To say the Canadian stock market has had a volatile year would be an understatement. Of course we would always love to see markets plug along at their long term averages, netting investors their cool 6% annually, but sometimes that is not what we experience. 2023 has instead been like riding a rollercoaster, with its climbs followed by exhilarating plunges, only to repeat and do it all over again.

Taking a look at the year to date chart above, we can see that the TSX has peaked at 6% price return on the year three separate times, only to come back down to flat again. The good news (if there can be some in these frustrating markets) is that generally Canadian companies are holding on and staying above water on the year.

As has been the case for a while now, inflation readings and the Bank of Canada’s (BoC) interest rate actions are driving markets. The rapid rate increases of the last year have worked to tame inflation, but it is still not at the 2% target the BoC holds firm. These peaks and valleys can be partially explained by investor expectations after numerous inflation readings and the BoCs reactions to them. When things seem like they are coming under control and rate increase may be behind us, we see a positive push from the market. When we then get decent GDP data, and higher than expected inflation readings, we are back to anticipating further rate increases and we see weakness return.

All of this is to say things have been bumpy, and should continue so until we have positive and definite direction from the BoC. Rate increases have a lag, and don’t show their effect until months in the future. We can expect the most recent increases (and the priced in 0.25% increase that could be upcoming) to weigh negatively on the economy moving forward. However the stock market is a separate animal from the economy, and if we do see a recession in Canada, we may already be seeing a stock market rebound.