Market and economic commentary
October 2024

October saw mostly negative performance on a local basis for stocks and bonds, as yields rose and non-Canadian equities, in general, lost ground. An apparent flight to quality through the month, coupled with the widening rate differentials between Canada and the US, weakened the Canadian dollar relative to the US dollar. Other than the US and Canadian equity pools, all Compass Portfolios and ATBIS Pools (the Funds)¹ saw negative returns in October. Find up-to-date performance data on the ATB Investment Management website here.

Below are index total returns in Canadian dollar (CAD) terms for October and year-to-date, respectively:

Economics

As the last full month before the US presidential election on November 5, October was primed to be a relatively volatile month. However, election year or not, October has previously experienced significant daily losses in equity markets before—e.g., Octobers in 1929, 1987, and 2008. This year, the additional uncertainty of who the next president will be has led to increased discourse about the outcome. During the US election campaign, the “October surprise” (the term for unexpected revelations) can change the contours of the race. Surprisingly, the month of October 2024 turned out to be relatively mild, in terms of equity market volatility.

Setting the election aside, the usual economic indicators showed little change. The US headline inflation rate for September fell to 2.4%, while in Canada, the headline CPI dropped to 1.6% (from 2.0% in August). US Core PCE inflation has averaged about 2.7% over the past six months, which gave the US Federal Reserve (the Fed) enough confidence to cut rates in September.

Looking at the labour market, Canada’s unemployment rate fell from 6.6% in August to 6.5% in September. It had trended up since the start of the year, when January showed a 5.7% unemployment rate. The US experienced the same with their unemployment rate falling from 4.2% in August to 4.1% in September, and staying at 4.1% for October (the data for October was released on November 1).

More significantly, after the Fed cut its policy interest rate by 0.5% in September, the Bank of Canada (BoC) followed suit. Another 0.5% cut in October brought the total value of all the BoC’s rate cuts since June to 1.25%. The rate differential between Canada and the US is currently at 1.25%, the highest in the last fifteen years. As a result, the Canadian dollar weakened versus the US dollar, with the CAD exchange rate (Canadian $ per US $) rising from $1.35 to $1.39 in October. The pace of further rate cuts in each country is likely to diverge as well, with the US displaying a relatively stronger and more resilient economy. 

Looking beyond North America, geopolitical tensions flared up in the Middle East as the conflict in Gaza expanded beyond national borders. The price of oil is often a barometer for how markets are thinking about the conflict, but it traded in a narrow range for October.

As for the impact of the US election, we believe there should be little long-term effect on the markets, though there may be some short-term uncertainty if the victor is not known on election night. Longer term policies will depend on who the winning candidate is, as well as who holds the House and Senate in the US Congress. Tariffs, in particular, could be one policy that could have a direct impact on Canada.

Markets

Although US markets reached new highs in mid-October, market sentiment somewhat soured toward the end of the month, leading equity markets, in general, lower in local terms. US stocks initially touched new highs mid-month, although this came at a mere 1.8% increase from the end of September. This was also in spite of a slightly higher-than-expected inflation print, but on the back of a resilient US economy and consumer. Pre-election jitters are likely to blame for sentiment turning negative towards the end of the month, as the election remains extremely close with polls not indicating one way or another.

Chinese stocks were an outlier in equity markets. Gaining over 8% in the first week of October, they continued their rise from the late September stimulus announced by the government, elevating investor sentiment in hopes of fueling growth. However, as the stimulus package seemed to be focused on the monetary side, investors were left somewhat disappointed, leading to Chinese equities losing just under 6% by month end². 

Back home, Canadian investors were net benefactors of the falling Canadian dollar, boosting returns domestically by approximately 3% compared to USD equivalents. The TSX also finished the month on a slight positive note, mostly thanks to stable energy prices and rising gold prices boosting materials stocks. 

Fixed income markets were slightly negative by month end, as yields rose approximately 20 basis points overall despite the Bank of Canada cutting the overnight rate by 0.5%. The result was a twist in the curve around the one year maturity mark, leading to yields rising 15 to 30 bps on the mid- to longer-end and falling 30 to 60 bps on the less-than-six-month end. Despite the twist, duration was still the biggest factor in performance, leading to shorter duration bonds outperforming their longer term counterparts.

Compass Portfolios Series F1 - Returns net of fees

ATBIS Pools Series F1 - Returns net of fees

¹ Using F series returns
² As measured by the MSCI China Index in Hong Kong Dollar terms