October 2023 - An eventful month

Sources: Bank of Canada, Fundata

The Canadian market declined again in October. The S&P/TSX Composite Index ended the month with a return of -3.2%. All sectors, with the exception of consumer staples, posted losses. The Canadian economy continued to show signs of slowing after GDP contracted in the second quarter of 2023. Indeed, several Canadian banks have started laying off employees and increasing their loan-loss provisions. The Bank of Canada (BoC) decided not to raise its key interest rate at its latest meeting, pointing out that the impact of higher rates was starting to be felt in some sectors of the economy, especially in durable goods. Even so, the BoC says it is prepared to raise rates again if inflationary pressures persist.

In contrast, the Canadian bond market fared relatively well, with the FTSE Canada Universe Bond Index edging up 0.5%.

The U.S. market also had another difficult month, especially from mid-October onward, as the rising 10-year U.S. Treasury bond yield put pressure on the market. As a result, the S&P 500 Index recorded a monthly return of -2.1% in U.S. dollars. The “Magnificent Seven", namely the largest companies in the S&P 500 by market capitalization, did not escape the decline, after driving the market higher for most of the year. Alphabet, Apple, Meta Platforms and Tesla all fell after releasing disappointing results toward the end of October. 

That being said, the strength of the U.S. dollar against our currency helped offset the losses. In fact, the S&P 500 index even posted a slight gain of 0.5% in Canadian dollars. In the end, half of the sectors posted gains while the other half posted losses. 

The MSCI Europe Index closed the month with a return of -3.4%, with the European market also pulled down by concerns that the Israel-Hamas war could spill over into the rest of the Middle East. Here too, the Canadian dollar’s weakness against the major European currencies helped reduce the losses. The MSCI Europe Index returned -1.1% for the month of October in Canadian dollars. The information technology and utilities sectors added the most to the return, while the health care and financials sectors subtracted the most. As for monetary policy, European Central Bank President Christine Lagarde announced the decision not to raise the key interest rate in the euro zone, for the first time in more than a year.  

The Asian market also faced many headwinds in October. The MSCI All Country Asia Pacific Index returned -3.4% in local currencies and -1.6% in Canadian dollars. Japan was the biggest drag on performance, with the release of consumer price index (CPI) figures suggesting that inflationary pressures are picking up in the country. China also detracted from the return. Its real estate sector is still struggling to stabilize, and investors continue to be pessimistic about the country’s growth forecasts, despite new government stimulus measures. All sectors, without exception, recorded losses.  

Emerging markets were no exception and also ended October lower. The MSCI Emerging Markets Index returned -3.6% in local currencies and -1.3% in Canadian dollars. From a regional perspective, Turkey and the United Arab Emirates recorded the largest losses because of the conflict in the region. From a sector perspective, all sectors ended the month lower, except health care and information technology.