Monthly Canada Market Wrap: September 2021
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“U.S. Dow Jones drops 600 points”; “Futures on Bay Street sink”; “TSX extends losses, down 2.6% for the week”. Whether you received the occasional iPhone alert containing sour headlines like these or followed the markets closely, you know September was not a positive month for stocks. As of month’s end, the TSX 60 is off 3.4% from its all-time high. South of the border, the S&P 500 is down 5.1% and the NASDAQ is 6.0% away from its highest-ever level.
But how much doom and gloom is there really? Since January 1999—when data became available for the TSX 60—there have been many retracements mixed in with the record highs:
Despite the TSX 60 underperforming the S&P 500 by 30% over that period, the Canadian bellwether index is currently benefiting from a milder drawdown versus its American counterpart. So while paying attention to sudden declines like these is critical, it also goes to show that despite how bleak investor sentiment feels at any given time, the sky might not be falling after all.
Also in September, Canadian voters delivered Prime Minister Justin Trudeau and his Liberal party a second consecutive minority government in the September 20th snap election. Albeit the Liberals gained 2 seats, Mr. Trudeau’s party remains 11 shy of the 170 needed for a majority, meaning they must continue relying on the support of opposition parties to pass legislation.
As investors gear up for the final quarter of 2021, we’ll take some time to examine these key developments from September:
• Off the YCharts! Do Rising Yields Lift Any Boats?
• Major Index Returns: Equities Tumble Around the World
• Sector Movement: 6 of 7 Negative: Energy Sole Leader
• Hot Stocks of the Month: Energy Powers the Top 5
• Laggards & Losers: Gold Gets Buried Again
• Economic Data: Unemployment Reaches Pandemic-Era Low
Off the YCharts! Do Rising Yields Lift Any Boats?
Both the Canadian and US 10-year yields unexpectedly topped 1.5% at the end of September, causing equity markets to back off from their all-time highs. Stocks and bonds typically operate in an inverse relationship, but do all stocks fall when rates rise?
As you’ll see later in the “Sector Movement” section, the energy sector did not conform to that relationship in September. Rates typically move with inflation, which leads to a stronger dollar as well as higher commodity prices. Therefore, the energy sector also tends to move in the respective direction of rates, and many times at a similar velocity, including the last two weeks of September:
Contrast that with a sector such as Info Tech—September’s worst-performing TSX sector and whose performance is highly sensitive to interest rates—and the relationship with yields tends to be inverse:
Major Index Returns: Equities Tumble Around the World
The “September Effect” refers to historically weak market performance during the namesake’s month, and September 2K21 was no different for both North American indices and markets globally. The S&P/TSX 60 slipped 2%, International Developed Markets fell 2.8%, and MSCI Emerging Markets took a nearly 4% hit. September’s biggest decliner was the S&P 500, finishing the month down 4.7%. Not even fixed income could provide a buoy for markets, as the Global Aggregate Bond Index fell 1.8%.
Sector Movement: 6 of 7 Negative: Energy Sole Leader
The only exception to a rough September was the Energy sector, which vaulted an astronomical 18.8% on the back of rising oil prices. Through September 27th, WTI crude oil rose 7.3%, while Brent got a 4.1% lift, likely due to increased demand in disaster-hit areas and as a result of fuel & trucker shortages in the United Kingdom. On the flip side, Info Tech was September’s largest decliner despite being the top-performing sector in August, down 7.9% as investor worries about rising yields and central bank monetary tapering materialized.
Hot Stocks of the Month: Energy Powers the Top 5
A common theme of September—and this Market Wrap—has been the energy sector’s dominance, which continues into this month’s Hot Stocks list. Cenovus Energy (CVE.TO), Imperial Oil (IMO.TO), Cameco (CCO.TO), Suncor (SU.TO), and Canadian Natural Resources (CNQ.TO) own the top 5, all posting double-digit gains thanks to increased demand for oil and surging prices. Despite Materials logging the second-worst sector performance in September, investors found value in certain companies with diversified business models, such as metals miner Teck Resources (TECK.B.TO) and fertilizer producer Nutrien (NTR.TO).
Laggards & Losers: Gold Gets Buried Again
September marks the third month gold companies have owned the Laggards & Losers list out of the last four. This month’s constituents include Wheaton Precious Metals (WPM.TO), Franco-Nevada (FNV.TO), Kinross Gold (K.TO), and Agnico Eagle Mines (AEM.TO) as the price of gold slid another 2.8%, despite the Loonie falling 1.6% to the US Dollar and Canadian inflation reaching 18-year highs. After finishing August as the second worst-performing stock, Canopy Growth’s (WEED.TO) 19.2% plummet landed it at the top of September’s Laggards & Losers list. As its growth expectation woes continue to persist—with CIBC cutting price targets for Canopy Growth as well as six other cannabis companies—Canopy Growth is the worst-performing TSX stock of 2021, down 44% YTD.
Featured Market & Advisor News
Morgan Stanley Sees Growing Risk of 20% Drop in S&P 500 (WealthManagement.com)
Economic Data: Unemployment Reaches Pandemic-Era Low
Unemployment: August’s Canadian unemployment rate fell for the third straight month to 7.1%, its lowest level since the pandemic began. The Canada Ivey Employment index clocked in at 66.9, an increase of 4.8 points from July. Canada Part-time Employment rose to 3.6M in August, a modest increase of 22,000 part-time workers from July, eclipsing pre-pandemic levels in late 2019 and early 2020.
Housing: August Canada Housing Starts fell for the second straight month to 19,694, the first time it has logged a sub-20,000 reading since February 2021. Housing price growth remains in a lull, as the Canada New Housing Price Index rose just 0.7% in August.
Manufacturing: Albeit volatile as of late, Canadian manufacturing readings continue to land in expansion territory. The Canada Ivey PMI fell 15.5 points in July but clawed back 10 of them in August for a reading of 66.
Have a great October! 📈
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