Steered by the United States, 2013 was a great year for stocks. The US S&P 500 gained over 30% with gains of over 10% in every sector; more than 95% of the 500 companies listed on the S&P 500 posted gains for the year. The last five years have seen the S&P 500 double. The only major developed market to beat the US was Japan, which was up almost 60%. The Canadian stock market had a good year gaining just under 10% but lagged far behind most of its developed-market peers.
In Canada, weak commodity prices tempered gains posted by consumer staples and financial services. The materials sector was down more than 30%. Gold dropped 28%, precipitating losses near 50% for two of the largest gold companies in the world: Barrick Gold and Goldcorp. Despite a horrible year for commodities, the Canadian market nearly managed to produce a double-digit return proving that the economy is healthy. Our dollar dropped significantly against the greenback which amplified our portfolios' return on US equities.
Although it took longer than many experts anticipated, the longstanding bond market rally finally came to an end in 2013. Bonds suffered their worst losses since 1994 with the Barclay's US index losing 2%. We were reminded that indeed bond prices can and do fall. However, fears of a severe bond bubble with catastrophic losses have thus far proved unsubstantiated.
European markets also had a good year and are likely positioned for a strong 2014. Germany, which is the world's fourth largest economy, led the Eurozone posting gains above 20%. Household names such as Volkswagen continue to produce profits and buoy the market, which was reflected through fewer negative headlines questioning the future of the EU and market performance. In Asia and Latin America, developing world stock markets were mixed this year. Categorically, they rose, albeit not by the same pace we have seen in recent years.
What does this mean for 2014? In an attempt to boost growth and hold down interest rates over the past few years, the Quantitative Easing program has bought up more than $2 trillion in bonds. Speculation is back as the use of borrowed money to invest is nearing pre-financial crisis highs. It is safe to say that the massive gains seen in the US market over the past five years cannot continue indefinitely. Pull backs of 10% of more typically occur at least once per year, yet we have not seen any significant losses in over two years. Considering these factors it is likely that there will be a short term, modest market pull back at some point in 2014.
This may be a time to re-balance – after all, the goal of investing is to buy low and sell high. Many of our clients at or nearing retirement are crystallizing some of the gains that have been achieved over the past few years in favour of guarantees. Likewise, many of our clients with a time horizon of 10+ years are looking to asset classes outside of traditional stock markets such as real estate based investments or whole life insurance policies which pay guaranteed dividends.
We are always on the lookout for new opportunities; please contact us to review your portfolio to ensure that your money is working for you.
All the best,
Anthony Ciccone, B.Comm., CHFC
PS: One of our business partners, Manulife financial is currently offering 2% in a high rate savings account. Please ask us for details.