April saw the continued climb for many markets from their December 2018 low, and nearly all have now fully recovered those losses. This month our commentary section features one of our portfolio managers, Gordon Ross.

 

April 2019 Market Performance

All index returns are total return (includes reinvestment of dividends) and are in Canadian Dollars unless noted.

 

*Absolute change in yield, not the return from holding the security.

 

The S&P/TSX Composite was up +3.2% in April, its 4th positive month in a row, and is now up +16.9% for 2019.

US markets have also performed well in 2019.  The large cap S&P500 was up +4.0% in April (+18.2% for 2019), while the Russell 2000 small cap index was up +3.3%.

EAFE (Europe, Australasia & Far East) stocks were up +3.0% in April, European stocks specifically were up +3.6%.  Despite all the uncertainty around Brexit, British stocks were up +1.9% for April and are up +10.3% for 2019.

Emerging market stocks were up +2.5% in April and are now up +12.2% for 2019.

Canadian bonds were mixed in April, with the FTSE/TMX Universe Bond Index down -0.1% and the FTSE/TMX Short-term Bond index up +0.2%.  Despite that April blip for the Universe Index, it is almost up +4.0% for 2019,its best showing in several years.

Emerging market bonds had their 6^th positive month in a row, up +0.9% for April and +5.6% for 2019.  REITs were one of the few big losers in April, down -3.3%.

Commodities generally were another sector in the red in April; with the Bloomberg Commodities Index down -0.6%.  Oil again performed strongly at +6.3%, while gold was down -0.6%.

The Canadian Dollar (CAD) was down -0.4% in April against both the US Dollar and Euro.

Commentary – by Gordon Ross, CFA

Since last summer, many world markets have done a bungee jump. After a nerve-jangling drop, they have bounced back up strongly.

The lowest points were generally in December and at that time we were offered daily concern about whether it was a “bear” market. Now that markets have recovered, many commentators tell us this “bull” market is the longest on record, so it must be about to end. Maybe all this, is why they call it a “bull” market.

It is true that the declines last year were worrying. For example, U.S. stocks stopped just shy of the arbitrary definition of a “bear” market. Since then, in April 2019 they returned to setting new highs.

Neither the move down nor the move back up were forecasted by many, if anyone.

Markets go up and down. They are inherently unpredictable. Yet many investors who do not spend much time on the challenge, think that they can know whether a market will go up or down.

Test yourself. Two stocks became publicly traded for the first time in the summer of 2004, Domino’s Pizza and the company that owns Google. If you could go back these 15 years, which would you buy?

Are you surprised to learn they have done about equally well? In fact, over the past 5 years, Domino’s has been a better investment. Most people who do not spend their days monitoring investments, are surprised by this.

Once you are on a plan based on sound evidence, specific to your circumstances, then you can ignore market values. Stick to your plan and you will come out ahead.

ModernAdvisor portfolios are well-constructed, diversified, and evidence based. So they went through the experience of the past year well. The lowest risk level was only down about -1.5% at its worst. The highest risk level was down at most about -11.5%. They had all fully recovered by the end of March 2019.

That bungee jump is behind us.

April 2019 Economic Indicator Recap

Below are the current readings on the major economic indicators: central bank interest rates, inflation, GDP and unemployment.

Below are the current readings on a few other often followed economic indicators: retail sales and housing market metrics.

A Closer Look at the Canadian Economy

 

Canada’s unemployment rate remained steady at 5.8% in March with a net 7,200 jobs lost; 6,400 were full time jobs and 900 were part time jobs.  The labour participation rate dropped slightly to 65.7%. Employment of people aged 55 or older was up 29,000.

Housing prices across Canada were down -0.3% in March, the sixth consecutive monthly decline without a gain.  7 of 11 metropolitan markets were down with Ottawa (-1.5%), Victoria (-1.1%), Vancouver (-0.5%), and Victoria (-0.5%) the worst decliners.  Halifax and Quebec City were the largest gainers, with gains of +0.8% and +0.5%, respectively.

The level of new housing starts rose 15.8% in March to 192,500 units.  The value of building permits declined more than -5% for the second month in a row to $7.8 billion in February.

The inflation rate for March was +0.7%, and +1.9% on an annual basis.  Core inflation which excludes more variable items such as gasoline, natural gas, fruit & vegetables and mortgage interest was also +1.6%.

Retail sales rose +0.8% in February; compared to a year ago retail sales were up +1.8%.  The largest gaining sector was general merchandise stores (+3.8%), and largest decliner was electronics and appliance stores at -3.5%.

Canada’s GDP rose +0.1% in February.  Mining, quarrying, and oil & gas extraction contracted for the sixth month in a row.

As expected the Bank of Canada left its benchmark interest unchanged at 1.75% at its April 24^th meeting.  The big headline from the monetary policy update was a change in the bank’s stance towards a more accommodative stance; which is basically code for further rate hikes are no longer under consideration in the near future.

*Sources: MSCI, FTSE, Morningstar Direct, Trading Economics