MD Financial Management: Chief Investment Officer Message — Positive Returns for Stocks, Bonds

February 20, 2015

MD’S MARKET UPDATE: Currencies drive market performance in January

All major indices, including the bond market, delivered positive returns in January and have generated double-digit returns over the past 12 months.

In January, stock markets traded in relatively narrow ranges in local currency terms; however, a generally weak Canadian dollar amplified foreign returns, leading to a relatively poor showing by the S&P TSX Composite Index.

The U.S. dollar delivered returns of 8.5% for Canadian investors in January. Other baskets of currencies—Europe, Australasia and Far East (EAFE) and emerging markets (EM)—generated returns of 6.2% and 8.2% respectively as the Bank of Canada surprised markets by cutting the overnight lending rate. The rate had been unchanged since September 2010.

Elsewhere, the announcement of an asset-purchase program (also known as quantitative easing or QE) by the European Central Bank moved bond yields lower globally, helping bonds to deliver strong returns once again.

Oil prices continued to tumble during the month, dragging other commodity prices lower, as the market continued to search for a new equilibrium in the face of weak demand relative to strong supply.

RESULTS ACROSS GLOBAL ECONOMIES: World economy expected to expand 3.5% in 2015

A financing arm of the United Nations, the International Monetary Fund (IMF), revised down by 0.3% its estimates for global economic growth to 3.5% for 2015 and 3.7% for 2016. It expects slower growth in Europe, Japan and China to offset any U.S. growth. The Eurozone is narrowly avoiding recession, while Japan is in a technical recession after two quarters of economic contraction

The U.S. Federal Reserve, meanwhile, remains “patient” with interest rates and signaled that these are unlikely to be changed until June.

In contrast, the European Central Bank has committed to a QE program worth EUR$1.1 trillion as the region slipped into a deflationary phase due to weaker growth and lower oil prices.

Elections in Greece had a minimal impact on markets in January as systemic risk from the country’s high debt level fell, compared to 2010-2012.

(in Canadian dollar terms, unless otherwise indicated)

Market Indicator Level 1-Month
Return (%)
Return (%)
Canada (S&P TSX Composite Index) 14,637 0.3 +10.0
U.S. (S&P 500 Index) 2,021 +6.7 +30.5
Europe, Australasia and Far East (MSCI EAFE Index) 1,792 +9.6 +13.3
Emerging Markets (MSCI EM Index) 973 +10.5 +20.5
Canadian Bonds (DEX Universe Bond Index*) - +3.8 +10.1
Exchange Rate: Canadian Dollar to U.S. Dollar 0.792 -7.9 -11.8
Gold Price 1,257 +6.1 +1.0
Oil Price 44.5 -16.4 -54.3

*Formerly the DEX Universe Bond Index
Sources: StateStreet via StyleADVISOR, FTSE TMX Global Debt Capital Markets, and Bloomberg


At MD, we monitor global economic trends, integrating viewpoints from carefully selected managers who actively invest for the benefit of our clients.

If you would like to learn more about MD’s investment methodology and the impact of global economic trends on your investment portfolio, I encourage you to reach out directly to your MD Advisor.

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

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