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Stock markets and the economy

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August 2023 - Volatility returns to the markets

After a relatively strong performance at the beginning of the summer, the global stock markets were down in August amid renewed volatility. 

The reasons for the decline include concerns that the U.S. Federal Reserve (Fed) will unexpectedly keep interest rates higher for longer, discouraging economic data from China and the slowing of the Canadian economy in July. 

Variation vs
Variation vs
Interest rate in Canada (%)
Key rate
Key rate 5.00 0.00 0.75
Commodities ($ US)
Oil (WTI)
Oil (WTI) $81.63 1.3% 1.5%
Gold $1,973.00 0.6% 8.9%
EUR/CAD 1.47 1.1% 1.5%
JPY/CAD 0.01 0.2% -10.0%
USD/CAD 1.35 2.7% -0.1%

Sources: Bank of Canada, Fundata


-1.6% (S&P/TSX Composite 31-08-2023)

The Canadian stock market returned -1.6% in August, as measured by the S&P/TSX Composite Index. The decline was due largely to a poor performance by financials during the month. The sector was dragged down by disappointing results from Canadian banks, whose unexpectedly large increases in loan-loss provisions signalled weaknesses in the Canadian economy. Conversely, the energy sector posted significant gains during the month on the year-to-date rise in oil prices. 

As for the bond market, the FTSE Canada Universe Bond Index ended the month with a return of -0.2%.  


1.2% (S&P 500 31-08-2023 in CAD)

In August, the S&P 500 Index ended a positive five-month streak with a return of -1.6% in U.S. dollars. All sectors were down, with the exception of energy. Even so, the Canadian dollar’s weakness completely offset the losses. In fact, the S&P 500 Index was up 1.2% in Canadian dollars.

The beginning of the month was particularly negative, given the risk that resilient aggregate demand could keep inflation above the Fed’s 2% target, forcing it to tighten monetary policy further. At the end of the month, the market rebounded, however, with the release of economic data indicating that the labour market was starting to find  a better equilibrium and thus reducing some inflationary pressures, notably on wage growth.


-1.3% (MSCI Europe 31-08-2023 in CAD)

The MSCI Europe Index returned -2.2% in August in local currencies. The weak loonie helped reduce the losses to -1.3% for Canadian investors. Headline inflation in the euro zone picked up in August, raising the possibility of a further rate hike by the European Central Bank as the economic outlook for the region weakens. The health care and energy sectors contributed the most to the return, whereas the consumer discretionary and industrial sectors detracted the most. 


-2.2% (MSCI Asia-Pacific 31-08-2023 in CAD)

The Asian market was no exception and also posted losses in August. The MSCI All Country Asia Pacific Index ended the month with a return of -3.0% in local currencies and -2.2% in Canadian dollars. All sectors, without exception, detracted from the return. From the regional standpoint, the index was dragged down mainly by China, amid disappointing economic data and concerns about the Chinese real estate market. The lack of significant economic stimulus from China also weighed on investor sentiment.


-3.5% (MSCI Emerging Markets 31-08-2023 in CAD)

Emerging markets underperformed developed markets in August. The MSCI Emerging Markets Index returned -4.7% in local currencies and -3.5% in Canadian dollars. The underperformance was due mainly to China’s slumping stock market. South Korea and Africa also weighed on the index’s monthly return. All sectors ended the month with losses. 

Reading in progress: August 2023 - Volatility returns to the markets


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