Third Quarter 2013 Review
Canadian stocks were up 6.2% over the quarter, returning year-to-date gains into positive territory and outperforming the broad global index. The interest-sensitive utilities sector continued to be weighed down as a result of rising bond yields and was the only sector with a negative return. The materials sector continued its struggle by underperforming the broad market by 1.7%, contributing to the largest drag on the on the S&P/TSX Composite year-to-date. Gains continued to be led by the health care and consumer discretionary sectors, which along with the information technology sector, have been the top performers so far this year. Small-cap stocks outperformed their large-cap counterparts over the quarter.
Global stocks were positive with the MSCI World Index returning 5.5% in Canadian dollars. Gains were led by European markets as they significantly outperformed the U.S and Japan, which both trailed the Index after a stellar first two quarters of the year. In the U.S., concerns regarding the limits on the debt ceiling and looming shut-down of essential government activities hindered performance for both itself and its major trading partners. CIBC estimated that for every 3 weeks of the U.S. government shut-down, Canadian GDP growth shrinks by roughly 0.1%. The weakening of the U.S. dollar versus the Canadian dollar detracted from U.S. market performance. On a year-to-date basis, developed international markets have significantly outpaced the Canadian market.
Fixed income held its position with the DEX Universe Bond Index rising 0.1%. The corporate sector outperformed the broader Index while government bonds underperformed. Short-term bonds outperformed longer term issues as yields rose. 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 hinted that the tapering, which was expected to commence in Q4, would be put on hold due to weaker employment figures than was necessary.