Market Commentary – Q1 2017

The global equity markets rally has continued into Q1 and the question on everybody’s minds is “How long can the party last?” We have now crossed the 8 year mark since the market low in March, 2009 from the financial crisis, but surprisingly, this is not the longest bull market run, nor the one with the highest return.

Looking at the S&P 500, the dot-com bull market was the longest bull market in history, running for approximately 10 years from 1990 to 2000. During this period, the index rose 526%, which dwarfs the current cumulative return of 281%. We are certainly not in unchartered territory, however, we are definitely above the average bull market length of 52 months and an average gain of 158%.

We are the first to admit that we don’t know how long this bull market will last and, unlike many Bay and Wall Street analysts, we don’t attempt to predict when the top may occur. While there are a select few very smart and talented analysts/investors who have correctly predicted market lows and highs in the past, there is always a degree of luck in any prediction and we don’t want to rely on luck when managing clients’ investments.

History has proven that proper diversification with a focus on the long term has rewarded patient investors. Our decisions are tactical and are made based on thorough research, not on luck or the result of a knee-jerk reaction.

Canada – The Canadian equity market continued its upward trend into the first quarter, advancing 2.4% Small caps advanced 1.5% but the star performers continued to be value and large cap, up 2.5% and 2.4%, respectively.

United States – The Trump rally continued into 2017 with US markets more than doubling the performance of Canadian equities, up 5.2%; large caps and growth stock were up 5.6% and 8.0% respectively, with small caps up 3.2% and value up 2.4%.

International & Emerging Markets – International markets had a great start to 2017, up 6.8%, with small caps up 7.5% and growth up 8.0%. The first place performance goes to emerging markets, which advanced a whopping 10.9%!  

Fixed Income – We will be highlighting the quarterly progress of our four alternative fixed income funds in this section: Trez Capital Yield US, Qwest Productivity Media, Cortland Credit and the

Stewardship Alternative Fixed Income Fund. 2016 was a very good year for the alternative funds with Trez, Qwest and Cortland all meeting their annual return expectations. SAIF is a new fund and just completed its first full year of operation in 2016; it began operating in April, 2015. As the fund matures, we expect the returns to improve, which is evidenced by the strong performance in Q1.

Economic News – The US Fed again raised rates 25 basis points on March 15, which followed December’s increase and was widely predicted after a stronger job reports a week earlier. Fed officials projected two more rate increases in 2017, although any weak economic data could derail these projections. This should serve as a warning to both borrowers and bond investors to be aware of the consequences of these expected rate hikes.

The Bank of Canada continued to keep rates stable during Q1 despite the increase in the US. Analysts predict no rate increases this year as Canada is not at the same point in the economic cycle even though there have been some modest improvements in economic data. There is great uncertainty given the rhetoric coming out of the US relative to trade and NAFTA, which could potentially have a negative impact on Canada. Depending on how things play out, there could even be a rate decrease, which would be strongly negative for the dollar. Inflation has been steady with March’s CPI number up 1.6% year-over-year, which is a little lower than February’s year-over-year increase of 2%.