The Market & Economic Environment

Robert Luft

September 4, 2018

After four straight monthly gains, the TSX Composite index fell 1.0% in August. The decline was led by steep losses in the commodity sectors, as the Materials and Energy groups tumbled 8.2% and 4.0% respectively, while consumer sectors also traded lower over the month.

Advancers were led by the Health Care sector, which surged 28.4% following runaway gains in marijuana stocks after Constellation Brands announced it was investing an additional $5 billion in Canopy Growth to increase its ownership stake.

Other sectors with positive returns in August included Information Technology (+5.1%) and REITs (+1.9%).

The Financials sector rose 1.1% after Canadian banks reported strong earnings in their fiscal third quarter. U.S. equity indices added to their gains with another robust performance in August as technology stocks continued their ascent, with Apple becoming the first US company to reach $1 trillion in market capitalization. The Dow Jones rose 2.2%, the S&P 500 gained 3.0% and the Nasdaq Composite surged 5.7% as it traded above 8,000 for the first time. (Source: FactSet)

Our Strategy: Market developments in August reinforce our view that a defensive positioning is warranted for portfolios in the current environment.

In addition to the diplomatic spat between Saudi Arabia and Canada at the beginning of the month, the U.S.-Mexico trade pact that excluded Canada and a court ruling halting the Trans Mountain pipeline expansion in the last week of August highlight the potential risks to the export-reliant Canadian economy.

Trade issues are expected to dominate headlines and contribute to market volatility in September, as NAFTA negotiations between Canada and the U.S. continue, while the risks of an escalating trade war between the U.S and China rise. The Portfolio Management Team (PMT) has built up a cash cushion to take advantage of buying opportunities that may arise as we head into the historically most volatile calendar period for equities.