1st Quarter in Review

The rally in the stock market marched on, with domestic and U.S. markets reaching all-time highs in the first quarter. Much of the focus was on the political situation in the U.S., with the post-election optimism around President Trump's progrowth agenda, combined with solid incoming economic data, supporting investors' preference for equities over bonds.

Source: Morningstar Direct, 3/31/2017. All returns in local currency and total return. Representative indexes are: Real Estate: S&P Canada REIT Index, High Yield Bonds: Barclays High Yield Canadians Index, Canada Large-cap Stocks: S&P/TSX Composite Index, U.S. Small- and Mid-cap Stocks: Russell 2500 Index, International Bonds: Barclays Global Aggregate Bond Index , Canada Bonds: FTSE TMX Canada Universe Bond Index, U.S. Large-cap Stocks: S&P 500 Index, Emerging Market Stocks: MSCI EM Index, Overseas Large-cap Stocks: MSCI EAFE Index. Past performance is not a guarantee of how the market will perform in the future. Indexes are unmanaged and are not available for direct investment.


Past performance is not a guarantee of how the market will perform in the future. Indexes are unmanaged and are not available for direct investment.

 


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

Important Information:

Source:

1. Bloomberg.

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