Navigating changes together

Canada’s stock market produced a double-digit gain and outperformed its developed-market peers in the third quarter. Economic growth remained sluggish, with initial data indicating that third-quarter GDP would likely miss estimates. This development was actually favorable for the market, since it raised the odds that the Bank of Canada would enact a half-point interest rate cut at its October meeting. The financial sector, which makes up nearly one-third of Canada’s total market capitalization, performed particularly well on expectations for a steepening yield curve. Mining stocks, which benefited from China’s announcement that it would provide significant stimulus to its economy, also contributed to the rally. Together, these factors helped the S&P/TSX Composite Index surpass the 24,000 level for the first time and close just short of a record high.

The U.S. stock market overcame bouts of volatility to end the third quarter at a record high. Moderating inflation and weakening employment data helped fuel expectations that the U.S. Federal Reserve would cut its target interest rate, aiding stocks in July and August. The Fed delivered a half percentage point interest rate cut – its first decrease in four years – in September, boosting the likelihood of a soft economic landing. Investors put aside concerns over slowing investments in artificial intelligence, rising geopolitical instability, disappointing consumer confidence data, and political uncertainty ahead of the November U.S. Presidential election. Amid this backdrop, the equity market began to broaden with notable gains from the utilities and real estate sectors. Conversely, information technology and communication services stocks delivered meager returns and energy stocks declined.

The world equity markets registered impressive gains in the third quarter. Stocks were propelled by China’s announcement, late in the quarter, that it would provide substantial fiscal and monetary stimulus in an effort to prop up its economy and markets. These factors helped the major world indexes finish September at or near all-time highs.

Global bond markets posted strong returns in the third quarter as central bank activity drove performance. Many of the world’s major central banks enacted interest rate cuts during the quarter—including the European Central Bank, the Bank of England, the Bank of Canada, and the People’s Bank of China—as inflation cooled around the globe. The primary exception was the Bank of Japan, which raised interest rates in July as part of a plan to normalize policy after years of zero interest rates. The general shift toward more accommodative monetary policy led to a broad decline in bond yields in the third quarter. Regionally, North American bond markets posted the best returns, while markets in the Asia-Pacific region lagged. On a sector basis, sovereign government bonds generally outperformed corporate debt.

Source: Manulife Investment Management, as of September 30, 2024. It is not possible to invest directly in an index. Past performance does not guarantee future results.