Market Reviews - Monthly Review
Optimism stemming from a possible lifting of COVID-19 restrictions and a sustained economic recovery continued to prevail in February. Propelled by the rising oil price, the Canadian stock market recorded the best performance in our universe during the period. The loonie also responded favourably to the higher oil price, appreciating against many foreign currencies. The favourable growth outlook was negative for the bond market, however, because it put upward pressure on the yield curve.
Most sectors contributed to the advance, including information technology, consumer discretionary and, not surprisingly, energy. As measured by the MSCI Canada Index, the market recorded a substantial 4.7% gain during the month. Even so, the bond market was affected by anticipation of accelerated economic activity and inflation expectations. As was the case with bonds, four equity sectors also subtracted value: utilities, materials, communication services and consumer staples.
With seven sectors contributing positively to the return, the U.S. market also had a solid month. The energy sector recorded the best performance of all. As measured by the MSCI USA Index, the market returned 2.6% in local currency and 1.7% in Canadian dollars. As in Canada, the sectors that detracted from the overall return included utilities and consumer staples, but also health care and consumer discretionary.
On the other side of the Atlantic, financials, energy and consumer discretionary were the sectors, in that order, with the best returns. As with the North American stock markets, four sectors pulled the return down: utilities, consumer staples, health care and real estate. Even so, as measured by the MSCI Europe Index, the market returned 2.4% in local currencies and 1.5% in Canadian dollars.
The return generated by Asia was affected considerably by the strong Canadian dollar. As measured by the benchmark MSCI Asia-Pacific Index, the return was 2.0% in local currencies. However, the appreciation of our currency against a number of Asian currencies, including the Japanese yen, reduced the return to just 0.5% in Canadian dollars. Energy, real estate and financials did best, while health care, consumer staples and consumer discretionary subtracted the most value during the period.
The series of strong gains recorded by emerging markets came to an end in February. As measured by the MSCI Emerging Markets Index, the return was 1.0% in local currencies. Currency fluctuations had a negative impact, however, reducing the return to -0.1% in Canadian dollars. The sectors that contributed positively included real estate, materials and energy. Conversely, health care, consumer staples and consumer discretionary detracted the most from the return.
Sources: Bank of Canada and MSCI Inc.
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