Canadian stocks bounced back in September, with a total return of 3.0%, pushing the quarterly gain to 3.7% and the year-to-date return to 4.4%. Those returns, though, have lagged that of the world’s other major stock markets, due mostly to the weakness in the Energy sector, which makes up a disproportionate of the Canadian indices. While the Energy sector jumped by over 10% in September, it remains down more than 15% so far in 2017, and it still accounts for over 20% of the SP/TSX Index, 2nd only to 34.4% weight of the Financials sector. Small cap stocks also under-performed the larger companies in both the third quarter (rising 1.8% versus 3.3% gain for larger SP/TSX60) and the year-to-date period (small cap index down 3.7% and SP/TSX60 up 2.4%).

Looking at the table below, which shows the returns of major stock markets over various periods ending September 30th, 2017, we can see that the European markets, particularly Germany, had a sharp recovery in September on better economic data and a renewed mandate for Chancellor Angela Merkel in the recent elections. Japanese stocks were also a big winner in September with the Nikkei 225 risng 5.1% on much stronger-than-expected second quarter growth. The strength of the Yen though has held back gains in that market both this year and in 2016. Same story for the Chinese market, which has been stronger this year but actually fell over 11% in 2016.
Market Performance

In the U.S. the Dow Industrials finished the month up 2.5% and the S&P500 gained 3.0%, once again besting seasonal patterns where, over the past century, the stock market has averaged a 1.1% loss in September, the worst-performing month. Investors believe they are seeing growth picking up again, citing the increasing optimism that some kind of tax-reform package will get passed in Washington in the near future. That certainly has helped small-cap names, many of which typically have higher tax rates than bigger firms do. Small caps were also helped by a recovery in the U.S. dollar, as they don’t have the multinational exposure of many larger firms. The smaller cap Russell 2000 Index appreciated 6.09% in September. Breaking down the U.S. gains by sector, technology stocks are up 26% this year, ahead of all other sectors. Leading names such as Microsoft, Apple and Facebook have all been strong. The Health Care is in second place, having gained nearly 19%. The strongest individual stock performers were some of the larger industrial stocks such as Boeing (up 58%) and Caterpillar (up 33%).).

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