July 2024 - The Canadian market tops the podium

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

The Canadian market had its best monthly performance since the start of the year. The S&P/TSX Composite Index returned 5.9%, outperforming its neighbour to the south after a relatively mixed first half. All sectors recorded gains, without exception. Materials and financial services were the main contributors to the return. Materials advanced as the price of gold increased, while financials benefited as the large Canadian banks recovered after a difficult June.  

The Bank of Canada (BoC) continued to lower its rates in July, announcing a second rate cut of 25 basis points at the end of the month. The bond market welcomed the news and returned 2.4% for the month, as measured by the FTSE Canada Universe Bond Index. It should be noted, however, that the BoC’s coming decisions will increasingly be influenced by the Fed’s; therefore, its leeway will be limited, given the interdependence of the U.S. and Canadian economies.  

The U.S. market had an eventful month. As already noted, concerns about the country’s economic growth and a string of disappointing earnings announcements, combined with weak U.S. consumers, caused the market to decline. At the same time, investors were surprised by the scale of tech companies’ spending on artificial intelligence versus the potential short-term benefits.  Still, the S&P 500 Index closed the month with a return of 1.2% in U.S. dollars and 2.2% in Canadian dollars. All sectors were up, with the exception of information technology and communication services. 

After political instability in France pulled the market down in June, the European bourses rebounded slightly, even though earnings announcements showed consumers were cutting back on their spending. All sectors posted gains, except consumer discretionary and information technology. In local currencies, the MSCI Europe Index ended the month with a return of 1.0%. The currency effect had a significant impact, boosting the return in Canadian dollars to 3.1%. The loonie’s weakness against the major European currencies, such as the euro, the Swiss franc and the pound sterling, increased the gains. This phenomenon was due partly to the Bank of Canada's larger rate cuts relative to those of its European counterparts and expectations of further rate cuts in Canada, which make the Canadian currency less attractive.

The results on the Asian markets were also strongly influenced by currency fluctuations. The MSCI Asia Pacific All Country Index returned 0.2% in local currencies but 3.0% in Canadian dollars. From the regional standpoint, Japan was the main contributor to the return, even though the central bank raised its key rate at the end of the month. Taiwan detracted from the return the most, owing to the decline of the world’s leading tech companies. From the sector standpoint, only energy and information technology recorded losses. 

The MSCI Emerging Markets Index ended the month up 0.7% in local currencies and 1.3% in Canadian dollars. The vast majority of the sectors recorded gains, while India was the largest contributor from the regional standpoint. In contrast, the information technology sector and Taiwan detracted the most from the return. The energy sector also came under downward pressure as the price of crude oil fluctuated on concerns about economic activity in China.