WEALTH Matters — Spring 2014

INVESTMENT MARKET COMMENTARY

Graph 1 shows Graph 1 shows stock market index performance for Canadian (TSX in blue), American (S&P500 in red) and global (MSCI EAFE in green) markets in local currencies (Source: Yahoo finance). An encouraging start to the year was interrupted by social unrest in Ukraine and resulting political tensions. The ensuing flight to safety boosted oil and gold prices, providing more support for Canadian markets than the US or global averages. Since the end of the quarter there has been some retreat, with the Canadian market least affected, but all 3 indices still in positive territory for the year.

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Are these markets overvalued after this run-up? As usual, there is a range of opinions on this, but most analysts believe the price/earnings multiple on the US market is in a reasonable range compared with historical averages (graph 3) and corporate earnings growth is strong (graph 4). Economic growth in the US is forecast at over 4% for the next two years, lending support to continued earnings growth. (Source: RBC Global Asset Management).

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Graph 2 shows the same indices since January 2013, with the first quarter of 2014 outlined in a box, to put the quarter’s performance in a longer-term perspective. (Source: Yahoo finance).

Source: PC Bond Analytics, Guardian Capital Advisors

Of the 9 best market years for the S&P since 1947, 8 have been followed by positive returns, 7 of them over 8%. (Source: RBC Global Asset Management). Given the decent fundamentals noted above, and continued low interest rate environment, 2014 has a good chance to turn out a positive year in equities.

The table of Index Returns below compares performance of a number of stock and bond market indices over several periods all ending March 31, 2014.

Figures are in Canadian Dollars and include reinvested dividends. Most major markets and sectors have positive 10-year returns, fully recovered from the 2008 crisis. Note emerging markets turning in a solid quarter after a tepid 2013, and gold with a strong showing during the Ukraine situation, despite giving back almost half its gains in the last month.

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Returns to March 31, 2014 (C$)

1M

3M

6M

12M

2Y

3Y

4Y

5Y

10Y

20Y

Canadian Dollar ($US/$CA)

0.20%

-3.78%

-6.95%

-8.11%

-4.93%

-4.20%

-2.09%

2.66%

1.72%

1.13%

 

 

 

 

 

 

 

 

 

 

 

91-day Tbills

0.06%

0.22%

0.47%

1.00%

1.01%

0.99%

0.93%

0.81%

2.02%

 

FTSE TMX Universe

-0.19%

2.77%

3.16%

0.84%

2.67%

4.98%

5.02%

5.04%

5.12%

 

FTSE TMX High Yield

1.36%

3.85%

6.00%

7.74%

9.36%

6.00%

7.77%

13.13%

7.46%

 

 

 

 

 

 

 

 

 

 

 

 

S&P/TSX Composite

1.23%

6.06%

13.79%

15.97%

10.93%

3.55%

7.53%

13.71%

8.09%

8.56%

S&P/TSX SmallCap

0.27%

7.94%

15.37%

15.41%

3.52%

-3.08%

5.14%

16.67%

3.74%

-

S&P/TSX Equity Income

2.63%

5.62%

12.39%

16.47%

12.41%

8.65%

12.19%

20.07%

-

-

 

 

 

 

 

 

 

 

 

 

 

S&P 500 (LargeCap)

0.64%

5.80%

20.92%

32.62%

23.95%

19.68%

17.36%

18.02%

5.60%

8.31%

Russell 2000 (Small Cap)

-0.88%

5.09%

18.15%

35.93%

26.77%

18.15%

18.70%

21.09%

6.70%

8.26%

 

 

 

 

 

 

 

 

 

 

 

MSCI World (Net)

-0.05%

5.24%

17.53%

29.58%

21.38%

15.06%

13.40%

15.22%

5.03%

5.90%

MSCI Europe

-1.15%

6.22%

18.55%

36.26%

24.16%

13.83%

12.45%

15.16%

6.20%

7.47%

MSCI EAFE (Net)

-0.84%

4.61%

14.36%

27.94%

20.29%

11.92%

10.32%

13.01%

4.73%

4.36%

MSCI EM (Emerging Markets)

2.89%

3.54%

9.07%

7.66%

5.81%

1.74%

4.59%

11.86%

8.59%

5.00%

Global Gold

-8.65%

16.00%

3.51%

-27.82%

-25.48%

-22.00%

-11.91%

-10.82%

-1.51%

-