A quarter to remember

September 30, 2008

The slide in global equity markets continued through the third quarter of 2008 as a result of slowing economic growth, rising financial stress, and lower commodity prices.

The S&P/TSX composite index reached an all-time high at near 15,100 in mid-June, about one month before the price of crude oil peaked at $147US per barrel. This peak in oil brought increasing concerns for not only the American consumer, who had reduced travel and parked the gas guzzler in the driveway, but for international economies as well.

Amidst the backdrop of a global economic slowdown and a weakened financial system, the Toronto index finally showed weakness as a shift in the market occurred: energy stocks declined significantly while financials, which had been weak for over a year, showed some strength.

As August ended, the scene changed. The S&P/TSX dropped over 1,500 points in just over a week. International markets were also hit, particularly emerging markets such as Russia and India. Attempting to stabilize financial markets, the US Treasury department placed Freddie Mac and Fannie Mae, the two government-sponsored mortgage giants, in conservatorship in early September.

Then, over a mid-September weekend, financial markets were hit with a three-barreled blast. Lehman Brothers filed for bankruptcy protection, Bank of America stepped in to save Merrill Lynch from bankruptcy and American International Group was desperately seeking financing to keep itself from failure…

…We continue to believe the Canadian financial system and Canadian banks in particular are in a better position than those in the United States.