Market Commentary – First Quarter 2019

After a very weak fourth quarter in 2018, the markets bounced back very strongly in the first quarter of 2019. Most stock markets experienced double-digit gains even though much of the economic data showed continuing weakness. Many central banks still expressed concerns around low economic growth prospects but this did little to deter the rise in stock prices. Risks such as Brexit, U.S.-China trade negotiations and other trade/tariff concerns still remain in the market.

The Canadian stock market rebounded strongly in the first quarter of 2019 with a return of 13.3%. This erased all of the losses from the heavy sell-off in 2018’s fourth quarter.. All industry sectors experienced gains with the strongest areas being Cannabis stocks up 46% and Technology stocks up 23%. Interest rate sensitive sectors such as Real Estate, Utilities and Pipelines all did well as interest rates fell.

Foreign developed country stock markets all did well in the first quarter as investors’ appetite for riskier assets (i.e. stocks) rebounded from late 2018. Investor sentiment turned more positive as trade tensions between the U.S. and China seemed to ease, and China adopted further measures to stimulate its slowing economy. The U.S. S&P 500 index was up 11.5% (in Canadian dollar terms) in the first quarter of 2019 and 12.8% over one year. Sector returns in Real Estate, Utilities and Info Technology were all strong in the first quarter. Economic data in the Eurozone was more disappointing with a number of countries in near recessionary territory. This caused the European Central Bank to signal a new round of monetary stimulus. The MSCI All Country World Index (ACWI) was up 10.2% in the first quarter of 2019. Emerging markets mostly underperformed developed markets with the MSCI Emerging Markets Index (EM) still up a very respectable 7.8% in the first quarter.

The Canadian bond market returned 3.9% in the first quarter of 2019, with a one-year return of 5.3%. This strong return reflected many central banks, including the Bank of Canada and the U.S. Federal Reserve, voicing concerns about future economic growth prospects. Interest rates in both Canada and the U.S. dropped significantly and their central banks were indicating that they were likely holding interest rates stable for the balance of 2019. This led to long-term bonds having the strongest sector returns being up 7.3% in 2019’s first quarter.