September market turmoil is common in global markets, and this past month was no exception. In many ways, as 2020 progresses, it is hardly surprising and somewhat comforting that, for what has been an unprecedented year, we have seen normal autumnal volatility in markets. Despite this, global equity markets improved significantly over the entire third quarter, reaching an all-time high on September 2nd, only to give back some of this return as valuations raced ahead of fundamentals.
Over the quarter, the S&P 500 returned 8.5% while the S&P TSX Composite was up 3.9% in local currency terms. This is despite -3.9% and -2.4% returns respectively for the month of September. International markets continued to struggle with the Dow Jones Euro Stoxx up only 0.3% and Hong Kong Markets down -4.0% in the quarter. These mixed returns over the last quarter – and longer in the case of Europe and other global equity markets – are offering some compelling opportunities for long-term investors. Even with the decline in September, it must be remembered that the S&P500 rebounded 50% over 125 days. A pause was in order.
Markets aside, we have seen a very strong recovery in economic data. While slowing slightly of late, we are not yet in a full-on reversal. Second wave fears and the subsequent second shutdown discussion are creating some level of uncertainty, but broadly we are in a better place economically than in Q2. The U.S. index finished the three-month period up 6.6% for the quarter and 8.4% for the year-to-date in Canadian dollar terms. The MSCI World Index, which reflects returns for developed equity markets around the globe, followed a similar path, and was up 5.7% for the quarter and 4.9% for the year- to-date.
In Canada, the S&P/TSX Composite Index also trended higher throughout much of the summer, buoyed by sectors such as materials (precious metals), industrials (transportation companies) and consumer staples. Despite continued weakness in the energy sector and broader market volatility later in the quarter, the Canadian benchmark finished the three-month period with a gain of 4.7% but remained down 3.1% year-to-date.
Outlook
We will continue to see choppy markets in the coming months heading into the US election. If 2020 has proven anything, it has reiterated a long-held belief that timing the market is near impossible to navigate short term. Managing risk based on strong fundamentals is far more effective long term. The rebound from the March lows was achieved in only 140 days to new highs, a record speed for such a pronounced 34% decline. Trends that were well in place prior to the global pandemic have been enhanced during.
Online shopping is the obvious example but there are many more; working from home, home entertainment and changing habits are all themes that we have been exposed to previously and are enhanced in the portfolio today. We remain constructive for the portfolios of long-term investors with the caveat that there is likely to be some continued volatility this year. 2021 is around the corner, impressive progress has been made on a vaccine, and our incredible healthcare community is far better prepared to deal with the virus than it was six months ago. Inventories are low and there is pent up demand, so an improvement in outcome on the pandemic front could see a very positive 2021 from an economic perspective.
We remain vigilant to risks, we are stewards of your capital and are honored to have your trust. We are confident that our investment approach and portfolio construction process will enhance long-term returns and minimize risk. We look forward to talking to you about your portfolio and investment positioning.
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