The positive momentum in capital
markets continued through the first quarter of 2013, with
U.S. and world stock markets posting double-digit returns and strongly
outperforming bonds.
The MSCI World Index climbed 10.1% in
Canadian dollar terms, led by robust results from the U.S. and Japan. In the U.S., the S&P 500 Index reached a record closing
high and finished the quarter with a gain of 12.9%
(in Canadian currency). The U.S. market’s advance was led by mainly defensive sectors, such as health care,
consumer staples and utilities, while those sectors
that are most responsive to a growing economy, including technology and
materials, lagged behind. Several other global
equity markets made solid quarterly gains, including those in Australia and the
U.K. Japan’s Nikkei Index posted the strongest increase for the period, adding
almost 20% local currency terms. Stocks in that country benefited from a
combination of expansionary monetary policy and fiscal spending, and central
bank efforts to weaken the yen in order to boost exports. Markets in Hong Kong
and Shanghai, however, were negative for the period, reflecting concerns about
China’s slower growth rate and anticipated economic reforms.
Canada’s S&P/TSX Composite Index was
also positive, posting a quarterly gain of 3.3%. Although most sectors added
value, Canada’s resource-heavy market was affected by lower commodity prices,
and the materials sector recorded a loss for the period. Results for the
financial sector also were lacklustre.
The bond market was stable during the
quarter, generating modest returns. Canadian and U.S. government bond yields
were little changed, while yields for corporate bonds continued to decline due to strong demand. Inflation remained low and the
U.S. Federal Reserve repeated its pledge to keep interest rates low until the
country’s unemployment rate declines to 6.5%. As a result, investors had little
reason to expect higher interest rates in the
near term.
The strength in stock prices over the
past five months signals an important shift in investor sentiment. The S&P
500 Index, for example, was up 14.0% in Canadian dollars over the five months
ending March 31, 2013. Investors have drawn confidence from the global
economy’s continued moderate expansion, particularly in the U.S., where corporate profits as a percentage of economic output remain at a record high and
employment, consumer spending and housing data have all improved. However, concerns remain over new taxes and spending
cuts related to the country’s budgetary “fiscal cliff” that
may cool consumer and corporate spending. The first quarter also brought a
reminder that Europe’s debt woes remain an issue, as ongoing recession fears
and the 10 billion euro bailout of Cyprus rattled financial markets.
Given this backdrop, I continue to
believe in a diversified investment approach – one that provides exposure to a
broad range of investments including both equities and bonds, depending of
course on your personal objectives.
As always, if you have any questions or
concerns regarding your portfolio, please do not hesitate to give me a call; that
is what I am here for.
Have a great weekend,
Tracey
Source: The information in this letter is derived from
various sources, including CI Investments, Signature Global Advisors, Cambridge
Global Asset Management, Globe and Mail, National Post, Bank of Montreal
Economics, and Trading Economics. Index information was provided by TD Newcrest
and PC Bond. This material is provided for general information and is subject
to change without notice. Every effort has been made to compile this material
from reliable sources; however, no warranty can be made as to its accuracy or
completeness. Before acting on any of the above, please
contact me for individual financial
advice based on your personal circumstances.
