The Economy and Financial Markets Review - Q4 2010

With strong market performance in the second half of 2010, driven by improving and stabilizing economic data, most markets have recovered nearly all the value that was lost during the crash of late 2008.

The Canadian stock market had a strong fourth quarter with the S&P/TSX Composite Index up 9.4%. The materials and energy sectors led the gains as commodities such as crude oil, copper and uranium were higher during the quarter. All sectors had a positive quarter with the weakest sector being telecommunications which was only up 0.5%. Small cap stocks outperformed large caps.

Global equity markets had a positive fourth quarter. U.S. equities gained 7.0% in Canadian Dollars ($C) as measured by the S&P 500 Index. The energy sector led the way and all sectors posted positive returns with the exception of utilities. International (EAFE) equity markets ended the quarter up 3.3% ($C) as Ireland became the second European Union (EU) country to require a bailout from the EU and International Monetary Fund. Regionally, Japan outperformed Europe. Emerging markets were up 4.0% ($C).

Fixed income returns were slightly negative as the DEX Universe Bond Index was down 0.7%. Corporate bonds outperformed provincial, municipal and federal government bonds though all issuer types experienced negative returns. Short-term bonds outperformed longer maturities as the yield curve flattened during the quarter. The Bank of Canada maintained the overnight rate at 1% while the U.S. maintained their near zero interest rate policies.