Market Update December 2014
We end 2014 on a fairly positive note despite significant volatility in December fuelled mostly by the uncertainty surrounding the price of oil. December saw both Canadian and global stock markets fall. This had the greatest impact on resource dependent markets like Canada, where the decline was in correction territory. However, mid-month the markets began to climb and the “Santa Rally” was upon us.
The Santa Rally was lead by a stronger US economy and positive Fed announcement led to North American markets finishing the year on a positive note. The US economy shows signs of strength and growth with industrial production now up 5.2% year-over-year, the fastest pace in almost four years. Regardless, the Fed has indicated they will be “patient” in raising interest rates and will wait a “considerable time” before doing so.
At the beginning of December, the Bank of Canada held interest rates constant, despite inflation and signs of economic recovery. The BoC cites caution in its interest-rate announcement and highlights the risks to the Canadian economy such as sliding oil prices and high household debt. The performance of both corporate and government bond was flat through December.
Canadian REITs closed out the year up 15%. With expectations that both Canada and the US will delay an interest rate hike, REITs are positioned to take advantage of the present low-yield environment.
Last month we touched on how the falling price of oil will have an effect on the whole economy. Throughout December oil has continued its fall and is now trading around $53. Lower oil prices will help mitigate the global slowdown, but plunging oil prices are inflicting real harm on several emerging market countries, notably Venezuela and Russia.
While our international exposure is predominantly in developed countries in Europe, Asia, and the Far East, we remain vigilant of events in developing countries. In Russia, government intervention has stabilized the currency and markets for now. However, the crumbled Russian ruble and the massive interest rate hike by the Russian central bank combined with lower oil prices and economic sanctions open Russia up to the possibility of a full-blown financial crisis.
Overall, stable bond prices muted the whipsaw equity markets and our portfolios exhibited less volatility.