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Monthly Market Review, July 2018

North American stock indexes all performed well in July. Consisting of more traditional stocks, the Dow Jones was the major winner, posting growth of nearly 5% while the Canadian S&P/TSX index closed up just under 1%.

On the political side, during the month of July, the trade war continued between the United States and China, Canada, Mexico and Europe, practically speaking with the whole planet. For now, despite this risk, the markets do not seem unduly disturbed by this war which is still under control, but which could strongly and above all rapidly degenerate if Donald Trump put into practice his idea to impose tariffs on 500 billion dollars of Chinese products sold in the United States!

After faltering in June, major North American interest rates climbed back, especially at the end of July, with US 10-year rates closing very close to the 3% mark.

In terms of corporate earnings, more than half of S&P 500 companies performed well and 80% of them met or beat analyst forecasts. The current earnings season should therefore make it possible to achieve a profit increase greater than the 20% that everyone expected. The strong results were therefore the major factor behind the positive performance of the stock market indices in July.

The poor relative performance of the Canadian market is to a large extent related to the low price of gold (-2.2%) and other metals. Although oil (-7.5%) had its worst month in the last two years, the energy sector still ended July slightly higher.

Below is a summary table of the level and performance of various North American indices, the price of oil, gold, and the value of the Canadian dollar in July.

Index Value at July 30, 2018 1 Month Return 3 Month Return 1 Year Return
S&P/TSX 16,431 points +0.9% +5.3% +8.5%
Dow Jones 25,415 points +4.7% +5.2% +16.1%
Nasdaq 7,672 points +2.2% +8.6% +20.9%
S&P 500 2,816 points +3.6% +6.3% +14%
Barrel of Oil (WTI) $68.72 –7.5% +0.2% +44.2%
Gold (ounce) $1,225 –2.2% –7.1% –3.5%
$CAD/$USD $0.7688 +1.4% –1.3% –4.1%

The industrial sector recorded a monthly increase of 5%, making it the main contributor to the rise of the Canadian index. In this sector, we note the strong performance of CN (8%), CP (7%) and WSP (6.8%), and Bombardier's weaker performance (-5.7%).

The communications sector also had a good month, up more than 3.5%; among the top winners were BCE (3.8%), Rogers (6.2%) and Cogeco Communications (8.4%).

The financial services sector, which gained 2.5%, led the way in July, led by healthy growth in Scotiabank (3.6%) and Royal (3.5%).

For the major losers, the big caps in the gold sector - Barrick (-15%), Goldcorp (-10%) and Agnico (-9.5%) – as well as those in the cannabis market - Aurora (-24%) and Canopy (-10%) – are the main reasons for the Canadian underperformance.

Other names that caught our attention included Alimentation Couche-Tard (4.8%) and Bausch (formerly Valeant, -7.6%).

The Dow Jones index performed best in July. It is mainly the industrial stocks in the index, namely UTX (8.6%), 3M (7.9%), Caterpillar (6.6%) and Boeing (6.2%), as well as those in the pharmaceutical sector like Pfizer (10%), Johnson & Johnson (9.2%) and Merck (8.5%) that allowed the index to outperform so well.

Nasdaq was the weakest of the three major US stock indexes. However, due to a particularly turbulent earnings season in the technology sector, the latter has not progressed in unison: rather, some stocks have reached new heights and others have experienced their worst plummet to date. Netflix (-13.8%), Facebook (-11.2%) and Intel (-3.2%) weighed on the Nasdaq's performance, while Comcast (9.6%), Alphabet (9%), Microsoft (7.6%), Amazon (4.6%) and Apple (2.8%) all helped the index continue its course and reach new heights in July.

Like the Dow Jones, the index of the 500 largest US companies benefited from the rise in industrial sector stocks (6.8%); in addition to the securities already mentioned – UTX (8.6%), 3M (7.9%), Caterpillar (6.6%) and Boeing (6.2%) – we also note the excellent performance of Honeywell (10.8%).

The financial sector (4.7%) also contributed to the good performance of the index, due in part to the performance of JP Morgan (10%), Bank of America (9.5%) and Citigroup (7.4%).

Note also some other names in the S&P 500 that stood out, like Disney (9.5%), Walgreens (12%), Coke (6.3%), Pepsi (5.6%), Costco (4.7%) and Amazon (4.6%).

If you'd like to deepen your knowledge of the subject, attend the presentation I am delivering as part of a seminar tour taking place this fall in Montreal, Quebec, Trois-Rivières, Sherbrooke, Gatineau and Saguenay. For more information, visit disnat.com/avantages/tournee-educative (in French only).

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All data are from Morningstar (©Morningstar).

The author

Steve Deschesnes

Steve Deschesnes

Disnat GPS Portfolio Strategist