As markets transition into the fourth quarter, a shift in tone is evident, marked by growing risk aversion. Higher interest rates, firmer oil prices, and caution in credit markets are prompting a more selective investment approach. Despite these crosscurrents, global equities have shown resilience, with the S&P 500, MSCI World Index, and S&P/TSX all posting modest declines in September but remaining up between 12% and 13% year-to-date.
The U.S. economy remains strong, supported by low unemployment and robust consumer spending. However, the Federal Reserve’s 25-basis-point rate hike in September has led to a surge in the U.S. 10-year Treasury yield, now at 5.3%, as bond markets anticipate further tightening. Oil prices also saw volatility, spiking to $105 per barrel before settling back to $90.
Looking ahead, the U.S. midterm election on November 3 could introduce market volatility, but polls suggest a gridlock outcome, which historically has been bullish for equities. The S&P 500 has gained an average of 15% in the 12 months following midterm elections since 1950. Additionally, fixed income is seen as attractive, with U.S. 10-year Treasury yields reaching levels not seen in over two decades.
In Canada, Prime Minister Mark Carney’s government has introduced major economic initiatives, including a permanent Productivity Mega Deduction tax incentive and regulatory reforms to accelerate infrastructure projects. These measures are expected to boost business investment and economic growth.