U.S. equity markets climbed higher consistently throughout February as fourth-quarter earnings results were solid and nominal economic growth continued to strengthen. Despite some theatrics from Washington, optimism remains for President Trump’s pro-growth agenda. The S&P 500 Index reached a new all-time closing high of 2,369.75 on February 27. Large-cap stocks as represented by the S&P 500 Index gained 4.0%*, outperforming small-cap stocks measured by the Russell 2000 Index which rose 1.9%.*
The Canadian bond market moved in a seesaw pattern in February, with yields rising and then falling twice in the month. The bond market remained in the trading range that began in December, once the market had initially reacted to the surprise U.S. presidential election result. The market’s focus remained on the new U.S. administration, as the correlation between Canadian and U.S. bond yields was very high. Investors were hoping for greater clarity on the new government’s fiscal, regulatory and trade policies. The economic consensus remained optimistic, with risk premia (yield spreads) for provincial and corporate bonds shrinking and the U.S. stock market continuing its post-election rally. The FTSE TMX Canada Universe Bond index returned 0.96% in February.
U.S. equity markets continued to advance in January as fourth-quarter earnings results were solid and economic data pointed towards continued growth, which offset declining optimism that President Trump can fully implement his pro-growth agenda. The S&P 500 Index reached a new all-time closing high of 2,298.37* on January 25. U.S. equity markets drifted lower in the month’s final days as President Trump signed executive orders on trade policy and immigration. Investors fear that the president’s stance on trade and immigration are counterproductive to the pro-growth policies he looks to implement. Large-cap stocks as represented by the S&P 500 Index gained 1.9%*, outperforming small-cap stocks measured by the Russell 2000 Index, which rose 0.4%*.
The Canadian bond market experienced a seesaw month as investors tried to discern the impact of the change in the United States’ government. After a weak finish to 2016, with lower bond prices and higher yields, it appeared that in January the market was catching its breath and evaluating whether it had discounted too much following the election of Donald Trump as U.S. president. Slightly higher yields for long-term bonds resulted in lower prices that caused the value of the overall index to decline marginally. The FTSE TMX Canada Universe Bond index returned -0.12% in January.
Immediately following the presidential election, U.S. index futures plunged and at one point, futures for the Dow Jones Industrial Average dropped nearly 900 points*. Surprisingly, as investors absorbed the implications of this political sea change, key indexes rebounded and ended higher on November 9. The Dow went on to close at a record high level on November 10 and finished up for the quarter. Financials led the advance, first benefiting from investors’ hopes that the new Republican administration would roll back industry regulations and second, from the Federal Reserve’s (Fed) decision to raise short-term interest rates for the first time in 2016. Citing signs that the economy has improved, the Fed also stated it intends to raise rates three times in 2017. Similarly, optimism that policy makers will carry through on promises of considerable infrastructure spending helped share prices in the industrials and materials sectors and the pledge to expand domestic oil and gas production boosted energy companies’ shares.
Invest better: Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not
be repeated. Mutual fund securities are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer.