Investment Quarterly > First Quarter 2012

Market OverviewStrong rally for stock markets in first quarter

A strong rally propelled global equity markets during the first quarter of 2012. Improving economic data in the U.S. and much of the world, easing sovereign debt tensions in Europe and an increased willingness by investors to put money into riskier assets were the major catalysts for rising markets. For many stock markets, it was the best first quarter in more than a decade.

Canadian markets advance

Canada’s benchmark S&P/TSX Composite Total Return Index (including returns from dividends) rose 4.39% from January through March. However, the index trailed many of its global counterparts. Canadian shares were held back by volatility in prices for commodities such as oil and base metals. Gold stocks were also volatile as the price of bullion fluctuated. Consequently, the materials sector gained just 0.19% while the energy sector fell slightly, by 0.49%. Together, these sectors account for close to half of the index.

However, financials stocks, which account for about a third of the index, performed well. This sector gained 10.99% as banks worldwide saw better performance on easing worries about financial system health and Canada’s banks continued to report healthy profits. Other strong performers included the health care and consumer discretionary sectors.

Strong performance for Wall St.

Wall Street’s S&P 500 Composite Index surged 12.59% over the three month period, setting a series of four-year highs and marking its best first quarter since 1998. In Canadian terms the index was up by 10.25%, with returns for Canadians eroded by strength in our dollar.

Wall Street’s big winner was the NASDAQ Composite Index, driven to 11-year highs by rising technology stocks. Much of the index’s gain of close to 19% over the quarter resulted from the steep ascent of Apple shares.

U.S. stocks benefitted from an improving domestic and global economic outlook. As the quarter progressed U.S. economic data became increasingly positive, including indications of an improving jobs market and manufacturing sector.

European markets gain ground

Many European stock markets came out ahead, contributing to a gain of 7.60% for the MSCI Europe Index (Net). Appreciation of the euro relative to the Canadian dollar resulted in an 8.36% return in Canadian terms.

Investors focused on Greece’s fiscal woes for much of the three months. As agreement on a second bailout package for the troubled country grew more certain, market sentiment and share prices focused on the positive. An infusion of liquidity by the European Central Bank also helped stocks, particularly the financials sector, by ensuring that banks would not run out of cash over the near term. Germany, Europe’s largest economy, was among the better performers with its best first quarter since 1998.

Asian markets surge

Asian markets surged during the quarter, led by the stellar performance of Japan’s Nikkei 225 Index. The 19.26% three month-return for the Nikkei was its strongest quarterly performance since 1988. However, a falling yen in relation to the Canadian dollar reduced returns in Canadian terms to 8.6%. Japanese stocks rose as economies of the country’s trading partners improved, the country’s central bank eased monetary policy and investors bought shares they perceived as undervalued.