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Market Reviews Monthly Review

January 2019 - The markets rebound at the start of 2019

After an eventful December, the signal sent by the U.S. Federal Reserve that it would be patient in returning to a neutral monetary policy, reassured the markets at the start of the year. A temporary solution to the partial U.S. government shutdown also improved the pessimistic mood. In this context, after the markets’ pronounced reaction in December, the conditions were in place for an upturn. For example, the oil price (WTI) rebounded nicely, pushing up the Canadian dollar and enabling it to strengthen against the world’s main currencies.

CANADIAN MARKET 

The domestic market experienced the best of both worlds during the month: a stock market rebound that did not occur at the expense of the bond market. The MSCI Canada Index was up by 8.8% in January, which was more than enough to offset its December loss. All sectors contributed positively to this outcome, including to a lesser extent the defensive sectors, such as Consumer Staples and Utilities. As for bonds, credit spreads tightened and the sovereign yield curve shifted lower1, which added to the current yield and helped generate an attractive positive return for the period.


U.S. MARKET

The situation south of the border was very similar to ours. The U.S. market, as measured by the MSCI USA Index, recovered a good portion of the ground it lost at the end of the year, with an 8.2% return in local currency. With the appreciation of the loonie, this result became a gain of 4.1% when expressed in Canadian dollars. In this case also, the contribution was well allocated throughout the sectors, although the most cyclical (Industrials, Energy and Consumer Discretionary) took a significant part in the upswing. 

EUROPEAN MARKET

Europe also saw an improvement, returning 5.6% in local currencies according to the MSCI Europe Index. Even so, the currency effect offset part of the gain, such that the performance for the month was 2.5% in Canadian dollars. Only the Communication Services sector subtracted value during the period. The best contributors included Real Estate, Consumer Discretionary and Information Technology.

ASIAN MARKET

It was the same story in Asia, where the benchmark index, the MSCI Asia Pacific, returned 6.0% in local currencies. This positive performance was also lowered by the Canadian dollar’s strength against most of the currencies in the region. Expressed in Canadian dollars, the gain was 2.7% in January. Once again, the performance over the period was due to all the stock market sectors, particularly the most cyclical ones such as Information Technology and Consumer Discretionary.

EMERGING MARKETS 

As a barometer of risk appetite, emerging markets offered tangible proof of the shift in market sentiment during the first month of the year. As measured by the MSCI Emerging Markets Index, they returned 7.2% in local currencies and 4.6% in Canadian dollars during the period. Consumer Discretionary and Information Technology did especially well, but all sectors added value.


1 Bank of Canada
Indexes' source: MSCI Inc.

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