Volatility ebbs and flows – Investors faced a range of market emotions, with the volatility index reaching a record low and a nine-month high in a three-month span. Healthy economic data, solid quarterly earnings growth (+7.9% for the TSX and +10.3% for the S&P 500) and still low interest rates were calming forces, though growing tensions between the U.S. and North Korea did supply some anxiety, driving a brief 2% pullback in stocks in August.
International leadership continued – Global equities added to their gains, with emerging market and U.S. small- and mid-cap stocks leading the way. After moving sideways for much of the year, Canadian equities logged a 3.7% gain, the strongest quarter since Q4 of 2016. Real estate and Canadian investmentgrade bonds lagged, finishing the quarter in negative territory reflecting challenges in the domestic real estate market and negative effects of higher rates.
Policy and politics in focus – Ongoing uncertainties in the policy environment periodically tempered enthusiasm with gridlock in Washington capturing most of the attention. We continue to believe that the expectations and execution of the Trump administration’s economic agenda will not fully sync up, leading to more episodes of political optimism and disappointment. The monetary policy pendulum swung as well, with two BoC rate hikes in the quarter as domestic GDP growth remained elevated.
Action for Investors - Market performance highlights the importance of proper expectations for investors. While the bull market remains intact, increasing policy uncertainties will continue to populate the list of risk factors that are likely to spur higher market volatility and potentially a more meaningful dip in stocks than experienced lately. Prepare for additional market swings and more moderate returns by proactively rebalancing your portfolio.