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%

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%.


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The author

Steve Deschesnes

Steve Deschesnes

Economic and financial specialist