Canada’s S&P/TSX Composite index crossed the 16,000 level for the first time this week, setting its first new record high since February. During the intervening eight months, virtually all other major equity market indices globally posted new highs relentlessly without Canada joining suit. The broad advance in recent weeks came as strong economic data around the world pushed oil and commodity prices higher. But in Canada itself, the run of amazing economic data came to a screeching halt as August gross domestic product (GDP) declined. A solid employment report for October did little to lift investors’ moods and the S&P/TSX managed only a small gain for the week.
It was another busy week on the central banking front. The Bank of Japan kept its policy on hold and the Bank of England raised rates, both as expected. The U.S. Federal Reserve’s meeting was also a non-event, indicating there was still a consensus towards gradual rate hikes, with the next coming as early as December. Arguably the biggest central banking news was President Trump’s appointment of Jerome Powell as the next Federal Reserve Chair, to replace Janet Yellen when her term expires in the new year. Powell is seen as possibly the smoothest transition from Yellen because they are closely aligned in policy preferences. After a few weeks of anxiety over the possibility of the job going to the more hawkish John Taylor, Powell’s appointment put downward pressure on North American and European bond yields.
The jump in the heavily-weighted energy sector provided the greatest lift to the S&P/TSX, but the smaller health care sector saw the sharpest advance. Medical marijuana producer Canopy Growth Corporation, which saw a big drop just two weeks ago, surged as Constellation Brands acquired a major stake in the company. Technology and industrials led the declining sectors in Toronto.
In New York, the release of tax reform proposals had little impact on markets, but all major equity indices again notched new record highs. The S&P closed out October with a solid gain, so that it has seen a positive total return for all 10 months so far this year. It hasn’t managed a streak like that in almost 100 years. As in Canada, energy was near the top of the sector leader board, along with real estate, which tends to do well as interest rates decline, and technology which got a big boost from Apple after its earnings report. Telecommunications services was the poorest performing sector, coming under pressure as media reports pointed to the termination of merger talks between Sprint and T-Mobile, and to possible Justice Department opposition to the AT&T/Time Warner merger.
European stocks were broadly higher on strong economic data. Spanish stocks were particularly strong as political risk deflated. Catalan leader Puigdemont fled to Belgium after the central government seized control over the region, leaving the independence movement aimless. In Japan’s holiday-shortened trading week, the Nikkei climbed to yet another 20-year high after the Bank of Japan’s meeting led to a weaker yen.