Market Update 3rd Quarter 2017


Many global asset markets continued to deliver encouraging results during the third quarter of 2017, supported by a backdrop of synchronized global growth, solid corporate earnings and historically low interest rates. Despite rising tensions over North Korea’s nuclear weapons testing, a lack of new legislation from the Trump administration, and the devastation left by natural disasters including hurricanes and earthquakes, global equity markets were generally positive and exhibited little volatility. U.S. stocks as represented by the benchmark S&P 500 Index continued to post solid performance, adding 4.5% for the quarter for a gain of 14.2% for the year-to-date. These returns, however, continued to be muted by the Canadian dollar’s strong showing as it rose nearly 4% relative to the U.S. dollar over the three months. In Canadian dollar terms, returns for the S&P 500 were 0.5% for the quarter and 6.2% for the year-to-date. The MSCI EAFE Index, which captures performance for large and mid-cap companies in 21 developed markets across Europe and Asia, also reflected solid gains. The index was up about 5.5% for the quarter in U.S. dollars, adding to its impressive year-to-date gain of 20.5%. (Once again though, in Canadian dollars, these gains were reduced to 1.4% and 12.0%, respectively.) The resource-heavy Canadian S&P/TSX Composite Index started the period under pressure, weighed down by weak prices for commodities such as oil, which has been affected by global oversupply for much of the year. The benchmark later recovered with a rally in energy stocks to finish the quarter with a gain of 3.7%, and 4.5% for the year-to-date. The relatively muted returns for Canadian stocks have been at odds with Canada’s economic growth, which has surprised to the upside this year. In addition to strong employment and housing data, Canadian GDP expanded an annualized rate of 4.5% in the second quarter, its strongest growth rate since the third quarter of 2011. This prompted the Bank of Canada to increase its key overnight lending rate to 1.0% in September, the second such increase in 2017. Faced with tepid inflation data, the U.S. Federal Reserve opted to keep rates steady in the third quarter, but reiterated plans to raise rates throughout the coming year and to slowly reduce the amount of government and mortgage debt on its balance sheet. In this environment, the spread in yields between U.S. and Canadian government 10-year bonds narrowed through the period. The FTSE TMX Canada Universe Bond Index, a measure of Canadian government and corporate bonds, returned -1.8% for the three-month period. The differing approach to monetary policy between the U.S. Fed and the Bank of Canada has also been a driving factor behind the Canadian dollar’s strength relative to its U.S. counterpart in recent months, which, as noted, reduces returns on foreign investments for Canadian investors. However, many of the active portfolio managers we recommend take steps to limit the effects of exchange rate fluctuations on their portfolios, which can help in the near term. In addition, we continue to recommend a balanced approach to investing that ensures proper diversification among asset classes, industry sectors and geographic regions, which tends to mitigate the effects of currency changes over longer periods. We appreciate your business and look forward to hearing from you. If you would like to discuss your portfolio in greater detail or have reason to adjust your financial plan, please do not hesitate to contact us. [if !supportLineBreakNewLine] [endif]

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