Market Commentary – First Quarter 2023

The following market commentary is courtesy of the Plan’s Canadian Equity investment manager, Connor, Clark & Lunn Investment Management.

The first quarter of 2023 was a whirlwind for global financial markets. There was positive market sentiment early on that was largely driven by strong economic data, China’s economic reopening and subdued inflation releases. That positive sentiment was short-lived, however, as unusually strong economic and inflation data caused greater uncertainty regarding the end of central bank interest rate increases, as well as the probability and timing of a recession. In March, financial markets experienced a significant shock when a confluence of factors led to a bank run across US regional banks that ultimately resulted in the second- and third-largest US bank failures in history. Despite support from federal regulators, the turbulence spilled over into Europe with the collapse of Switzerland’s Credit Suisse, a systemically important financial institution that was ultimately merged with its largest domestic peer, UBS. Commodity prices came under pressure around the height of the banking uncertainty in March, but stabilized later in the quarter. West Texas Intermediate oil posted a negative return over the first quarter, but recovered somewhat from its low point during the period as geopolitical tensions and supply-chain issues provided some support.

Despite a tumultuous quarter, where concern about the continued high levels of inflation and US regional banking issues prompted heightened volatility, the MSCI All Country World Index rose 7.2% (7.3% in C$). Emerging markets equities also posted positive returns, but underperformed their developed market peers, with the MSCI Emerging Markets Index rising 3.8% (in local-currency terms). Canadian equities followed a similar pattern to global equities, starting the period strongly and then falling somewhat as US banking issues unfolded. Through an eventful quarter, the S&P/TSX Composite Index posted a relatively solid 4.6% return.

The Bank of Canada and the US Federal Reserve raised their target interest rates by a total of 25 basis points (bps) and 50 bps, respectively, during the first quarter. Two-year yields fell 34 bps in Canada and 40 bps in the US, while 10-year yields dropped by 40 bps in both Canada and the US. Credit spreads tightened initially alongside the positive risk sentiment, but widened substantially in March. Despite the spread widening, the FTSE Canada Universe Bond Index gained 3.22% over the first quarter.


Unless stated otherwise, all data is as at March 31, 2023 and stated in Canadian dollars (CDN$). Source: Connor, Clark & Lunn Financial Group Ltd., FTSE Global Debt Capital Markets Inc., MSCI Inc., Thomson Reuters Datastream and S&P.