2017 Q2 Commentary

Canadian and U.S. stock markets parted ways in 2017’s second quarter.

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Canada’s S&P/TSX Composite Index drifted lower, led by resources and financials, even as south of the border the major stock indexes pushed to new all-time highs through May and June. The S&P 500 Composite advanced 0.45% $CAD (total return) while the Index Dow Jones Industrial Average fared slightly better at 0.68% $CAD. The U.S. advance continued to be fueled by improving corporate earnings and continued hope for tax-relief, quickly shaking off renewed bouts of political volatility. Energy names were among the worst performers in the U.S. (as they were in Canada) while health care led the advance, with biotechnology enjoying a particularly strong rally as political threats around drug pricing faded. Industrials and technology also continued to deliver gains.

The S&P/TSX Composite Index posted a negative total return of -1.64%. Despite signs of Canada’s “barn-burner” first quarter GDP momentum spilling into the second quarter, investors were disappointed when OPEC’s extension of production cuts failed to bolster oil prices in the face of relentless U.S. supply gains. Furthermore, the Trump administration’s official notification to Congress of its intent to renegotiate NAFTA revived fears of trade disruptions. The uncertainties kept the Bank of Canada on hold for the 15th consecutive meeting despite the encouraging economic data. Broad-based declines in inflation expectations and commodity prices pushed long bond yields down around the globe most of the quarter, with 10-year yields in the U.S. touching levels not seen since immediately after November’s presidential election. Yields then jumped in the last week of June, fueled in Canada by hawkish talk from Bank of Canada officials. The U.S. dollar gave up the last of its post-election gains, and the Canadian dollar initially faded with it, pressured by home-grown issues (Home Capital) and the lower oil prices. However, the Loonie saw a reversal in fortune in May, and in June got an additional lift from the Bank of Canada’s tough talk. Our dollar closed stronger for the quarter as a whole.

Equity markets around the globe were mostly positive for the quarter (Canada was the worst performing major market at mid-year) lifting the MSCI World Index 1.37% $CAD. In fact, the MSCI All Country World Index has now posted its fourth best first-half start since the index was created in 1988, fueled by a global rise in corporate earnings. The MSCI Europe Index jumped 4.62% $CAD, and the MSCI Asia Pacific Index advanced 3.11% $CAD.

This commentary is published by Investors Group. It represents the views of our Portfolio Managers, and is provided as a general source of information. It is not intended to provide investment advice or as an endorsement of any investment. Some of the securities mentioned may be owned by Investors Group or its mutual funds, or by portfolios managed by our external advisors. Every effort has been made to ensure that the material contained in the commentary is accurate at the time of publication, however, Investors Group cannot guarantee the accuracy or the completeness of such material and accepts no responsibility for any loss arising from any use of or reliance on the information contained herein. Investment products and services are offered through Investors Group Financial Services Inc. (in Québec, a Financial Services firm) and Investors Group Securities Inc. (in Québec, a firm in Financial Planning). Investors Group Securities Inc. is a member of the Canadian Investor Protection Fund.

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