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Market Review

Fourth quarter 2013


Fixed income


Continued expansionist monetary policy by global central banks was the main driver of fixed-income markets during 2013. However in the United States and Canada long-term rates started to gradually climb back up due to expectations that the US Federal Reserve would announce a “taper” to its long-term bond buying program (which it eventually did in the middle of December).


The year was also marred by concern about who would replace Ben Bernanke once his term expired. The outgoing Fed chairman, nicknamed “Helicopter Ben,” (for comments he once made the effect that central banks could drop money from helicopters, if needed, to spur growth) was a strong proponent of shoring up (and occasionally boosting) asset prices whenever the economy hit a roadblock. President Barack Obama’s nomination of Janet Yellen, a well-known policy dove, calmed those fears considerably.  Nominal Canadian government five, ten and 30 year treasury issues ended the year yielding 1.99%, 2.79% and 3.24%.




Canadian markets

Canadian equities did reasonably well during 2013. The S&P/TSX rose to XXX up XXX points or XX% during the year (XX% when dividends are included). The strength in Canadian equities was due in large part to a decent economic recovery, rising exports and continued low interest rates throughout the system, which acted as spur to corporate profits. The rise in the S&P/TSX was fairly broad based with the exception of energy and materials stocks which continued to lag due to weak demand in emerging markets and a plunging gold price, which dragged down precious metal issues.


US markets

US stocks, which have a significant weighting in many Canadian balanced equity portfolios, did exceptionally well during 2013. The broad-based S&P 500 index gaining a stunning XX points or XX% in local dollar terms, XX% when dividend income is included. The index’s strength stemmed from steady job creation, record corporate profits and continued central bank quantitative easing purchases, which reduced the relative value of bonds and drove investors into equities. That trend went into overdrive, with stocks going on a tear, following the announcement that Yellen would be taking over as Fed chairman.


Foreign markets 

There was also good news overseas, notably in Europe, which came out of recession. The London (FTSE), Paris (CAC) and Frankfurt (DAX) benchmark indexes made significant gains, rising by XX %, XX% and XX% in local dollar terms (before dividends). Mid-cap stocks performed especially well during the year. That said, European economies remain weak, and most of the equity returns can be attributed to optimism stemming from central bank money printing, which has eased sovereign debt concerns.


Japanese markets performed exceptionally well during the year, due to massive money printing by the Abe administration, which drove down the value of the Yen, to made exports cheaper in international markets, particularly in Europe. The Japanese central bank has been buying up assets at a rate almost three times faster, relative to its Gross Domestic Product, than the US Federal Reserve.









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