Global markets have rebounded strongly this quarter from the turbulence at the end of 2018. The final months of 2018 showed investors anxiety regarding weaker economic data, which was only exacerbated by all the talk around escalating trade disputes. To make matters worse, central banks seemed committed to continue unwinding quantitative easing, ignoring any headwinds that were beginning to emerge. However, to assume that this quarter’s equity market performance is somehow related to a new found optimism in the global macro outlook, seems a tad misleading. The catalyst for this the Q1 rally came in the form of the FED changing their monetary tightening tune, to something that seems much more muted. Giving credit where credit is due, investors have clearly welcomed this more accommodative move. Also worth noting, bonds have benefited so far this year from economic data showing slowing global growth.
The MSCI World Index, which reflects equity market results for 23 developed market economies, climbed 10.3% in Canadian dollar terms, with broad-based gains across markets in North America, Europe and Asia. In the U.S., the S&P 500 Index finished the quarter with a gain of 11.3% (also in Canadian currency), led by strong results for the information technology, energy and industrials sectors. Emerging markets equities also made gains during the quarter.
The Canadian benchmark S&P/TSX Composite Index posted a robust quarterly gain of 13.3%. Although most sectors added value, Canada’s resource-heavy market was particularly buoyed by higher oil prices, while the industrials, information technology and health care sectors also performed well.
Since the bull market in North American equities began more than 10 years ago, investors have drawn confidence from the gradual expansion of the global economy. Speaking particularly to the U.S., where corporate earnings have been healthy and employment, housing and consumer spending data have been strong. However, late in the economic cycle, corporate earnings are slowing, along with global economic growth. While interest rates remain low and help to support business investment and equity prices in the near term, the market volatility we have seen over the past few quarters may become a more common occurrence as the cycle matures. The fourth quarter’s steep decline and the dramatic reversal in the first quarter of this year is a timely reminder of how quickly markets can turn, and underscores the importance of staying invested for the longer term.
Given this backdrop, I continue to believe investors are best served by a diversified approach to investing – one that provides exposure to a broad range of actively managed investments from equities to bonds to alternative products. Focusing on an actively managed portfolio of quality businesses that are well positioned to weather any short-term storm in the markets and are primed to benefit from long-term growth trends, is the key.