The month of October was a volatile month for the markets. After a positive September and run in the markets, a pullback for a month is to be expected.
In September, the S&P500 fell -1.0%, the DOW fell -1.3%, the Nasdaq fell -0.5%, while Canada’s TSX gained 0.65%.
Some of the pullback in October stemmed from disappointing earnings for big tech such as Microsoft and Meta; this proved to be a headwind for the S&P500 due to their oversized weighting on the index. Having said that, October’s pullback wasn’t just due to tech. Only 3 of the 11 sectors in the S&P500 were positive for the month; Financials, Communication Services, and Energy were positive. The gains in energy would have been a contributing factor to the TSX performance for the month given the high percentage of energy in the Canadian index (roughly 17% weighting).
Reported inflation in Canada came in at 1.6%, which is down from the reported 2% in September. Although prices (such as grocery bills) are still hurting household’s pocketbooks, the good news is that inflation has come down from 8.1% in June 2022.
The Bank of Canada cut its key interest rate by 0.50% in October bringing the rate to 3.75%. This is down from the high of 5% back in May. After three 0.25% rate cuts, the BoC’s latest oversized rate cut can be partially attributed to the latest inflation reading coming in below the 2% target. It was also reported that Canada’s labor market continued to soften. Canada’s unemployment rate sits at 6.5%; a rate that hasn’t been seen since January 2022. By lowering rates, this in turn lowers borrowing costs for individuals and businesses with the end goal of spurring future economic growth.
Although this is an October monthly update, since it is coming out after November 5th, I would be remiss to not mention the news that occurred that day; and I’m not talking about Guy Fawkes trying to blow up parliament (I recommend you look it up if you don’t know). As we all know, Donald Trump won the election and is set to become the 47th President of the United States. The markets had a solid pop on November 6th. Given his love of tax cuts, deregulation, and tariffs, there is the potential for growth in the capital markets, but also the potential for increased inflation followed by increased interest rates. Only time will tell how the economy reacts, but it’s safe to say the markets will continue to be interesting moving forward.
Stay tuned…
