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Monthly Reviews – september 2022

Team PolyFinances

Monthly Reviews – September 2022

Basic consumption

By Myriem Merini

The term basic consumption regroups all essential products used by consumers. This category includes products such as food and beverages, household goods, hygiene products, alcohol and tobacco. These are the products that people, regardless of their financial situation, cannot afford to do without. 

The chart below compares the price performance of the Canadian Consumer Staples Index with its benchmark, the S&P 500/TSX Composite, over the last quarter. It is quite clear that the sector has outperformed over the entire period. While the index recorded a negative return of 4.32%, the consumer staples stocks recorded a return of 0.29%, which is higher than the overall index. From the end of July to mid-September, the market was generally in better shape, which can be attributed to the companies’ second quarter financial results exceeding expectations. 

Figure 1 : Comparative graph of the performance of the S&P 500/TSX and the TTCS.

This is not unusual because during periods of inflation, this is generally a stable asset class. This is because consumer staples are considered non-cyclical, meaning that there is a year-round demand for these products regardless of fluctuations in the economy. As such, consumer staples are impervious to business cycles. And their demand remains relatively constant, regardless of price. The Canadian context seems favourable to the sustainability of the sector, since unlike some major suppliers around the world that are facing drought, Canada continues to enjoy a successful harvest. In addition, household income remains above pre-pandemic levels as well as that of the United States, with the Canadian government’s wealth redistribution programs. This contributes to greater purchasing power and is a positive environment for the sector to thrive.

Figure 2 : Projected evolution of Canadian food production.



By Laurent Benoit

Following Russia’s invasion of Ukraine in February 2022, the European Union (EU) made the decision to impose significant economic sanctions against Russia in protest of the illegal war. Moscow, being a major supplier of natural gas to Europe, quickly retaliated by reducing its gas exports to Europe by 60%, which led to a huge increase in energy prices in Europe. Figure 3 shows the increase in gas prices for households in the EU and Britain. 

Figure 3 : Natural gas prices in the United Kingdom and the European Union

Figure 3 shows that the price of gas rose by 247% in Great Britain and by 100% in the EU between July 2021 and July 2022. We can also see that the price increases had begun before the Russian invasion, but were accentuated by it. The economic and environmental consequences of these price increases on the European continent are major. For example, Europe’s largest aluminum manufacturer, ArcelorMittal, has announced that it will have to cut production by 20% in response to high energy costs in Europe. Also, Germany recently announced the reopening of three coal-fired power plants to compensate for the lack of natural gas in its electricity grid.

In response to this energy crisis, Canada will have to consider increasing its production capacity and investing in infrastructure to export energy to Europe. During his visit to Canada, German Chancellor Olaf Scholz signed a Canadian green hydrogen supply pact with Justin Trudeau. As good as it is, green hydrogen technology is not ready yet and therefore cannot be a short-term solution. This shows, however, the great interest that Europeans have in Canadian energy. Projects such as LNG Quebec or the Energy East pipeline could also be resurrected to meet European demand in the short term, which would have a positive impact on the Canadian energy sector as a whole.



By Abderaouf Nechadi

Inflation is a phenomenon indicating the economic growth of a country. Low inflation indicates an economy that is not growing very much, if at all. High inflation, on the other hand, erodes the purchasing power of individuals and businesses, who will have to rethink their budgets, review their spending and find ways to increase their income. That said, inflation is taking its toll on consumers, with CPI hovering around 7%, and producers are not spared, with PPI hovering around 10.6%, well above the average PPI of the past 25 years, most likely indicating a sharp increase in their cost structure.

Figure 4 : Comparison between the XFN ETF and the portfolio benchmark (S&P/TSX composite)

Since 2008, central banks have eased their guidelines and injected a lot of liquidity into the market. In 2020, this easing has increased tenfold in response to the pandemic and has created a strong bullish trend in the finance industry. However, to combat and crack down on this epidemic inflation, most central banks are taking the opposite stance and are raising policy rates and reducing their balance sheets, in order to calm the economy and reduce the liquidity available in the market. Both the Canadian central bank and the U.S. Federal Reserve have raised their policy rates by 75 bps, which is considered an aggressive move and shows their willingness and determination to calm this inflationary shock. This rate hike coupled with high consumer debt ($1.83 of debt per $1.00 of income) does not bode well for growth and this contraction translates into a falling market. 

Indeed, although financial markets tend to benefit from higher rates, Figure 4 shows the opposite and indicates that the financial sector, represented by the XFN ETF, is declining. This can be explained by a forecast of a sharp reduction in economic growth and, therefore, a risk-off sentiment in the markets that creates this price correction. It is true that the future can be difficult to predict, but this trend does not seem to be changing: The FED seems determined to tame this inflation and the market predicts a 100% chance of a rate hike between 50bps and 75bps. In these uncertain times, the key is to be cautious about allocating resources, making financial decisions, and trading with particular attention to risk and as John Templeton said: “For those properly prepared, the bear market is not only a calamity but an opportunity”.


Real Estate

By Dounya Iddir

On September 7th, the Bank of Canada raised the central bank rate to 3.25%, the fifth increase in recent months, in an effort to curb inflation. With demand outstripping supply, price increases are being felt in most sectors, including real estate. This sudden increase in the key rate allows the Bank of Canada to remove some buyers from the real estate market, which reduces the inflationary pressure that Canada has been feeling for several months now.

Figure 5 : Comparison of the S&P Composite and S&P TSX REIT indices

As shown in Figure 5, the prices of the S&P Composite index, which measures the performance of the Toronto Stock Exchange, and the S&P TSX REIT index, which tracks the earnings of real estate investment trusts in Canada, follow the same trends.

Figure 6 : Bank of Canada rate changes

Starting in March 2020, following the announcement of the Covid-19 global situation, there is an abrupt drop in prices from 14% to -30%, which resumes its rise approximately one month later until it peaks in March 2022 at 38%, the month in which the first change to the target rate by the lead bank takes place, as shown in Figure 6. It is therefore at this point that both indices begin their downward trend, which continues to this day.

Thus, with the market growing at a slower pace, it is interesting to pay special attention to the real estate sector in order to analyze the effects of this rate increase on the overall market and the behaviour of buyers and sellers, especially in this period when the number of insolvencies continues to increase.



By Maxime Bourdeau

The industrial sector is represented by companies that manufacture, distribute or sell equipment and supplies used primarily in the manufacturing and construction sectors. Between June 1 and September 30, 2022, the S&P 500 Industrials Index (S5INDU) declined by 11.7 percent despite growing by 17.4 percent between mid-July and mid-August 2022. One reason for the decline in the U.S. sector index is the current economic environment showing possible signs of an economic slowdown over the horizon. The S&P 500 (SPX) declined by 12.6% during the summer of 2022. The industrial sector declined slightly less than the broader S&P 500 Index, although both indices moved similarly during the same period. During July, August and September, the price of a barrel of U.S. oil fell by 25.2% as demand fell due to concerns about a possible recession. This cost is falling while many others are rising due to labor shortages and inflationary pressure. In fact, U.S. companies have seen the largest increase in labor costs in 40 years, with an annualized increase of 9.5%. Manufacturing companies have had to cut back on their margins if they are to limit the impact on consumers, which is why the sector has fallen.

During the same period, the Toronto Stock Exchange saw its S&P/TSX Capped Industrials Index (TTIN) rise by 1.5% while the S&P/TSX Composite Index (TSX) fell by almost 11%. This strength in the industrial sector can be explained by the price of several companies, including Canadian National Railway Company (CNR), which rose by 3.35%, and TFI International Inc (TFII.TO), which rose by 21.3%. TFI International Inc (TFII.TO) has an excellent return on capital employed (ROCE) of 16% compared to the industry average of 10%, creating a buzz for the stock. The following figure illustrates the competitiveness of the Canadian industrial sector compared to the American equivalent.

Figure 7 : Evolution of the main indices and their industrial sub-indexes on the Canadian and American stock market.


Basic Materials

By Olivier Larochelle

Last quarter was a down quarter for the basic materials sector. The XMA.TO Index (blue), an ETF targeting Canadian materials companies, was down 8.1% and did worse than the XIU.TO (orange), a stock index of the 60 largest stocks on the Toronto Stock Exchange, which was also down.  

Figure 8 : Price curve of the XMA index compared to the curve of the XIU index

As can be seen in Figure 9 below, the S&P/TSX Capped Materials Index is heavily exposed to the gold sector, which occupies 47.32% of the portfolio. Thus, knowing that the stock price of companies operating in the materials sector is closely linked to the price of the materials themselves, we can understand that the price of gold has a strong influence on the XMA.TO. In the last quarter, gold has seen a drop in value in mid-July (Figure 10). If we compare the gold price curve with that of the XMA.TO stock, it is easy to see that the trend is similar.

Figure 9 : XMA sectoral exposure

Figure 10 : Gold price curve

As has been the case for several months, gold is falling. This is due, among other things, to the appreciation of the U.S. dollar and the increase in yields on Treasury bills. Indeed, these two elements have cooled investors’ interest in this metal, which is not interest-bearing. Copper, which is a sector that represents 6.18% of the Basic Materials ETF, also lost value due to investor concerns about slowing global growth. Indeed, several factors could potentially hurt demand for industrial metals. These include the energy crisis in Europe, monetary policy tightening and the Chinese authorities’ zero-covid strategy.



By Shawn Daswani

The health sector is composed mainly of pharmaceutical companies that encompass everything related to the production of medicines. In this sub-sector, we find mainly companies that cultivate and sell cannabis for medical care. In addition, many biotech research companies are part of this sector and use new technology to develop medicines to advance the field of health. Over the past 3 months, looking at the S&P/TSX Healthcare Index, there is a lot of variation, but a big drop occurred towards the end of July to about 21.23. This index is very low when compared to last year which was at about 61.49 in November 2021. In the last 6 months, the index has suffered a drop of 51.10% following the actions of Joe Biden who wants to stop seeing cannabis as a criminal act. 

Figure 11 : Change in the S&P/TSX Healthcare Index over 3 months

Looking at the RSI index, we can see that it dropped below the 30 level in late July and late September which means that the stock was oversold during those 2 periods. However, we notice that the stock was above the 70 level in mid-July and early August which shows that the stock was overbought.


Information Technology

By Mathias Malhotra

Throughout the last months, stocks have been hit with a great amount of force and the information technology sector didn’t escape this sharp decline.  Leaders in the sector such as Meta and Google are respectively down 30% and 38 % in the last 6 months which has wiped a whopping 774 billion US dollars off the financial markets.  Investors are fearing a recession that could slow down spending and therefore cause businesses to cut on their marketing budgets.  Of course, that phenomenon directly affects companies who make most of their revenues from advertisement.    Other stocks such as Apple and Microsoft have stood their ground a bit better due to certain parts of their revenue that is recurring and isn’t expected to be hit as hard by a recession.  They are still respectively down, 20% and 24% in the last 6 months.  Apple’s shares have dropped recently after they came out with the news that production targets for the Iphone 14 would be cut because of lower demand than expected.  Down below is a stock chart that shows the steep decline in share price of the sector.

Meta and Google have both slowed down all additional hiring plans recently due to the advertisement revenue decline. The decision was taken to counter profit margins dropping by making sure the compagnies expenses don’t go up substantially.   

On a smaller scale, Elon Musk who had agreed to buy Twitter for 44 billion U.S dollars in April has as of July 8 backed out of the deal.  He did so by stating that the company failed to provide enough information on the number of spam accounts which impacts his investment.  Twitter is now firing back by suing Elon for breach of contract.  The stock during that whole mess has managed to stay somewhat stable in between 36 and 43.



By Alessandro Sassano

In 2022, the utilities sector has been characterized by its need to consistently innovate to overcome the challenges it has faced. Climate change, supply-chain disruptions caused by geo-political conflicts, and rising inflation rates have given rise to an increased need to decarbonize, digitalize, and decentralize the electric power industry [1]. However, industry outlooks predict that as public interest in decarbonization continues to grow and the effects of climate change are more heavily felt, the utilities sector will accelerate its adoption of renewable energy systems and disruptive technologies such as 5G and cloud databases [2]:

Vanguard Utilities fund ETF (VPU), an index fund which tracks the utilities sector, has outperformed the S&P 500 over the past quarter. Despite a drop of 7.08% this week, the VPU has increased in value by 2.05% over the past three months, versus a loss of 4.02% by the S&P 500, outperforming it by 6.07%. This is due to the fact the utilities sector provides services whose demand is inelastic; therefore, their price is less volatile than the market and they continue to see growth even in times of recession [3]. Therefore, in times of economic uncertainty and weak market performance, the utilities sector tends to outperform the market.

Figure 12 : VPU performance over the past three months


However, utilities projects are capital intensive and so companies in the sector carry large amounts of debt on their balance sheet [3]. As inflation continues to rise and energy supply chains continue to be affected, it will be important to monitor the balance sheets of companies in this sector before making investments. If, however, the general population continues to be market adverse, the utilities sector could prove to be a safe and stable area to invest in the near future.



Banque du Canada. (2021, 09 30). Taux directeur:[Saut de retour à la ligne] 

O’Sullivan, I. (2022). Google employees sense a real ‘’Vibe change’’ as hiring freeze continues. Google Employees Sense a ‘Real Vibe Change’ as Hiring Freeze Continues ( 

Mehta, I. (2022) Apple reportedly readjusts Iphone 14 production targets after slow demand. TechCrunch.  Apple reportedly readjusts iPhone 14 production targets after slow demand | TechCrunch 

Clayton, J. (2022). Elon Musk pulls out of $44bn deal to buy Twitter. BBC NewsElon Musk pulls out of $44bn deal to buy Twitter – BBC News,decarbonization%2C%20digitalization%2C%20and%20decentralization 

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