September 2021 monthly market insights

Strong earnings, monetary policies drive stocks higher

Global equity markets rallied to all-time highs for the seventh consecutive month as investors focused on strong corporate earnings and the still-accommodative fiscal and monetary policies of central banks, rather than Delta-variant headwinds. Coronavirus case counts and hospitalizations in various U.S. states have risen to new highs since the start of the pandemic. Nonetheless, markets remain optimistic for a return to normal. The U.S. Food and Drug Administration fully approved the Pfizer-BioNTech vaccine, which could lead to further increases in vaccinations as certain employers mandate vaccines and provide the needed push for those who have been hesitant.

Stock market gains continue. Global equities advanced for the seventh consecutive month, thanks to strong corporate earnings and accommodative fiscal and monetary policies. Volatility in equity markets has been unusually low despite mixed economic data.

Extreme summer weather underscores urgency on climate. This summer has seen several extreme weather events, such as wildfires and floods. These events had a high human cost, but also brought public attention to climate change and other ESG issues. We expect this to continue leading up to the United Nations Climate Change Conference (COP26) in November.

All eyes on the Fed’s next tapering announcement. Stock valuations appear expensive compared to historical price-to-earnings multiples. Compared to bonds, equities remain attractive, but these relative valuations could depend on whether the U.S. 10-year bond yield stays low. Consequently, investors continue to focus on the U.S. Federal Reserve’s next move.

% return in C$

Canada: MSCI Canada; U.S.: MSCI USA; International markets: MSCI EAFE; Emerging markets: MSCI Emerging Markets. Source: Morningstar Direct

% return in C$

Canada investment grade: Bloomberg Barclays Canada Aggregate; Global investment grade: Bloomberg Barclays Global Aggregate; U.S. high yield: Bloomberg Barclays U.S. High Yield. Source: Morningstar Direct.

Canadians will be heading to the polls September 20 following the quickest possible federal election campaign window. While earlier polls revealed an opportunity for the governing Liberals to improve their parliamentary standings, this perceived advantage has since faded with the Conservatives, led by Erin O’Toole, moving narrowly ahead in recent polls. Still, past election results have been as unpredictable as volatile poll readings. 

The Conservative platform includes promises to balance the federal budget by 2031, to restore millions of jobs lost due to the pandemic while extending wage subsidies and expanding EI benefits, and to increase corporate taxes on foreign tech companies while cutting income tax rates on new patented technologies developed in Canada. Meanwhile, the Liberal platform includes promises to raise corporate income taxes on large banks and insurers, to create a proof of vaccination fund to support participating provinces and territories, and to extend the Canada Recovery Hiring Program into next year while introducing specific plans to support the tourism industry and fossil fuel workers. 

Climate change also continues to be a source of significant policy differences, but the gap has comparatively narrowed from the 2019 election campaign. The Conservatives’ new climate plan, first introduced in April, looks to take on a structured approach to tackle climate change and help Canada meet its emission reduction commitments. However, opponents of this plan argue that there are significant inconsistencies in its approach. Although Canada’s two largest parties have received the bulk of media attention, current polling suggests neither is likely to win a majority, highlighting the importance of smaller parties such as the NDP and Bloc Québécois in supporting any governing party.

Source: Canadian Broadcasting Corporation, August 31, 2021.

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