Canadian equities continue to struggle

Volatility ramps up across sectors as Canada-listed stocks extend decline

Canadian equities continue to struggle

As it prepares for additional interest rate increases, the Canadian stock market continues to be volatile. This presents a chance to purchase dividend and growth stocks at a discount.

The stock market remains plagued by volatility as central banks continue to raise interest rates to combat inflation. As fears of continued rate hikes continue to take hold among investors, so has turbulence across financial markets.

Read more: Will hawkish central banks invite even more volatility?

Newly published figures from S&P Dow Jones Indices paint a stark picture. Since the S&P/TSX Low Volatility Index was last rebalanced on June 17, Canadian stocks have continued to fall, losing an additional 8.76% (through September 15, 2022).

As is typical for a market in decline, the Low Volatility factor outperformed the broader index by 13 basis points, declining 8.63%. The S&P/TSX Composite Index's volatility increased once more in June as it had in June for every sector.

According to S&P Dow Jones Indices data from May 31, 2021, to August 31, 2022, health care, information technology, and energy showed the highest trailing volatility. Data on the one-year volatility increase for all sectors of the S&P/TSX Composite showed that health care rose from 45 to 50%, information technology from 45% to 49%, and energy by 4% from 25% to 29%.

However, the most recent rebalancing of the S&P/TSX Composite Low Volatility Index, which took effect at the close of trading on September 16, 2022, resulted in either maintained or increased positions in these sectors.

Read more: Why it’s time to revisit low-volatility strategies

These findings suggest that there are pockets of relative stability even within higher-volatility sectors since the index screens for the lowest volatility at the stock level.

The most overweighted sectors in the Low Volatility index continue to be Financials, Real Estate, and Utilities, which had weightings of 22%, 21%, and 25%, respectively, as of September 16.