October 2023 Market Commentary

As the calendar rolled from September into October, so did the market selloff that marred the previous month. While the spike in yields continued to weigh heavily on stocks a new threat of war in Gaza raised geopolitical uncertainty. The S&P 500 lost another -94.25 points to close the month at 4,193.80, a level last seen in May of this year. Whereas the TSX dropped -667.80 points to 18,873.47, which put the index firmly in negative territory on a YTD basis.

 

In the final days of October there was really no change in the bearish narrative, which has had the upper hand for the last three months. The big areas of concern continue to revolve around meaningful FCI (financial conditions index) tightening, elevated bond market volatility, higher for longer inflation/interest rates, muted reactions to earnings beats, weak earnings revisions breadth, and growth headwinds leading into Q4. In addition, there’s no shortage in geopolitical tensions.

 

While the Bank of Canada held the key interest rate at 5% on the 25^th of October, highlights from the monetary policy report state that “higher interest rates are working to ease price pressures in Canada and inflation is coming down, though progress to the 2% target is slow. The Bank projects that inflation will stay around 3.5% until the middle of 2024, returning to target in 2025.” Further to the Bank of Canada’s report “consumption has been subdued, with softer demand for housing, durable goods and many services. Weaker demand and higher borrowing costs are weighing on business investment. The surge in Canada’s population is easing labour market pressures in some sectors while adding to housing demand and consumption.” Recent job gains have been below labour force growth and job vacancies have continued to ease, but wage pressures persist and the labour market remains on the tight side. However, according to the BoC overall supply and demand forces in the economy are now approaching balance.

 

With respects to the underwhelming performance from the TSX in 2023, we are still of the opinion that Canada is well positioned for an extended period of normalization that we expect to unfold over the coming years. As we indicated in a previous commentary this year, our belief is as US equity market performance broadens out into 2024, and the fear of further rate hikes subsides, investor confidence will improve from the current bearish sentiment. With much of the negativity already priced into Canadian equities, any improvement will be a major benefit on TSX performance.

 

For a full copy of our October 2023 market commentary, please email us mmbwealth@nbpcd.com