years.

The company’s shares soared in the COVID-19-induced rally from €750 at the start of 2020 to nearly €3,000, thus trading at a staggering valuation of 140x forward P/E. As the mania fizzled, the stock bottomed out at €640 in 2023. We were ready with our research and patiently waited for the right entry point. When the valuation hit an acceptable level, we finally pulled the trigger.

Source: Financial Times, CWB Wealth


Fixed Income

Malcolm Jones, MBA, CFA
Head of Fixed Income, Senior Portfolio Manager

Ric Palombi, CFA Senior Portfolio Manager, International Equities and Alternative Income


We saw some wild swings in bond yields during 2023. As shown in figure 5, the yield on a 2-yr Canada bond moved between 3.4% and 5.0% during the year. However, if you only looked at the 2-yr bond yield at the start and end of 2023, minimal movement would appear as the yield fell only 15 bps (from 4.05% to 3.9%). The story was similar for the 10-yr Canada, and the spread between 10-yr and 2-yr yields.

The volatility can be attributed to investors struggling to interpret how high interest rates would have to go to bring inflation under control. Investors were “data dependent”, bidding up bonds on positive data points showing slower inflation and selling off bonds on negative data points. Geopolitical events such as war in Ukraine and in the Middle East as well as the latest Argentinian election also contributed to market swings.

In thinking of 2023, it’s not unreasonable to believe volatility will remain through 2024. Central banks argue the task of fighting inflation is largely done, but vigilance is critical. Markets, however, suggest the inflation fight is largely done and significant rate cuts are imminent.

Markets began 2023 concerned about how rising interest rates would adversely affect the economy. But growth held in nicely, particularly in the U.S. Once again, the U.S. consumer has proven to be very resilient; both consumer spending and employment remain buoyant. It should be noted that the effects of interest rates can take some time to work through the economy. Time will tell whether we get a soft landing or a recession in 2024.

Figure 5: Yield Movements in 2023
Yield Movements in 2023

Source: Bloomberg


We anticipate long rates will return to a level of approximately 100 to 200 bps above long-term inflation. While there may be bumps along the way, we anticipate the 2% inflation target will be met over the long term. As such, we’re not expecting much year-on-year movement in long-term yields. Short-term yields are more related to the bank rate. As markets gain more confidence that inflation really has been tamed, we would expect central banks to start to cut bank rates. The timing and amount of cuts remains to be seen, but we believe the trend is downwards. As such, we anticipate that short rates have room to decline over the coming year.
Credit spreads depend on economics. The lagged effects of rate hikes in 2023 might adversely affect the economy in 2024, pushing spreads wider. Central banks are expected to start cutting bank rates, which could positively affect the economy and push spreads narrower. Overall, we don’t expect much movement in credit spreads.

We’re also watching the increase in supply of national debt, partially offset by a decrease in sub-national debt. This could put upwards pressure on yields, particularly longer-term yields.


We’ve been overweight credit for the year. We believe there’s still an advantage to be had from this exposure. For the quarter and for the year, credit has provided nice outperformance.

Duration did not add much outperformance in 2023. We expect to hold duration in-line with our benchmark (FTSE Canada Universe Bond Index), holding both long bonds to capture extra coupon, and short bonds to capture capital gains from a downward shift in short rates.

Source: Bloomberg

Information presented herein is for discussion and illustrative purposes only and is not a recommendation or an offer or solicitation to buy or sell any securities. Views expressed are as of the date indicated, based on the information available at that time, and may change based on market and other conditions. Unless otherwise noted, the opinions provided are those of the authors and not necessarily those of CWB Wealth or its affiliates. CWB Wealth does not assume any duty to update any of the information. Investment decisions should be based on an individual’s own goals, time horizon, and tolerance for risk. Nothing in this content should be considered to be legal or tax advice and you are encouraged to consult your own lawyer, accountant or other advisor before making any financial decision. Quoted yields should not be construed as an amount an investor would receive from the Fund and are subject to change. Investors should consult their financial advisor before making a decision as to whether mutual funds are a suitable investment for them. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus, which contains detailed investment information, before investing. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated. CWB Wealth uses third parties to provide certain data used to produce this report. We believe the data to be accurate, however, cannot guarantee its accuracy. Visit cwbwealth.com/disclosures for our full disclaimer.

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