Market Reviews - Monthly Review
The new year began with a flurry of activity. Perhaps the most notable change was the new occupant of the White House, who reversed a number of policies. After a strong end to the year, a number of markets were not able to maintain their pace. Even though some stock markets stalled, the forecasts were unchanged, and expectations of an accelerating recovery continued to boost the price of crude oil. The higher oil price did not significantly affect the Canadian dollar, however.
The pendulum appears to have swung back. Those sectors that contributed the most to the Canadian stock market’s recent success were the ones that dragged it down in January. While financials, the top sector by weight, turned in a lacklustre performance, consumer staples, industrials, consumer discretionary and materials all subtracted value. Without positive contributions by health care, energy and real estate, the domestic market would have been even further in the red. As measured by the MSCI Canada Index, the market was down 0.7% in January. The bond market ended the month slightly lower as a result of the steepening yield curve.
The results south of the border were similar to ours. From the sector standpoint, consumer staples, industrials and materials struggled, while energy and health care performed best. For example, as measured by the MSCI USA Index, the U.S. market returned -0.9% in local currency and -0.7% in Canadian dollars. It should be noted, however, that the consumer discretionary sector fared better there than in Canada and posted a gain on the month.
Positive contributions by the energy, information technology, materials and health care sectors were not enough to maintain the momentum on the European market. As measured by the MSCI Europe Index, the return was -1.0% in local currencies and -1.2% in Canadian dollars. The sectors that detracted the most from the performance include real estate, financials and consumer staples.
Fortunately, some parts of the world fared better. Thanks in part to the contributions of communication services and information technology, Asia had a good month. In local currencies, as measured by the benchmark MSCI Asia Pacific Index, the return was 2.7%. The Canadian dollar’s strength against several Asian currencies, including the Japanese yen, partially reduced the performance: in Canadian currency, it was 2.2% for the region. The health care, real estate and materials sectors subtracted the most value in January.
Once again, emerging markets ended the month at the top of our list, with a 3.7% return in local currencies, as measured by the MSCI Emerging Markets Index. This outcome was the result of excellent results for communications services, consumer discretionary and information technology. Conversely, utilities, real estate and finance detracted the most from the return. As in the previous period, currency fluctuations reduced the return slightly, such that in Canadian currency it was 3.3%.
Sources: Bank of Canada and MSCI Inc.
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