June 2018 Market Commentary
Evidence of slowing economic conditions, trade tensions and tightening monetary conditions generally pushed markets lower in June. In North America the US managed to produce a modest return in domestic terms and the Canadian market advanced supported by commodities, particularly energy. There has been a frustrating lack of consistent sector leadership in the markets this year. That trend continued in June as sector leadership again rotated, with financials and industrials taking the brunt of the pressure in both the TSX and the S&P 500. In Canada, energy pushed higher bringing its year to date return into positive territory, whereas other leaders during the month were still negative year to date. A similar story unfolded south of the border. Momentum stocks led the way in Canada, whereas in the US momentum and quality stocks fell behind low volatility stocks.
Coming off a stellar year in 2017 when the predominant view was that the market was in overvalued territory, we are now seeing earnings catch-up. Q2 earnings are expected to continue the strength of the Q1 trend. However all bets may be off as trade tensions escalate, potentially impacting future earnings. With anticipated rising rates in the US, the ECB tapering investors, and inflationary pressures, investors are anxiously looking to next year. The positive tailwinds that propelled the markets last year and early this year may be all but exhausted as late cycle cautionary signals are flashing in one of the longest bull markets in history.