Market Perspective

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Raymond Sawicki, MBA, CFA Senior Vice President and Chief Investment Officer

MARKET SUMMARY— Canadian equities continued to struggle in the third quarter with the S&P/TSX Composite delivering a total return of 1.37%, negatively impacted by losses in Energy (-5.7%), Materials (-12.9%) and Consumer Discretionary stocks (-8.0%). Counteracting the negative; Financials, Health Care and Technology trended upward, keeping the index total returns in positive territory on a year-to-date basis. Canada’s junior stock index, the TSX Venture, recorded more significant declines, falling (-2.12%) month over month, and falling (-16.49%) on a year-to-datebasis – the greatest pullback since 2016. Leading the junior sell-off was not the already depressed mining, tech and oil and gas sectors, but a new sub sector in the healthcare industry: marijuana. Canadian GDP continues to surprise on the upside and index constituent company earnings have come in above expectations. But to date in 2018, trailing P/Es have contracted more acutely in Canada than in any other developed region of the world. Uncertainty about trade with the U.S. and Mexico was an influencing factor in undermining Canadian P/Es. This uncertainty was removed on September 30th when Canada and its trading partners announced a new trade deal. The “United States-Mexico-Canada Agreement” (USMCA for short) will replace NAFTA. This development, coupled with potential tax relief for corporations in the upcoming federal fiscal update, could support P/Es in key industries that have been trading at a substantial discount to their historical average.

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