August 2024 — A short-lived sell-off

Sources: Bank of Canada, Bloomberg Finance L.P.

The decline in inflation in Canada, combined with the prospect of additional rate cuts by the Bank of Canada, was beneficial for the Canadian market. Moreover, the economy’s continued resilience, including solid consumer spending growth, helped ease the recession fears that had weighed on the markets earlier in the year. The S&P/TSX Composite Index recorded a monthly return of 1.2%, reaching a new all-time high, despite a sharp decline at the start of the month. Most of the sectors in the index posted gains, with financials and information technology being the main contributors. The biggest detractors from the return were consumer staples and industrials.  

The bond market was relatively stable, with the FTSE Canada Universe Bond Index ending the month with a return of 0.3%.

The U.S. unemployment and manufacturing figures released at the beginning of the month revived recession fears. The market fell sharply, dragged down by the big tech companies. Eventually, the market recovered as the trajectory of interest rates became increasingly clear. At the Fed’s annual conference in Jackson Hole, Jerome Powell adopted a decidedly dovish tone, suggesting that the Fed would cut rates at its meeting in mid-September. The S&P 500 Index gained 2.4% in U.S. dollars despite high volatility. All sectors advanced, except energy and consumer discretionary. 

That being said, expectations of lower rates led to a sharp depreciation of the U.S. dollar, which fell nearly 2.3% against the loonie. The S&P 500 lost 0.1% in Canadian dollars.

The European market also fell at the beginning of the month but then caught up. The MSCI Europe Index returned 1.3% in local currencies and 1.4% in Canadian dollars. All sectors posted gains, except energy and information technology. Even so, the economic context remained relatively weak in Europe, especially in Germany. The Business Climate Index, which assesses the health of the German economy, was down for the third consecutive month.

The MSCI All Country Asia Pacific Index ended the month with a return of -0.5% in local currencies and -0.7% in Canadian dollars. Its negative performance was due mainly to the debacle on the Japanese market at the start of the month. Japanese equities recorded significant losses on August 5 — their largest since 1987 — when the Bank of Japan’s interest rate hike and signs of a slowdown in the United States triggered a wave of panic selling. The biggest detractors from the return were information technology and financials.

The situation was similar for emerging markets. They too tumbled but then bounced back. The MSCI Emerging Markets Index returned 0.4% in local currencies and -0.8% in Canadian dollars. The difference was due to the currency effect. South Korea and China detracted from the return the most. South Korea suffered from the decline in technology stocks while China’s economy continued to show signs of weakness.