October 2024 Market Commentary

While September is often considered Wall Street’s toughest month, October actually has the highest average stock market volatility. Although volatility, as measured by the VIX (CBOE Volatility Index) — which reflects market expectations for volatility over the next 30 days — has risen slightly in the past three months, it remains relatively low, between 20 and 21. For comparison purposes, the VIX hit a reading of 40 at the beginning of August this past summer at the height of the yen carry trade selloff and for further perspective it peaked at 70 during the pandemic selloff in March 2020. Regardless, the TSX went on to finish the month up +200 points, closing at 24,156.87 on October 31, while the S&P 500 was slightly weaker finishing -32.72 points lower than the previous month to close at 5,705.45.

Momentum in the markets continue to surprise as fund flows hit new highs. Goldman Sachs reported recently that North America fund flows were the standout with the largest net buying since late 2023. Financials, Tech, and Industrials being the preferred stocks, while Communications Services, Materials, and Energy were the most net sold. U.S. equity net inflows were nearly $24 Billion which is a four-week high, bond inflows were also high with $23.3 billion making it the most in four years and money markets saw $17.4 Billion of outflows following three consecutive weeks of inflows. Meanwhile, experts see the elevated amounts of money market holdings in the U.S. (approx $6 Trillion) as supportive for stocks in the months ahead, especially with the Fed easing cycle underway.

In Canada, there has been a steady improvement in earnings confidence and associated valuation expansion. After exhibiting skeptical earnings trends and sluggish price performance for most of the first half, the last three months has seen the TSX rebound nicely. The TSX gained 9.7% in the third quarter alone outpacing the S&P 500 by over 4% which marks the strongest outperformance for Canada since the first quarter of 2022. This is evidence that the Canadian catch-up trade we’ve been speaking about all year is clearly underway. The renewed interest in undervalued Canadian stocks gives us confidence in raising the year end price target for the TSX from 24,500 to 25,500. This price target increase represents a 6% gain in the fourth quarter and will likely continue into 2025 as we see returning equity flows, broadening equity performance, and an improving earnings environment in Canada.

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