Monthly market review, August 2018
All U.S. stock market indexes performed exceptionally well in August 2018. The tech-heavy Nasdaq was the strongest performer, climbing by nearly 5%, while the Canadian S&P/TSX trailed the pack with a 1% drop.
From a political perspective, the trade war continued in August between the United States and China, Canada, Mexico, Europe and basically the rest of the world. Despite this risk, at present markets don’t seem unduly flustered by the trade war, which so far remains under control. In fact, the U.S.-Mexico agreement even drove markets to new heights.
As for interest rates, U.S. 10-year bond yields remained on a downward trajectory after hitting the 3% threshold several weeks ago. At the moment, the Fed still seems determined to raise interest rates. The yield curve merits close watching in the months to come, since an inverted yield curve is normally a leading indicator of recession.
In terms of corporate earnings, around 80% of S&P 500 companies met or surpassed analyst estimates. The nearly 25% jump in earnings handily beat the already lofty consensus estimate of 20%. Consequently, strong profits were one of the main factors behind the robust performance of stock market indexes in July.
The relatively underwhelming performance of the Canadian market is in large part due to the weakness of the natural resources sector in general, especially gold. The index would have fallen much more sharply if not for the soaring performance of cannabis stocks. Strong bank earnings also pushed up the banking sector's performance, although their impact was limited.
Below is a summary table showing the level and return of the various North American indexes, as well as oil (by the barrel), gold (by the ounce) and the Canadian dollar for the month of August.
| Index | Value at July 30, 2018 | One-month return | Three-month return | One-year return |
|---|---|---|---|---|
| S&P/TSX | 16,262 | -1.0% | +1.3% | +6.9% |
| Dow Jones | 25,962 | +2.2% | +6.3% | +18.3% |
| Nasdaq | 8,109 | +5.7% | +9.0% | +26.1% |
| S&P 500 | 2,901 | +3.0 | +7.3% | +17.4% |
| Barrel of oil (WTI) | $69.88 | +1.7% | +4.2% | +53.3% |
| Gold (ounce) | $1,199 | -2.1 | -7.8% | -11.3% |
| C$/US$ | $0.7667 | -0.1 | -0.8% | -4.3% |
S&P/TSX (16,262, -1.0%)
The healthcare sector, which surged 30% over the month, made the biggest contribution to the Canadian index. In this sector, high returns from Canopy (+70%), Aphria (+53%) and Aurora (+2%) were particularly noteworthy.
The technology sector also performed well last month, rising by more than 3%. The top performers included Blackberry (+8%), Shopify (+4.8%) and CGI (+8.4%).
In August, third place went to the financial services sector, which grew by 1.5%, thanks to solid gains by BMO (+3.7%) and CIBC (3%), among others.
Meanwhile, the biggest losses were suffered by large-caps in the resources sector (-8%), which all dropped by approximately 10% except for Nutrien, which gained more than 3.5%. Meanwhile, gold stocks even fell slightly more. This shoddy performance, along with negative returns from the consumer discretionary (-4%) and energy (-3.7%) sectors, were the main reasons for the Canadian market's underperformance.
Dow Jones (25,962, +2.2%)
The Dow Jones index was the worst-performing U.S. index in August. Most of its gains came from tech stocks, such as Apple (+20%), Cisco (+13%) and Microsoft (+6%). Due to concerns over the trade war, industrials were the weakest performers in the index, with Boeing, Caterpillar and UTX losing 2% to 3%.
Nasdaq (8,109, +5.7%)
The Nasdaq index turned in the strongest performance of all three major U.S. indexes. It jumped more than 5% in a month, thanks to a long list of winning stocks. Aside from Apple (+20%), Cisco (+13%) and Microsoft (+6%), which we already mentioned in the commentary on the Dow Jones, Nvidia (+13%), Amazon (+13%), Netflix (+9%), ADP (+8%), PayPal (+12%) and even Costco (+6.9%) all turned in noteworthy performances.
S&P 500 (2,901, +3.0%)
Like the Nasdaq, the S&P 500, which brings together the 500 biggest U.S. companies, benefited from the rise of tech stocks (+6.4%). The consumer discretionary sector, which includes Amazon and Netflix in addition to Lowe's (+9.5%), climbed by 5.5%. The healthcare sector also did well, with Merck and Pfizer increasing by 4%. Energy was the only sector to post a negative return (-3.3%), primarily due to Chevron and Schlumberger, which both fell by more than 6%.