Market Commentary – Second Quarter 2023

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

After the volatile financial markets experienced in March, investors welcomed a more stable market environment in the second quarter. Investor sentiment improved in response to several factors, including the resolution of the US debt ceiling discussions, as well as growing enthusiasm regarding artificial intelligence (AI) that helped to bolster the outlook for the technology sector. Another significant driver of this investor enthusiasm was the economic resilience observed in both the US and Canada. Data releases were generally robust, which defied widely predicted recession expectations. This led investors to believe that a recession may begin later than previously anticipated. Persistently strong inflation figures, however, prompted many central banks to implement further interest rate increases. Nevertheless, equity market volatility decreased significantly, while bond market volatility also fell from its unusually high levels. Commodities prices faced downward pressure during the quarter, with the price of West Texas Intermediate oil declining in response to the disappointing economic recovery in China, which failed to stimulate a meaningful uptick in demand for oil.

Resilient economic data, better-than-expected corporate earnings, and investor enthusiasm for AI supported global equity market gains in the second quarter. The MSCI All Country World Index gained 6.7% in local-currency terms (4.0% in C$) over the second quarter. Emerging markets equities also posted positive returns, but underperformed their developed market peers, with the MSCI Emerging Markets Index rising 1.8% (in local-currency terms). In Canada, solid economic data and corporate earnings resulted in the S&P/TSX Composite Index posting a 1.1% return over the quarter.

The Bank of Canada and US Federal Reserve each raised their target interest rates by 25 basis points (bps) during the second quarter. Two-year yields rose 83 bps in Canada and 82 bps in the US, while 10-year yields rose 36 bps in Canada and 33 bps in the US. These moves led to more extreme yield curve inversions. Credit spreads tightened during the quarter, and benefited from positive risk sentiment and favourable technical factors. Given the overall increase in bond yields, however, the FTSE Canada Universe Bond Index declined -0.69% over the second quarter.


Unless stated otherwise, all data is as at June 30, 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.