It was a strong two weeks, with the equity portion of portfolios generally gaining around 4% in just 10 trading days. Half of the increase came from FX: CAD fell against all major currencies, tracking oil prices lower (historical correlation >0.75). The other half of portfolio gains came from equity returns, with a clear cyclical theme evident: tech and industrials equities were up, defensive and high-dividend yield stocks were down.

This theme ties out with the impact that Q1 earnings reports have had on the whole market over the past two weeks. Profits have been good, exceeding estimates by 5% and driven particularly by higher sales. Given that US GDP was up only 0.7% in Q1, this implies that companies are benefiting from some of that moderate pricing inflation we have been talking about.

In an unrelated and purely Canadian theme, there was a run-on-the-bank at mortgage lender Home Capital Group (HCG) this week. HCG is not systemically meaningful for Canadian financial markets; but the event is important for investor perception. Through most of this decade, US investors have ranged from being skeptical to outright scared of the Canadian housing market. While HCG’s issue is one of liquidity and not solvency, it raises memories of how minor US mortgage players went bankrupt in mid-2007, more than a year before the financial crisis fully emerged. Combine this with the Ontario government's housing market changes that were just announced, and in a week when equities performed strongly right around the globe the Canadian banks nevertheless fell 3% - 4%. While we still view Canadian bank equity valuations as expensive relative to their American peers - hence owning no Canadian banks in our portfolios - we would very happily change that positioning should fears about HCG put more pressure on the sector.