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Monthly Market Review – June 2018

North American markets moved little in June. During this volatile month, which saw no major changes, Nasdaq technology stocks rose less than 1% and Canadian S&P/TSX stocks gained just over 1%, becoming the winners during this period.

The Canadian market's positive performance, despite a monthly decline of more than 3% in the price of gold and more than 2% in the Canadian dollar, is mainly attributable to the excellent performance of oil, whose price has gained more than 10% in the last month.

After rising in May, major North American interest rates were relatively stable and even quite low in terms of the US 10-year rate which, after breaking above 3% last month, fell in June and ended the month at around 2.85%.

On the political front, the summit between North Korea and the United States probably did not solve problems as definitively as President Trump seems to have believed or wished, but the latter's meeting with Kim Jong-un is nevertheless the most positive event of the month in terms of international relations. Meanwhile, the trade war has continued and intensified, pitting the United States against China as well as the United States against Canada, Mexico and Europe. In other words, this conflict now affects the economy in many parts of the world.

On our side of the border, the G7 organization, President Trump's tariff measures and NAFTA negotiations have continued to make headlines, but the sharp rise of more than 10% in the price of oil may have a greater impact on the Canadian stock market, at least in the short term.

In terms of company results, we experienced a certain lull as only the retail sector in the United States (whose results range from excellent to terrible!) and some disparate issues have really gotten any attention. Starting in the second week of July, mid-year results will be released and should shed new light on the direction of the markets for the remainder of 2018.

Below you will find a summary table of the level and performance of various North American indices as well as the price of oil, gold and the Canadian dollar for the month of June.

Index Value at June 30, 2018 1 Month Return 3 Month Return 1 Year Return
S&P/TSX 16,278 points 1.35% 5.93% 7.22%
Dow Jones 24,272 points –0.59% 0.70% 13.69%
Nasdaq 7,510 points 0.91% 6.33% 22.31%
S&P 500 2,718 points 0.48% 2.92% 12.17%
Barrel of Oil (WTI) $74.31 10.84% 14.43% 61.40%
Gold (ounce) $1,252 –3.69% –5.44% 0.81%
$CAN/$US $0.7582 –2.32% –2.23% –1.71%

Due to the more than 10% increase in the price of oil, the energy sector was obviously the Canadian market winner in June, up more than 5%. Stocks like those of Suncor (4%), Canadian Natural Resources (6%) and especially Enbridge (16%) greatly helped the performance of this sub-sector.

The materials sector also performed well, registering an increase of nearly 2%. The stock of Nutriens (9%), which was in the penalty box for a few years, continued to perform well with an excellent performance in May (12%).

Among the losers, only the industrial sector posted a decline (-0.50%); among other things this decrease is attributable to Canadian Pacific, which fell by more than 3% during the month.

Other stocks that caught our attention include Alimentation Couche-Tard (5%), Aurora (14%) and Magna (-6%).

The Dow Jones index performed the worst in June, down 0.59%. Despite this relative underperformance, some stocks in the index performed particularly well. Stocks such as Nike (7%), which posted strong results, and Disney (6%), which benefited from the decision in favor of AT&T to pursue its own acquisition strategy, were among the best. In addition, partly due to the China-US trade war, Boeing (-5%) and Intel (-12%) stocks fell sharply, causing the index to decline.

In June, the Nasdaq was once again the best performing US index. However, not all stocks were equally successful. Netflix (10%) and Amazon (4%) continued to advance during the month, while other leading technology companies such as Intel (-12%) and Apple (-1%), posted negative returns.

Some Nasdaq stocks that have little or no connection to technology also contributed to this positive performance; like Comcast (6%), Verizon (5%), Pepsi (9%) and Costco (5%).

This index, which includes the 500 largest American companies, benefited from higher holdings of utilities (5%) and telecommunications (Verizon, 5%) and, to a very large extent, cyclical consumer companies (2%).

In this respect, it is important to understand that the stocks of Netflix (10%) and Amazon (4%) are not classified as technology stocks but as cyclical consumer companies. This detail has greatly helped the sector which, in general, is doing a little worse than the performance of these two behemoths suggests.

In the financial sector, JP Morgan (-3%) and Bank of America (-3%) weighed on the performance of the index.

Note that during its last full month in the Dow Jones, General Electric fell more than 4% while Walgreens, which now replaces it in the index, posted a decline of more than 2% in June.

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The author

Steve Deschesnes

Steve Deschesnes

Disnat GPS Portfolio Strategist