May was another volatile month for equity markets as concerns over persistent inflation and monetary tightening weighed on investor sentiment. With mounting fears of aggressive rate hikes from the Fed potentially tipping the economy into a recession, the S&P 500 posted its longest weekly losing streak since the dot-com bubble. Adding to headwinds was a series of lackluster quarterly earnings from major U.S. retailers. The weaker-than-expected earnings from Target and Walmart indicated profit is getting pressured from rising wages and transportation costs. U.S. stocks managed to snap the seven-week losing streak after China loosened lockdown measures and U.S. President Joe Biden said he would consider easing tariffs on Chinese goods.
Canada’s benchmark S&P/TSX Composite Index was 0.2% lower in May, as eight of the benchmark’s underlying sectors were negative during the month. The decline was led by the health care sector with a loss of 25.5%. Only energy and financials managed to be in the green with returns of 7.9% and 1.4%, respectively. The Canadian market has been resilient during the broad downturn this year, thanks to the strength of the energy and materials sectors. Small-cap stocks, as measured by the S&P/TSX Small Cap Index, slid again by 2.4% in May.
The U.S. dollar depreciated by 1.2% versus the loonie during the month, dampening the returns of foreign markets from a Canadian investor’s standpoint. Note that all returns in this paragraph are in CAD terms. U.S.-based stocks, as measured by the S&P 500 Index, declined 1.4% in May. Real estate and consumer discretionary had the steepest declines during the month, falling 6.5% and 6.3%, respectively. Energy, utilities and financials managed to see gains in May, rising 13.3%, 2.3% and 1.1%, respectively. International stocks, as measured by the MSCI EAFE Index, lost 1.2% during the period, while emerging market stocks fell 1.3%.The investment grade fixed income indices we follow were mixed in May. Canadian investment grade bonds, as measured by the FTSE Canada Universe Bond Index, lost 0.1% for the month while the key global investment grade bond benchmark increased by 0.3%. Global high-yield issues advanced 0.5%
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