Market Commentary – Second Quarter 2015

The second quarter of 2015 was one of high volatility in both the bond and equity markets due to several factors. The global bond market was largely affected for much of the second quarter by an expected improvement in economic growth. This led to a drop in bond prices and hence an increase in bond yields. The equity markets were largely influenced by ongoing Greek debt negotiations and a weakening Chinese economy which led to a sell-off in most equity markets late in the second quarter.

The Canadian stock market returned -1.6% in the second quarter and -1.2% for the one-year period. The large Energy sector (20% of the index) was down 4.3% in the second quarter despite a 25% rebound in oil prices, and it is down 25.6% over the one-year period due to declining energy prices. The Industrial sector was the weakest sector in the second quarter (-9.5%) largely as a result of the increasing cost of oil in the quarter. The Utility sector returns were also hurt in the second quarter (-7.7%) mainly due to increasing interest rates.

U.S. equity returns (S&P 500) were negative (-1.2%) in the second quarter but remain strong over the one-year period at 25.9%. The Canadian dollar appreciated versus the U.S. dollar in the second quarter which reduced our U.S. returns by 1.5% in the second quarter. Global equities were also negative (-1.1%) in the second quarter, largely affected by the failed Greek debt talks and slowing economic growth in many countries, including China. The Europe (excluding the U.K.) index returned -2.2% in the second quarter although it is still up 8.5% over the last year. Emerging market returns were down 0.7% in the second quarter and have returned 11.2% for the one-year period.

The Canadian Bond market had a weak second quarter (-1.7%) as yields rose (i.e. bond prices dropped). The bond market is still up 6.3% for the one-year period. Real Return Bond returns continued to be volatile and were down 3.7% in the second quarter, but they were up 5.6% over the one-year period. Long-Term bonds had the weakest returns at -4.6% in the second quarter due to the expectation of rising interest rates, but they are still up 10.1% over the one-year period. Inflation (as per the Consumer Price Index) increased by 0.5% in the second quarter and is up just below 1.0% over the past year.