Third Quarter 2014 Review
Canadian stocks fell by 0.6% during the quarter. Despite positive gains in the first two months, they were more than offset by negative results in September. The resource sectors were a significant drag on performance as the materials and energy sectors posted returns of -10.1% and -6.6% respectively. This was the result of falling commodity prices. The consumer staples sector posted a 12.5% gain thanks to the strong performance of food retailers. The industrials and health care sectors were the next strongest performers at 9.4% and 7.4% respectively. Small-cap stocks significantly underperformed large-cap stocks during the quarter.
Global stocks continued with their positive momentum as the MSCI World Index increased by 2.8% in Canadian dollars. This was largely a result of strong gains in the US as the S&P 500 increased by 6.2%. However, outside of the US was a different story as the MSCI EAFE Index declined. Japanese equities posted gains while Europe posted losses of -2.4%. The Canadian dollar depreciated against the US dollar but appreciated against most major currencies. Emerging markets lagged the broader developed markets as a whole but were still in positive territory.
The FTSE TMX Canada Universe Bond Index posted a 1.1% return for the quarter as yields decreased across the Canadian curve, especially at the long end. The provincials and municipals sectors outperformed the broader market, each increasing 1.6%. Corporate and federal bonds both underperformed the broader market, returning 0.8% and 0.9% respectively. The Bank of Canada maintained its overnight rate at 1.0%, while the U.S. Federal Reserve left the Fed Funds Rate target unchanged at 0-0.25%. The Fed’s quantitative easing program is set to wind up during the fourth quarter.