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Market Update for May 2021

By Isaac Schweigert | June 11, 2021

May was another good month for the equity markets, while fixed income recovered a little of the losses from the first quarter.

 

May 2021 Market Performance

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

Other Market Data Month-end Value Return for May 2021 2021 YTD Return
Oil Price (USD) $66.96 +5.48% +38.00%
Gold Price (USD) $1,911.15 +8.06% +0.85%
US 3 month T-bill +0.01% 0.00%* -0.08%*
US 10 year Bond +1.58% -0.07%* +0.65%*
USD/CAD FX rate 1.2072 -1.73% -5.18%
EUR/CAD FX rate 1.4749 -0.33% -5.50%
CBOE Volatility Index (VIX) 16.76 -9.94% -26.33%
Edit
*Absolute change in yield, not the return from holding the security.

May was another good month for the equity markets, while fixed income recovered a little of the losses from the first quarter.

The S&P/TSX Composite was up +3.4% in May, hitting new all time highs.  The TSX Comp. is now up more than +14% for 2021. The S&P/TSX Small Cap was up +4.1% for the month, and is up +18% for 2021.  In the US, equity market performance was more subdued as tech stocks declined.  The large cap S&P500 was up +0.7% (+12.6% for 2021) while the small cap Russell 2000 index was up +0.1% for May and +14.9% for 2021. The tech focused Nasdaq was down -1.5% for May, and is up +6.7% for 2021.

The broad index of EAFE (Europe, Australasia & Far East) stocks was up +1.7% (+9.8% for 2021), European stocks were up +1.9%, and British stocks were up +0.8% for May.  For 2021 European and British stocks are up +11.1% and +8.7%, respectively.  Japanese stocks were again one of the few laggards, gaining +0.2%.  Emerging market stocks were up +1.2% for the month, and are one of the laggards for 2021, up +6.4%.

Bonds were up in May.  The major Canadian bond index, the FTSE/TMX Universe Bond Index, gained +0.6% in May while the FTSE/TMX Short-term Bond Index was up +0.1%.  US investment grade bonds performed similarly; the ICE BoA AAA and BBB indexes were up +0.6% and +0.8% respectively for May.  High yield was up +0.3% for HY Master II and +0.5% for the CCC and lower Index (the real junky stuff).  Emerging market bonds were down -0.8%.

REITs had another good month, gaining +2.7% in May and are up +17.4% for 2021.

Oil had a strong month, gaining +5.5% in May.  For 2021 oil is now up +38.0%.  Gold was up +8.1%, and is now positive for 2021, up +0.9% for the year. With oil making up a large part of the diversified Bloomberg Commodities Index, it gained +2.7% for May and is up +18.9% in 2021.

In May, the Canadian Dollar (CAD) gained +1.7% against the US Dollar, rising above 1.21 to the US Dollar, levels not seen since September 2017.  Against the Euro, CAD gained +0.3%, and +5.5% for 2021.

 

 

May 2021 Economic Indicator Recap

Below are the readings received in February for 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 climbed to 8.1% in April, driven by an increase in people looking for work and those on temporary layoffs.  The economy lost 207,100 jobs during the month as pandemic restrictions were tightened in several provinces; 129,400 were full time jobs and 77,700 were part time jobs.

Housing prices across Canada were up +2.4% in April, and +11.9% versus a year ago. Halifax was the top performer or the third month in a row, gaining +5.4%, followed by Toronto (+3.0%), Victoria (+2.8%) and Ottawa (+2.8%). For the second consecutive month all 11 major markets were positive.

The level of new housing starts dropped -19.8% to 268,600 in April, below forecasts of 280,000.  Urban housing starts dropped -16.9%.  Building permits rose +5.7% to a new all-time high $10.9 billion, as a boom in residential construction continued: +15.9% increase to a record $8.1 billion.  Meanwhile non-residential construction slipped -15.6% to $2.8 billion.

The inflation rate for April was +0.5%, and +3.4% on an annual basis.  Core inflation which excludes more variable items such as gasoline, natural gas, fruit & vegetables and mortgage interest was +2.3%.  The annual inflation rate was the highest reading since May 2011. The rise in inflation was attributed mostly to higher gasoline prices (+62%), and the homeowners replacement cost index (+9.1%), the largest increase since April 1989 as higher building costs and demand for single-family homes continued to surge.

Retail sales were up +3.6% in March, led by higher sales at building material and garden suppliers, as well as clothing stores. The only decline reported was at food and beverage stores.  Compared to a year ago, retail sales were up +23.7%.

Canada’s GDP was up +1.1% in March, the eleventh consecutive monthly gain since the biggest contraction on record in March and April of 2020.  Collectively the goods sector and services sectors both rose +1.1%.  18 of 20 industrial sectors posted gains for the month.  Early estimates for April suggest a contraction reflecting increased COVID-19 measures in some provinces.

As expected, the Bank of Canada left its benchmark interest rate at 0.25% at the April 21st meeting.  The benchmark interest rate is expected to remain at its current low level until into 2022. The BoC reduced quantitative easing program of purchasing at least $4 billion of government and corporate bonds per week to $3 billion per week.  The next meeting is scheduled for June 9.

 

 

 

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

 


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Isaac Schweigert

Isaac Schweigert

Isaac is a CFA charterholder and is Portfolio Manager and Chief Compliance Officer at ModernAdvisor. He has over 11 years of investment industry experience, including asset allocation, portfolio management, due diligence, compliance and reporting.