MD Financial Management: Chief Investment Officer Message—Robust Growth in North America

September 26, 2014

MD’S MARKET UPDATE: U.S. Equities tops asset class list in August

In Canadian dollar terms, U.S. equities were the top-performing asset class in August with the S&P 500 index rising 3.6%. The S&P/TSX Composite Index rose 2.1%, followed closely by the MSCI Emerging Markets index, which was up 1.9%; the MSCI EAFE index declined on the month.

The FTSE TMX Bond Universe appreciated by 1.1%, benefitting from lower yields, with the Canadian 10 year government bond yield down 16 basis point (bps) on the month to 2.0%.

The Canadian dollar outperformed most major currencies in August, appreciating relative to the U.S. dollar, euro, British pound, and Swiss franc.

RESULTS ACROSS GLOBAL ECONOMIES: GDP expands in Canada and U.S.; European Central Bank eyes greater stimulus

The Canadian economy continues to grow with retail sales increasing and gross domestic product (GDP) climbing an annualized 3.1% in the second quarter.

Following a slow first quarter, U.S. GDP expanded by an annualized 4.2% in the second quarter. With jobless claims hitting an eight-year low and strong consumer confidence, the economic recovery looks to be maintaining momentum; however, reduced consumer spending may undermine progress.

In Europe, the European Central Bank is considering providing additional stimulus as GDP growth fell below 1% in the second quarter, industrial production continues to contract, and Italy re-entered recession.

Meanwhile, Chinese manufacturing expanded in August while Brazil officially entered recession after GDP declined by 0.2% in the first quarter and 0.6% in the second quarter.

CAPITAL MARKET INDICATORS AT AUGUST 29, 2014
(in Canadian dollar terms, unless otherwise indicated)

Market Indicator Level 1-Month Return (%) 1-Year Return (%)
Canada (S&P TSX Composite Index) 15,626 2.1 27.1
U.S. (S&P 500 Index) 2,003 3.6 28.8
Europe, Australasia and Far East (MSCI EAFE Index) 1,925 -0.5 20.2
Emerging Markets (MSCI EM Index) 1,088 1.9 23.8
Canadian Bonds (FTSE TMX Universe Bond Index*) - 1.1 7.6
Exchange Rate: Canadian Dollar to U.S. Dollar 0.919 0.2 -3.1
Gold Price (USD/oz) 1288 0.4 -7.7
Oil Price (WTI, USD/pb) 96.0 -2.3 -10.9

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

MD’S INVESTMENT METHODOLOGY: LEARN MORE

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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