November 2014 Market Update
With oil dropping below $70 this month, this will undoubtedly have an impact on the Canadian economy. Although our portfolios do not have direct exposure to the commodity, lower oil prices have put pressure on Canadian markets. On the bright side, falling energy prices could provide frequent drivers with an instant stimulus through savings at the pump.
Global equities have now rebounded from their October low and in the process pushed global valuations to their highest level since 2009. US markets had the strongest returns setting new record highs this month, fueled by consumer spending. Canadian markets have also rebounded, but their pace was subdued due to Canada’s equity markets high dependence on commodities. In Japan, “Abenomics” (the strategy named after Japan’s Prime Minister Shinzo Abe) has stepped up a level. Abe, after seeing disappointing growth data, called for elections to try to gain a larger mandate to push through yet more stimulatory measures. This comes after a surprise easing from the Bank of Japan at the end of October which spurred yet more gains for the Nikkei.
China also surprised markets with its first interest rate cut in more than two years, which prompted demand for gold as a store of value and an alternative to fiat currencies.
In the bond market, although the price of investment grade corporate and government bonds increased this month, the yield spread widened. This effect was most prevalent in high yield bonds forcing prices down.
Canadian real estate investment trusts (REITs) closed out the month up 1.4% as investors seeking alternative sources of yield in this low rate environment. This demand was visible earlier in the month with the largest-ever initial public offering (IPO) for a U.S. REIT, the $2.3 billion IPO of the Paramount Group.
Overall, November saw a rally in international equities, a dip in market volatility and an increase of investment grade and government bond prices. These effects offset the sluggish Canadian equities, volatile gold prices and slightly negative high yield bonds. Overall, our portfolios maintained stable growth throughout.