In August, the world economy continued to recover and grow. Yet it was a month turned upside down due to the events in Afghanistan, the spread of the Delta variant, and the Fed speculation about the « degressive bond. »
Here is a summary of notable market events from the past month.
COVID-19 and market evolution
- US, Canadian and global equities posted a seventh consecutive month of gains, with the S&P 500 Index finishing near its all-time high and the TSX Composite Index on its longest streak of gains in four years.
- Yields on US government bonds fell after the Fed announced a timetable to cut its stimulus measures, but reaffirmed that the current inflationary surge should prove temporary.
- The US dollar hit a nine-month high and oil prices a four-month low, following the same favorable market comments from the Fed.
- At its annual summit in Jackson Hole, Wyoming, held virtually this year, the Fed said it would start reducing its monthly stimulus to buy US $ 120 billion government bonds by ‘by the end of the year. The Fed also reiterated that it was in no rush to raise rates from their near-zero range as the recent spike in U.S. inflation was temporary, so it was prudent to wait for the market work improves.
- The Bank of Canada has consistently said it will step in if Canadian inflation is consistently above its 2% inflation target. However, aligning with the Fed, the bank noted that the current rise in inflation was likely transient. The Bank of Canada had also previously announced that it was reducing its stimulus measures by reducing weekly purchases of federal bonds by about C $ 2 billion.
- The six major Canadian banks posted strong third quarter earnings that easily exceeded analysts’ expectations.
- The Canadian federal government has called an early federal election, scheduled for September 20.
- A series of leading Canadian companies and provincial and federal departments have announced that they will require employees to be vaccinated before returning to the office.
- After months of uncertainty and steep price declines, cryptocurrencies rebounded, led by Bitcoin and Ether, trading at their highest levels since May.
How does this affect my investments?
As the global economy expands and inflation rises, the accommodative monetary policies of the major central banks that have helped markets outperform over the past year are starting to be curtailed. Recent volatility indicates that the Fed will soon begin to gradually reduce its stimulus measures, and concerns about the Delta variant may have already been reflected in the market. Overall, the outlook remains positive, driven by strong economic fundamentals and earnings growth.
No matter where we are in the market cycle, it’s important to take a disciplined approach to investing and stay focused on your long-term financial goals. We recommend that you maintain a diversified mix of asset classes in your portfolio in order to maximize potential returns and minimize risk. Regularly reviewing and rebalancing your portfolio also helps you stay on track.
If you have any questions, do not hesitate to contact your Gestion Privée Nour advisor.