Market Commentary – Third Quarter 2015

The third quarter of 2015 experienced high volatility and a large sell-off in the equity markets due to several factors. These factors included concern over high developed market valuations, fear of the U.S. Federal Reserve increasing interest rates, falling commodity prices, and increasing concern over China’s economic slowdown being more severe than initially expected. U.S. economic growth continues as one of the few positives in the global scene.

The Canadian stock market returned -7.9% in the third quarter and is down 8.4% for the one-year period. The Materials/Mining sector (9% of the index) was down 24.5% in the third quarter. The Energy sector, down 17.2% in the third quarter, has returned -34% over the one-year period due to declining energy prices. The large Financial sector was slightly negative (-3.1%) in the third quarter. The U.S. Federal Reserve’s decision not to increase interest rates helped the Utility sector rebound to a positive return in the third quarter at 2.4%

U.S. equity returns (S&P 500) were slightly positive (0.5%) in the third quarter in Canadian dollar terms, but returned -6.4% in U.S. dollar terms. The Canadian dollar’s large depreciation versus the U.S. dollar has boosted Canadian dollar returns to 19.2% versus -0.6% in U.S. dollar terms over the past year. Global equities were also negative (-1.7%) in the third quarter, again being largely affected by slowing economic growth in many countries, including China. The Europe index (excluding the United Kingdom) returned -1.3% in the third quarter and is up 10.3% over the past year largely due to the European Central Bank’s stimulative monetary policies. Emerging market returns were down 11.8% in the third quarter and have returned -3.2% for the one-year period.

The Canadian Bond market had another weak quarter (0.1%) but is still up 5.3% for the one-year period. Real Return Bonds were down 1.3% in the third quarter and are up 3.4% over the one-year period. Long-Term bonds had the weakest returns at -0.1% of the bond sectors in the third quarter due to the expectation of rising interest rates earlier in the quarter and are up 7.5% over one year. Inflation (as per the Consumer Price Index) remains benign, increasing by only 0.1% in the third quarter, and is up 1.2% over the past year.