Canadian and U.S. stocks finished mixed this week after three consecutive weeks of declines. As the third-quarter earnings season picks up steam, the focus is shifting to corporate fundamentals. With the exception of a few negative surprises in the industrial space and with European luxury goods manufacturers, early indications point to strong sales and earnings growth in aggregate. Increased volatility was still prevalent this week as investors remained cautious. Global growth concerns, along with worries about rising interest rates, were once again the main sources of volatility. Canadian inflation, reported on Friday, slowed to 2.2%1 in September, indicating an economy operating near potential, but not overheating. Modest inflation suggests that short-term interest rates will increase gradually. Markets are frequently choppy short term, but we believe the positive fundamentals of economic and earnings growth can keep supporting rising stock prices over time. We don't think this ongoing volatility signals the end of the bull market, but a return to volatility is typical later in the market cycle.
After strong gains in the third quarter, stocks have been on a much choppier path recently as worries over rising rates and global growth have shared the spotlight with still-positive Canadian and U.S. economic and earnings growth trends. Both the TSX and S&P 500 have declined more than 6% from their recent highs, reflecting this balance. We think the bull market has life left, but conditions are shifting. Here are our thoughts on the progressing investment outlook:
Fixed Income Outlook
Kate Warne, PhD, CFA - Investment Strategist
Nela Richardson, PhD - Investment Strategist
Craig Fehr, CFA - Investment Strategist
Source: 1. Bloomberg, 2. FactSet, forward P/E for the MSCI EAFE, MSCI Emerging Market and S&P 500 indexes.
|S&P 500 Index||2,768||0.00%||3.5%|
|10-yr GoC Yield||
The major economic event next week is the Bank of Canada's interest rate decision on Wednesday. While it's a quiet week for economic data, earnings season picks up as companies report third quarter results. In the U.S., there are a number of key data releases including PMI indicators and GDP numbers on Friday.
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