COLLAPSING OIL AND MOUNTING BREXIT FEARS RATTLE INVESTORS

Equity markets this week erased what was left of the post midterm election bounce from last week. There was no shortage of catalysts for investor worries, including plunging oil prices and other signs of slowing global economies, a revolt by some of U.K. Prime Minister May's cabinet members over the proposed Brexit deal, and the ongoing standoff in the European Union over Italy's proposed budget. A retreat in government bond yields in most developed countries suggests growing concern that the tightening of U.S. monetary policy is threatening the economic expansion. But despite the pull back, the S&P 500 remains more than 3% higher than its low of late October, and less than 7% below its all-time high. Toronto's S&P/TSX Composite Index, which saw its high reached earlier in the summer, is now 8.5% off its peak, after partly recovering from an 11.1% correction.

The interest rate-sensitive utilities and communication services sectors advanced as bond yields fell. Bank of Canada 10-year yields dropped 14 basis points in the week, moving in tandem with weakening U.S. treasury yields. The information technology and materials sectors also managed gains. Health care led the way down for the index as cannabis stocks reported quarterly results and were punished for missing earnings expectations. The freefall in oil prices weighed heavily on the energy sector. The price of West Texas Intermediate (WTI) crude stabilized mid week after a record string of losses, when the Organization of Petroleum Exporting Counties (OPEC) acknowledged the global demand outlook was deteriorating, and said it was planning to cut production. Adding to Canadian market anxiety were comments from U.S. legislators casting doubt on the likelihood of the USMCA trade deal getting smoothly approved.

Most sectors of the S&P 500 fell. As in Canada, energy was among the worst performing sectors. Information technology and consumer discretionary (which includes internet retailer Amazon) were also especially weak. Signs of weaker iPhone demand had shares of Apple tumbling and soured the mood for other names in the sector. The so-called "FANG" stocks - large cap technology and internet companies - led the market's advance over much of the last couple of years. Perhaps naturally then, these names have led the retreat in recent weeks as many investors look to protect gains going into year end. Despite significant declines since early October, some of the FANGs - namely Apple and Amazon - still sport double digit positive returns year-to-date, making them particularly vulnerable to such defensive repositioning.

Major equity markets in Europe and Japan were all down. In announcing its third-quarter results, the world's biggest shipping company, AP Moller-Maersk, said global container trade was occurring at "a much slower pace of growth." A slew of economic data validated that view. Real Gross Domestic Product was reported down in Q3 in both Germany and Japan. The Leading Economic Index for the Organization for Economic Cooperation and Development (OECD) declined in September. And the German ZEW survey reflected weakening economic sentiment. Political uncertainty continues to weigh on the economies of Italy and Britain (there's a growing chance of the U.K. heading for a general election or even a new Brexit referendum). But stocks in Hong Kong and China made gains after comments from officials in both China and the United States pointed to a more optimistic outlook for trade talks.