Market Commentary – First Quarter 2015

The results in both the stock and bond markets in the first quarter were largely influenced by central bank policies. Due to slowing economic growth, and low or falling inflation rates, many central banks cut their short-term interest rates leading to strong bond returns in many areas. The U.S. dollar continued to gain strength given the generally positive outlook for their economy and much lower expectations in many other regions.

The Canadian stock market was up 2.6% in the first quarter and returned 6.9% for the one-year period. The large Energy and Financial sectors (21% and 35% weightings in the index respectively) were down 1.1% and 0.2% making them the weakest industry sectors in the first quarter. All other industry sectors had positive gains in the quarter with Health Care leading the way due to a larger takeover offer. The five year annualized return for the Canadian stock index is now a healthy 7.4%.

The U.S. stock market (S&P 500) returned a very strong 10.4% in the first quarter and over 29% for the one year in Canadian dollar terms. The Canadian dollar’s continued depreciation against the U.S. dollar by 8.5% in the first quarter significantly improved our U.S. investment returns. Global equities were up 11.9% in the first quarter and returned 21.7% for the one year in Canadian dollar terms. The United Kingdom at 8.3% trailed other regional returns in the first quarter with Japan having the highest quarterly return at 20.5% reflecting their large government stimulus program. Emerging market returns were up 11.8% in the first quarter and returned 15.2% for the one year as investors appeared willing to take on more risk in these markets.

The Canadian Bond market had another strong quarter with a return of 4.2% and was up 10.3% for the one year as interest rates surprisingly continued to decline. Real Return Bonds were up 7.3% in the first quarter and up 14.5% over one year reflecting their long duration. Long-Term bonds were again very strong returning 7.1% in the first quarter and 19.7% over one year as they gained the most from declining rates. The Bank of Canada surprisingly cut their overnight rate by 0.25% (to 0.75%) in the first quarter, which was the lowest level in over 4 years. Inflation (as per the Consumer Price Index) increased by 0.7% in the first quarter and was up just 1.0% over the past year.