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MD Financial Management: Chief Investment Officer Message

MD’s Market Update

Sell in May and go away? Pithy, but not always profitable.

Although we saw a drop in June, by late July, global equity markets had rallied to a point well above May levels. Risk assets, such as equities and commodities, led the way. Compared to last summer, equities in foreign developed nations are up significantly while emerging markets equities have lagged.

Here at home, the Canadian dollar rebounded strongly during July, and bond yields drifted higher, leading to weakened bond returns. ("Yield" is a measure of the prospective income return on a bond price. If bond yields go up, the price of bonds comes down—leading to a lower total return on the investment earned to date.)

(Learn more about the impact of interest rates.)

Mixed Results Across Global Economies

Moderate economic growth, low inflation and high unemployment globally suggest that central banks will be reluctant to raise interest rates in the near future. However, quantitative easing, another central bank action to support low interest rates, will likely see some adjustments going forward.

Across the globe, we saw a slight economic expansion as improvements in the U.S. and U.K. were offset by slowdowns in Asia and across emerging markets generally.

In the U.S., unemployment dropped to 7.4% in July—still above the threshold for potential interest rate increase—while inflation rates remained low. In Canada, our economy expanded, albeit modestly, and inflation also remained subdued. The Bank of Canada is optimistic the Canadian economy will reach full capacity by 2015 and projects growth rates of 2.7% for 2014 and 2015.

Looking overseas, European economies have stabilized but unemployment remains high, with less-developed nations most hard-hit. Elections in Japan provided majority backing to Prime Minister Abe, paving the way for full-scale efforts to battle deflation, which may help continue the positive short-term effects on the Japanese economy and markets.

What This Means For You

MD’s approach brings together expert managers from across the globe, who together seek out the best ways for investors to benefit directly from global economic developments. If you would like to discuss how MD’s decisions deliver results for you, I encourage you to reach out to your MD Advisor.

William R. Horton, Jr., CFA
Chief Investment Officer
MD Financial Management Inc.