Canadian investors with a domestic focus had another relatively disappointing month in August:
- The TSX lost just over 1% for the month, which lagged the S&P 500 by over 4%, the Dow by more than 3% and the NASDAQ by nearly 7% once the differences are calculated and the effect of our declining dollar is included.
- At the end of the month, both the S&P 500 and the NASDAQ reached new record highs. The effects of reduced corporate taxes, strong economic growth through the Gross Domestic Product (GDP) data and progress on North American Free Trade Agreement negotiations pushed U.S. equities higher.
– The trade-related political wrangling with the U.S. makes the Canada/Saudi dispute seem like a distant memory. Less than a month ago, the Saudi central bank was selling off Canadian instruments, regardless of price, to demonstrate their resolve that their domestic affairs are not open for discussion by foreign governments.
What’s ahead for September and beyond?
For Canadian investors interest rate policy will increase in importance during the last four months of 2018. The U.S. Federal Reserve has reaffirmed its intention to continue to raise its Federal Funds rate, and Canada will pay close attention to their moves, as well as the strength of our economy.
The strength of our economy will depend in large part on the success at the negotiating table with Mexico and the United States for NAFTA’s reset. Expect Stephen Poloz, the Governor of the Bank of Canada, to pay close attention to U.S. monetary policy, NAFTA negotiations in addition to traditional economic indicators like employment, GDP and inflation.
Politics will continue to influence markets, and the remainder of 2018 will be no exception. The U.S. mid-term elections will occur in 2 months. The mandate of the Federal Liberals expires in a little over a year. Canadians should expect the rhetoric, spending and programs aimed to generate employment, economic activity and favourable votes to increase in the short term. The effect on the TSX should be positive, especially if NAFTA negotiations are successful.
Image 1: Stock exchange source: https://www.bloomberg.com/markets
Image 2: Advisor Research Group Inc. and data supplied by https://www.bloomberg.com/markets/stocks
Article Source: Advisor Research Group – Market Update 08.31.2018