Macroeconomic variables and stock Market indices: Asymmetric dynamics in the US and Canada

While the relationship between stock market returns and macroeconomic variables have been amply examined, there is a gap in the literature when it comes to the relationship between different sector indices and various macroeconomic variables. This study examines how certain macroeconomic variables influence different sectors of the stock market differently in the US and Canada. Using monthly data over the 2000-2018 period, a cointegration analysis is applied to model the relationship between industrial production, money supply, long-term interest rate, and different sector indices. Sectors that have been examined in this study include energy, financials, real estate, industrial, healthcare, consumer discretionary, and consumer staples. Results suggest that there is a stable long-term relationship between the macroeconomic variables used in the study and different sector indices for the US but not for Canada. However, US money supply and interest rate can explain the Canadian stock market. The results suggest important insights for private investors, pension funds, and governments as long-term investors often base their decision to invest in equities on the stated macroeconomic variables. (C) 2019 Board of Trustees of the University of Illinois. Published by Elsevier Inc. All rights reserved.