Stocks fell in September, concluding a volatile quarter where investors experienced growing concerns that central banks might keep interest rates higher for longer. U.S. treasury yields reached their highest since 2007, while rising oil prices sparked a rebound in consumer prices. Both Canadian and U.S. stocks experienced declines during the month, with the S&P/TSX Composite Index sliding back to levels last seen in October 2020 and the S&P 500 Index suffering its worst month this year.

The S&P/TSX Composite Index was down 3.7% in September and declined 3.0% in Q3. Nine of the benchmark’s underlying sectors were negative during the quarter, led by telecommunication services (-13.8%) and utilities (-13.0%). Health care and energy were the only positive sectors for the quarter, with gains of 13.8% and 8.9%, respectively. Small-cap stocks, as measured by the S&P/TSX SmallCap Index, fell 1.5% for the quarter.

The U.S. dollar appreciated by 2.5% versus the loonie during the quarter, boosting the returns of foreign markets from a Canadian investor’s standpoint. Note that all returns in this paragraph are in CAD terms. U.S.-based stocks, as measured by the S&P 500 Index, fell 4.9% in September, and finished the quarter lower by 1.3%. The benchmark’s quarterly decline was led by utilities (-7.9%) and real estate (-7.5%). Energy and telecommunications services were the top gainers in the quarter, rising 14.0% and 5.3%, respectively. International stocks, as measured by the FTSE Developed ex-U.S. Index, declined 2.3% during the quarter, while emerging markets fell 0.2%.

The investment grade fixed income indices we follow posted losses in Q3. Canadian investment grade bonds, as measured by the FTSE Canada Universe Bond Index, were down 3.9% during the quarter. The key global investment grade bond benchmark was down 3.6%, while global high-yield issues were up 0.3% in Q3.

Turning to commodities, natural gas gained 4.7% in the quarter, while the price of a barrel of crude oil surged 28.5% in the same period. Gold, copper and silver all had a negative quarter with declines of 4.2%, 0.1% and 1.6%, respectively.

Inflation in Canada climbed to 4.0% year-over-year in August, marking the second consecutive month of acceleration in consumer prices since hitting the two-year low of 2.8% in June. The rise in prices was largely due to rising gas prices and higher rent costs. The Canadian economy added 40,000 jobs in August, as the nation’s unemployment rate held steady at 5.5%. The Bank of Canada continued its pause in interest rate hikes in September, keeping its key interest rate unchanged at 5.0%.

U.S. nonfarm payrolls rose by 187,000 in August, but the unemployment rate climbed to 3.8%. The consumer price index increased for a second consecutive month to 3.7% year-over-year in August. A rise in oil prices over the past two months, coupled with base effects from last year, pushed inflation higher. The Federal Reserve held interest rates steady in September at a range of 5.25–5.50%, but signaled that we could see at least one more hike this year.

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