Investment Climate Review

It was only three months ago that investors were licking their financial wounds from the stock market fall in December; however, by the end of the first quarter, markets around the world had recovered a significant portion of the losses. Interestingly, the TSX only had a correction as it did not fall 20% or more – it fell -16.9%. Both the US and international markets briefly entered into bear market territory, with the S&P 500 falling 20.9% and the MSCI EAFE falling 22.9% from their highs. 

As of the time of writing, the S&P 500 is less than 33 points away (about 1.1%) of setting a new high and officially ending the bear market; the TSX is also within less than 57 points (about 0.3%) of setting a new high. Such a fast recovery from the lows is definitely not the norm. According to CNBC, since WWII, the average bear market for the S&P 500 had a loss of 30.4% and took nearly 22 months to recover. It may be fitting that after coming off the longest bull market in history the S&P 500 could potentially have one of the shortest bear markets in history – only time will tell.

Canada

The S&P/TSX Composite was the best performing broad equity market this quarter and gained a healthy 13.3%; Canadian growth stocks surged ahead 13.8%, followed by large cap at 12.5%, value returned 12.3% and small cap was up 10.7%.

United States

Equities south of the border rose 11.6%, with small caps rising 13.7% and value up 9.5%, all in CAD terms. A stronger Canadian dollar reduced US market returns, which were up 14.1%, 16.2% and 11.9%, respectively, in USD.

International & Emerging Markets

International and emerging markets equities were up 7.7% and 7.6%, respectively in Q1, all in CAD. International growth (up 9.7%) and small caps (up 8.3%) were the strongest performing factors in Q1.

Real Estate

Strength in real estate continued again this quarter with Canadian REITs as the strongest sub-asset class, up 15.8%, followed by international real estate up 12.1%.

Fixed Income

Canadian bonds had a very strong quarter, up 3.9%. The upward trend in interest rates has paused as Canada’s economic outlook has softened with expected GDP growth in 2019 at 1.4% down from 2.0% just three months ago; this may provide some further near-term strength in traditional bonds

Gold

Strength in gold spilled over from Q4, however, by the end of Q1, gold was pulling back from its high. Overall it was up 1.3% in USD this quarter but fell -0.7% in CAD terms.

 

Written by:
Scott Eicher, CFA, CFP
Portfolio Manager                                

*Estimated as actual return figures were not available at the time of publishing.