What moved the markets in January: Monetary policy meetings were front and center last month, as the Bank of Canada raised its benchmark rate by 25 bps to 1.25%, while the Federal Reserve, European Central Bank, and Bank of Japan held rates steady.

 

Market highlights:

Equity markets in North America were mixed. The TSX posted -1.4% while the S&P500 recorded a 5.7% return. In Canada, the Canadian Energy sector was the weakest of the group with losses of -5.4%

 

In the U.S., all sectors ended the month in positive territory with the exception of the Utilities sector closing at -3.1%. The Consumer Discretionary sector led the U.S. markets with a gain of 9.3%

 

The BoC noted that the data since October has been stronger than they expected, including solid employment gains, inflation close to target, and a reduction in labour market slack. The BoC touched briefly on household debt, but noted that household spending is expected to slow as the impacts of higher rates and changes to the B-20 guidelines take hold in the mortgage market

 

The sixth round of NAFTA renegotiations wrapped up in Montreal on January 29th with few indications that meaningful progress has been made. Negotiators have reportedly agreed on just three of approximately 30 chapters of the pact. U.S. Trade Representative Robert Lighthizer stated that representatives have started to discuss “core issues”, the most contentious of which include the rules of origin for the automotive industry

 

Janet Yellen’s final FOMC meeting as chair offered no surprises as the fed funds range was left unchanged at 1.25-1.50%. Yellen handed over the role to Jerome Powell on February 3rd

 

What to expect going forward: Give or take 1,000. The steep drop in the stock market may not be the end of a longer correction, but true to the market’s pattern of the past two years, Monday and Thursday were another one for the record books. The market has recorded some extreme readings in terms of volume and volatility on a short-term basis, which leads me to believe that a short-term bottom is being made. This does not imply that a correction period is over, but to expect a bounce after recent losses. I suspect that the volatility will likely continue in both directions over the next several months as episodes like this tend to take time to play out. Pullbacks can morph into corrections and volatility can shift back and forth for a number of months, but I think we have time to be patient and make portfolio decisions thoughtfully, in line with long-term goals