Canadian stocks lag global markets
The TSX returned 2.4% in the first three months of 2017, its fifth consecutive quarterly gain. The domestic market was held back by commodities, with oil prices falling roughly 6% in the period. The energy and basic materials sectors account for one-third of the TSX, much larger than most other developed markets. The energy sector was among the laggards, posting a decline in the quarter, while the utility, telecommunications and REIT sectors performed well, likely benefitting from their attractive yields given the drop in interest rates. To end the first quarter, the 10-year Government of Canada bond rate dropped below 1.6%, its lowest level since November.1
Record highs reflect renewed optimism
U.S. stocks continued their strong run, reaching new all-time highs including a February stretch of eleven consecutive record closes for the Dow, a feat not seen since 1987. The TSX also logged a new record for the first time since 2014, rising more than 34% from its early 2016 lows that came at the hands of plunging oil prices. Smallcap stocks also reached a new high-water mark, rising 22% from early November to early March1, as more cyclical investments benefitted from a more optimistic outlook for the U.S. economy.
Very little market drama
While there was no shortage of issues for investors to digest, stocks were quite calm over the past three months. President Trump took office with an ambitious agenda for reforms and a highly-polarized political environment, the U.S. Fed hiked interest rates, global economic readings signaled a rebound in growth, Canada's economy continued to grapple with fluctuating oil prices and a wavering housing market, and quarterly corporate earnings came in ahead of expectations. Much of the focus was on the positive fundamental trends and the potential of the White House agenda, with the S&P 500 rising 6.1% while experiencing a daily move of 1% or more just two times (3% of the trading days in the quarter).1