MD Financial Management: Chief Investment Officer Message—A “Banner Year” For Stocks

January 14, 2014

MD’S MARKET UPDATE: Most Market Indices Up; Bond Prices Struggle

The month of December saw all developed-market indices delivering modestly positive returns, while emerging markets index posted a negative return. For 2013, U.S. and EAFE equities returned 41.3% and 31.6% to Canadian investors, significantly outperforming the TSX and emerging markets.

Bond yields continued their slow upward movement during the month, with the DEX Universe Bond Index—the broadest and most widely-used measure of performance of marketable government and corporate bonds outstanding in the Canadian market—ending the month at -0.4% and the year at -1.2%.

The Canadian dollar continued to weaken relative to the USD and the euro during the month. For 2013, the Canadian dollar was down 6.6% relative to the USD and 10.4% relative to the euro.

Commodities were up in December, led by a rebound in oil prices; but declined slightly in 2013 as a whole, spurred by continued downward movement in metals prices, including gold (down 28% in 2013).

RESULTS ACROSS GLOBAL ECONOMIES: Global growth resynchronization evident in December

Looking forward, all major Purchasing Managers Indices (PMIs) point to growth, including in the U.S., Europe and China. Japan and United Kingdom are at multi-year highs. (Purchasing Managers Indices are economic indicators derived from monthly surveys of private sector companies.) In Canada, modest expansion continues with year over year GDP growth of 2.7% as of October, which is the highest level since May 2012.

Inflation remains low meanwhile, with headline inflation (CPI) below 2% in Canada, the U.S., Europe and Japan; and a historically-low 3.0% pace in China.

In U.S. Federal Reserve Chair Ben Bernanke’s final monetary policy announcement, the U.S. Federal Open Market Committee announced a reduction of $10 billion per month in the pace of monthly asset purchases (also known as “quantitative easing”), beginning in January.

The Fed will continue quantitative easing of $75 billion per month and has provided extended forward guidance regarding the future conduct of monetary policy, with interest rates likely to stay near zero for the foreseeable future. New Fed Chair Janet Yellen, who is perceived to be dovish (likely to favour very accommodative monetary policy in times of low inflation and high unemployment) will take over in the New Year.

(in Canadian dollar terms, unless otherwise indicated)

Market Indicator 1-Month Return (%) 1-Year Return (%)
Canada (S&P TSX Composite Index) +2.0 +13.0
U.S. (S&P 500 Index) +2.9 +41.3
Europe, Australasia and Far East (MSCI EAFE Index) +1.9 +31.6
Emerging Markets (MSCI EM Index) -1.1 +4.3
Canadian Bonds (DEX Universe Bond Index) -0.4 -1.2
Exchange Rate: Canadian Dollar to U.S. Dollar -0.1 -6.60
Gold Price -3.8 -28.0
Oil Price +6.1 +7.2

Sources: StateStreet via StyleADVISOR, PC Bond Analytics, and Bloomberg.


At MD, we take our stewardship seriously, incorporating the best thinking on global trends and investment strategy.

If you have questions about the impacts of global economic trends on your investment portfolio, or MD's investment methodology, we recommend that you take advantage of your personal MD Advisor and book a call or meeting to ensure you are fully briefed.

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

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