Monthly Review of the Markets – May 2018
North American stock markets continued to perform well in May 2018, especially Nasdaq technology stocks, which were up more than 5%, and Canadian S&P/TSX stocks, which were up nearly 3%.
The Canadian market performed well, despite a bad month for the price of oil, which fell more than 2% while gold and the Canadian dollar also lost about 1% each.
On the interest rate side, the Bank of Canada and the US Federal Reserve both kept their rates unchanged after their May meetings. This did not stop the 10-year US Treasuries from breaking the 3% mark for the first time in several years, which was noted by the markets but did not create much weakness.
On the political side, in May alone, Donald Trump moved the Israeli embassy to Jerusalem, in addition to successfully canceling and then restating a meeting with the President of North Korea, imposed, remove and reinstated tariffs on aluminum and steel, and finally, sanctioned and then reached a deal with China's ZTE Corporation. Above all, he has issued a host of communications of all kinds that, on a daily basis, continue to mystify the markets and make some forecasts extremely uncertain.
In Canada, the US President's tariff measures, NAFTA negotiations, the Trans Mountain Pipeline Project – finally bought by the Canadian government – and the G7 meeting are the main events that made headlines.
As far as corporate results are concerned, we have experienced some lull. Only the retail sector in the United States (whose results range from excellent to rotten!) and Canadian financial stocks (whose results are very acceptable) had any reason to attract attention. Despite the lack of any real development, the entire marijuana industry has remained extremely volatile as the market seeks to establish value for a new sector that is still difficult to identify at this time.
Below you will find a summary table of the level and performance of various North American indices as well as the prices of a barrel of oil, an ounce of gold and Canadian dollar from May.
| Index | Value at May 31 2018 | 1 Month Return | 3 Month Return | 1 Year Return |
|---|---|---|---|---|
| S&P/TSX | 16,061 pts | 2.90% | 4.00% | 4.63% |
| Dow Jones | 24,416 pts | 1.05% | – 2.45% | 16.22% |
| Nasdaq | 7,442 pts | 5.32% | 2.32% | 20.05% |
| S&P 500 | 2,705 pts | 2.15% | – 0.33% | 12.15% |
| Barrel of Oil (WTI) | $67.04 | – 2.23% | 8.76% | 38.74% |
| Gold (ounce) | $1,300 | – 1.21% | – 1.14% | 2.20% |
| $CAN/$US | $0.7726 | – 0.85% | – 0.85% | 4.25% |
S&P/TSX (16,061 points, increase of 2.90%)
The technology sector was one of the strongest during the month posting an increase of more than 7%. The stocks of Shopify (11%), CGI (7%) and Celestica (5%) were among the best in the industry.
Industrials was one of the best performing sectors, gaining more than 7%, among others because of strong gains from CN (9%), from CAE (12%) – which has announced strong results – and especially Bombardier's excellent performance (22%), mainly because of new contracts.
The materials sector also performed well, posting an increase of more than 5%. Stocks of Nutriens (12%), Teck Resources (9%) and Goldcorp (8%) performed among the best in the month.
On the side of losing sectors, note the defensive consumption, which fell by almost 2%, getting pulled down by Alimentation Couche-Tard, which lost 2.5% in May.
Among other stocks that caught our attention because of their positive performance were Saputo (8%) and Metro (5%).
Dow Jones (24,416 points, increase of 1.05%)
The Dow Jones index moved the least in May, barely 1%. Despite this relative underperformance, some stocks in the index have been particularly outstanding. Industrial stocks such as Boeing (6%), Caterpillar (5%) and Exxon Mobil (5%) were among those pushing the index higher.
Technology stocks included in this index also performed very well. Some notables were Apple (13%), Intel (7%) and Microsoft (6%), while investors moved away from more traditional and more defensive companies like Walmart (-6%), Johnson & Johnson (-5%) and McDonald's (-4%).
Nasdaq (7,442 points, increase of 5.32%)
The Nasdaq index was the most best-performing US index in May – by far! More precisely. Nasdaq technology stocks performed well. The largest company in the world, Apple (13%), led the charge but other stocks also contributed to Nasdaq's positive results, including Microsoft (6%), Alphabet (6%), Facebook (11%) and Netflix (12%).
In the telecommunications sector Vodafone (-12%) and T-Mobile (-8%). which is under discussion to merge with Sprint, were the weakest of the large companies that make up the Nasdaq.
S&P 500 (2,705 points, increase of 2.15%)
As was the case with the Nasdaq index, the S&P 500, which includes 500 of the largest US companies, benefited greatly from the rise in technology sector stocks in May. In addition to the stocks already mentioned in our Nasdaq commentary, let's add the great performance from Nvidia (12%), Adobe (12%) and Qualcom (15%).
The industrial sector also stands out positively, posting an increase of more than 3%. In addition to Boeing and Caterpillar which we discussed earlier, note also the excellent performance of GM (16%).
As for the retail trade, Lowe's stock also rose sharply (15%) and announced excellent results.