Lexicon Financial Group Weekly Update — August 7, 2024
“We have nothing to fear but fear itself.”
From the desk of Craig Swistun, CIM, MFA-P, Portfolio Manager, Raymond James Investment Counsel, and Wayne Hendry, Client Relationship Manager, Raymond James Investment Counsel
Looking Around
Non-profit organizations such as charities, endowments and foundations play a vital role in society. According to Imagine Canada, there are over 170,000 charitable and non-profit organizations in Canada - 85,000 of these are registered charities. Many Canadians have donated time or money to a charity or non-profit at some point. The truth is, most Canadians will interact with hundreds of non-profits and charities over the course of their lifetime. As an example, if you’ve bought a poppy in honour of Remembrance Day, you’ve interacted with a charity. The local Business Improvement Association? Probably a non-profit.
Given how important this sector is to our communities, it’s troubling how little we talk about them. Many generous Canadians are not aware of the best ways to support the causes they care most about. For example, giving to a cause using your credit card is fantastic. Giving gifts of appreciated securities from a non-registered investment account is better. Why? Because there may be tax benefits to you, the donor.
But there are other ways to give. You can provide legacy gifts in a will, you can name charities as the beneficiaries of a life insurance policy, you can gift a house, a quarter section of land, or even your loyalty points on your credit card. That’s not even to mention one of the most important gifts of all: the time and energy you might spend volunteering for a non-profit.
Many of our clients are generous and have incorporated philanthropic planning as part of their giving strategy. If you want to explore whether or not you can make a bigger difference for the same after-tax cost, we welcome the discussion.
As a business, we’re also fortunate to work with non-profits and charities themselves. For these clients, we manage their investment portfolio or endowment. In some years, organisations may receive more by way of donations and revenue than they spend on their overall mission. This excess capital is saved, to be used in future years when donations may be lower or costs are higher. Additionally, an endowment can generate annual income that can help reduce the need for fundraising. (By the way, we’re big fans of endowments and have written about them many times.)
Read and Watch
Want deeper insight into topics in your Weekly Update? Then, read and/or right click:
Video: FDR Nothing to Fear But Fear Itself 1933 Inaugural Address
Global market rout may force central banks into early rate cuts
Our website features articles written specifically for non-profit and charitable organisations. If you’re interested, here’s something to get you started:
Daniel M. Pallotta is an American entrepreneur, author, and humanitarian activist, who has forced non-profits and donors to think differently about how they create change in the world. He contends that philanthropy needs to be amplified by the tools of capitalism and marketing on a big scale (or as big a scale as the non-profit can support). For example, Avon (the Anglo-American multinational company that sells cosmetics, skin care, perfume, and personal care products) provided Dan with a US$350,000 loan to create a large event, raising money for breast cancer. There was no guarantee of success – Avon could have lost everything. Instead, the event generated US$4 million. It gave Dan and his team US$2 million to launch the event in four cities and they netted US$25 million. (1)
We work with non-profits and research the non-profit sector so that we can be a bigger part of the solution for non-profits. After all, no one can be a part of the solution if they do not know what the challenges are. This is our burden and we are happy to have it. What we wish for you is that you start to see your giving and non-profits differently. We are, as always, ready to help you do this.
Looking Back
Globally, investor sentiment swung negative last week, as fear became the emotion du jour. This is illustrated by the CNN Fear & Greed Index below.
Source: bespokepremium.com
It is worth remembering that August and September typically bring seasonal weakness to the markets. In fact, over the last 50 years, August and September are the only two months that have seen Dow Jones average declines. September is the worst month by far, with an average decline of 1.28 per cent and positive returns only 36 per cent of the time. (2)
Last Friday, Canada’s main stock index, the S&P/TSX Composite Index (TSX), posted its biggest decline in six months, thanks to resource and technology sectors being impacted by a broad-based selloff. The TSX pulled back 3.8 per cent after achieving a record closing high on Wednesday last week. It finished the week down 2.6 per cent, after five straight weekly gains.
The TSX’s technology sector tumbled 4.5 per cent, as investors grew concerned about the valuations of some high-growth companies. The energy sector was down 4.3 per cent, as the U.S. data clouded the demand outlook for oil. The materials sector and heavily-weighted financial sector both lost 2.4 per cent. What’s more is that of the 10 main sectors in TSX, only utilities ended higher, rising 0.1 per cent for the week. The sector is dominated by high-dividend-paying stocks with big debt loads that could particularly benefit from rate cuts. (3)
Weekly North American Market Statistics
| Index | Week's Change | Year to Date |
| S&P 500 | -2.1% | 12.1% |
| Nasdaq Composite | -3.4% | 11.8% |
| Dow Jones Industrial Average | -2.1% | 5.4% |
| S&P/TSX Composite Index | -2.6% | 6.1% |
Source: Associated Press and Morningstar Direct 08/02/2024
In the United States (U.S.) major markets benchmarks closed lower at the end of last week, as investors reacted to the busiest week of the quarterly earnings reporting season and arguably the most important week of monthly economic data. The recent rotation toward value stocks and small-caps stalled as the small-cap Russell 2000 Index pulled back sharply at the end of the week. However, an equal-weighted version of the large-cap S&P 500 Index held up better than its more familiar, market-weighted counterpart. This suggested that the market’s performance continued to move away from the Magnificent Seven and other technology-oriented market giants. The Nasdaq Composite pulled back over 10 per cent from its July high.
Companies representing nearly 40 per cent of the S&P 500’s market capitalization reported second-quarter earnings during the week, including four of the Magnificent Seven - Microsoft, Meta Platforms (Facebook), Apple, and Amazon.com. While results varied relative to consensus expectations, a common theme was expectations for heavy capital spending by these companies to build out artificial intelligence (AI) capabilities. Amazon.com shares fell over 11 per cent on Friday morning after the previous evening’s report and earnings call revealed that the company had capital expenditures of over USD 30 billion in the first half of the year - a figure expected to grow in the second half - partly to support AI demands on its cloud computing division, AWS. Microsoft announced that it spent USD 19 billion in the second quarter alone and expected outlays to pick up later in the year. Meta estimated that it would spend roughly USD 37- 40 billion in the second half. Alphabet (Google) previously estimated that it would spend roughly USD 24 billion over the same period.
Investor sentiment was impacted by last Friday’s nonfarm payrolls report, which indicated more rapid cooling in the labour market than expected. The Labor Department reported that the economy added only 114,000 jobs in July, which was well below expectations and the lowest number in three months. Added to this was the surprising jump in the unemployment rate from 4.1 per cent to 4.3 per cent, its highest level since October 2021. Earlier in the week, the Labor Department reported that the number of Americans leaving jobs voluntarily declined to 3.82 million in June, the lowest number since November 2020. Many observers consider the so-called quits rate to be a more accurate indicator of labour market conditions than the number of job openings, which fell slightly to 8.18 million but remained above its April low of 7.92 million. Faith in the strength of the economy was also impacted by last week’s release of the Institute for Supply Management’s (ISM) gauge of July manufacturing activity, which fell unexpectedly to 46.6 (readings below 50.0 indicate contraction) - its lowest level since November 2023. Longer-term interest rates fell in the wake of this data, sending the yield on the benchmark 10-year Treasury note to its lowest intraday level (3.79 per cent) since late December.
Although the Federal Reserve left short-term interest rates unchanged at its recent meeting, expectations for a cut also jumped considerably. According to the CME FedWatch tool, futures markets ended last week pricing in a 73.5 per cent chance of a 50 basis point (0.50 percentage point) rate cut at the next Fed meeting in September versus only an 11.5 per cent chance the week before.
European markets followed U.S. markets down as the pan-European STOXX Europe 600 Index ended the week 2.92 per cent lower. Global markets in general were roiled by weak U.S. economic data, which sparked fears about growth. Major stock indexes also fell. Germany’s DAX tumbled 4.11 per cent, France’s CAC 40 Index dropped 3.54 per cent, and Italy’s FTSE MIB lost 5.30 per cent. The U.K.’s FTSE 100 Index declined 1.34 per cent. The BoE cut its key interest rate by a quarter point to 5.00 per cent, its first reduction to borrowing costs since the start of the coronavirus pandemic in March 2020.
During a week that saw a hawkish turn from the Bank of Japan (BoJ), Japan’s stock markets endured heavy losses, with the Nikkei 225 Index falling 4.7 per cent and the broader TOPIX Index down 6.0 per cent. Last Friday, with disappointing U.S. macroeconomic data dampening investor risk appetite globally, the absolute fall in the Nikkei was among the biggest in its history and comparable to its one-day drops in March 2020 when the coronavirus pandemic struck and during the “Black Monday” global stock market crash in October 1987. A rebounding yen did not help, as it continued to hamper the earnings outlooks for Japan’s export-oriented companies.
In China, major markets ended last week mixed, after weak manufacturing data moderated investor sentiment. The Shanghai Composite Index gained 0.5 per cent while the blue chip CSI 300 lost 0.73 per cent. And the Hang Seng Index declined 0.45 per cent. (4)
The opinions expressed are those of Craig Swistun and not necessarily those of Raymond James Investment Counsel which is a subsidiary of Raymond James Ltd. Statistics and factual data and other information presented are from sources believed to be reliable, but their accuracy cannot be guaranteed. It is furnished on the basis and understanding that Raymond James is to be under no liability whatsoever in respect thereof. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. Raymond James advisors are not tax advisors, and we recommend that clients seek independent advice from a professional advisor on tax-related matters.
Dan Pallotta Reveals How Companies Can Benefit By Helping Non-Profits, Paul Klein, Forbes, September 20, 2023
This Week’s Can’t-Miss Analysis — 8/2/24, Bespoke Investment Group, August 2, 2024
The close: Stocks and bond yields sharply lower as U.S. recession fears mount after jobs report, The Globe and Mail, August 2, 2024.
Global Markets Weekly Update, T. Rowe Price, August 2, 2024
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Looking to Learn?
If you want to know more about some of the topics we wrote about this week, just click on the links below:
Nonprofit Organization (NPO): Definition and Example
About the nonprofit sector – Imagine Canada
Video: The way we think about charity is dead wrong – Dan Pallotta, TED2013