Health experts had pointed out that a second wave of COVID-19 was very likely. After several months of progress, the data began to deteriorate in September, which led to stricter containment measures. Unsurprisingly, the markets reacted negatively and the sectors most affected were much the same as during the initial shock. Among other things, the price of oil weakened once again and the Canadian dollar fell against most foreign currencies.
Against this backdrop, the domestic stock market struggled. As measured by the MSCI Canada Index, it returned -2.5% during the period, cancelling out the previous month’s progress. While some sectors advanced, particularly Consumer Staples and Industrial, their gains were more than offset by the underperformance of Energy, Health Care and Financials. As for bonds, a decrease in longer-term interest rates kept the results in positive territory, despite the negative impact of a slight widening of the corporate bond premium.
After dominating for several months, the U.S. stock market showed signs of running out of steam in September. In fact, its -3.7% return in local currency, as measured by the MSCI USA Index, was the weakest worldwide. However, the loonie’s depreciation against the greenback partially offset this loss, reducing it to -1.3% when expressed in Canadian dollars. Materials, Utilities and Industrials were the strongest performers, while Energy, Communication Services and Information Technology subtracted the most value.
Europe is the region that coped best with the bearish trend. As represented by the MSCI Europe Index, the return for the period was -0.9% in local currencies. The performance expressed in Canadian dollars was identical, because the exchange rate effects with the various European currencies were minimal and offset one another. Energy was the sector with the worst return, while Consumer Discretionary and Consumer Staples were the sectors that limited the damage the most.
The rebound in Information Technology largely contributed to limit the region’s losses. The return on the benchmark MSCI Asia Pacific Index was -1.3% in local currencies. The loonie's weakness against a number of Asian currencies was also a determining factor, increasing the return to 1.3% in Canadian dollars for the month. Financials, Energy and Consumer Staples were the most detrimental to performance.
The currency effect also played an important role in emerging markets. While the MSCI Emerging Markets Index returned -1.7% in local currencies in September, it had a positive performance of 0.9% in Canadian dollars. Information technology and Consumer Discretionary dominated, while Energy, Health Care and Financials detracted from the overall result.