April 14, 2023

Stocks rose in March, wrapping up a volatile but profitable quarter that saw more rate hikes from central banks and a mini-banking crisis triggered by the failure of Silicon Valley Bank. The S&P/TSX Composite and the S&P 500 posted their second consecutive quarterly gains, while the tech heavy Nasdaq had its best quarter since 2020.

The market got a boost on the last day of March after the Fed’s preferred inflation gauge, Personal Consumption Expenditures, showed a cooler-than-expected increase in prices. Expectations that the Fed is nearing the end of its rate-hiking cycle contributed to a drop in U.S. Treasury yields. Canada’s benchmark S&P/TSX Composite Index was down 0.6% in March but posted a 3.7% gain for Q1. Ten of the benchmark’s underlying sectors were positive during the quarter, led by information technology with a 26.5% return. The energy sector was the only detractor for the quarter, with a decline of 3.6%. Small-cap stocks, as measured by the S&P/TSX Small Cap Index, gained 3.9% for the quarter. The U.S. dollar depreciated by 0.3% versus the loonie during the quarter, slightly dampening the returns of foreign markets from a Canadian investor’s standpoint. Note that all returns in this paragraph are in CAD terms.

U.S.-based stocks, as measured by the S&P 500 Index, rose 2.8% in March and finished the quarter 7.0% higher. The benchmark’s quarterly gain was led by information technology and telecommunication services, with respective returns of 21.4% and 20.1%. Energy and financials were the main detractors in the quarter, declining by 5.6% and 6.1%, respectively. International stocks, as measured by the FTSE Developed ex US Index, rose 6.8% during the quarter, while emerging markets rose 2.5%.The investment grade fixed income indices we follow were up in Q1.Canadian investment grade bonds, as measured by the FTSE Canada Universe Bond Index, were up 3.2% during the quarter. The key global investment grade bond benchmark and global high-yield issues were also up 3.0% and 3.8%, respectively. Turning to commodities, natural gas tumbled 50.5% in the quarter, while the price of a barrel of crude oil shed 5.7%. Gold, copper, and silver all had a positive quarter with respective gains of 7.8%, 7.5%, and 0.5%.Inflation in Canada was 5.2% year-over-year in February, from 5.9%year-over-year in January – the largest deceleration since April 2020. The deceleration was due to a base-year effect, for the second consecutive month. The Canadian economy added 22,000 jobs in February, as the nation’s unemployment rate held steady at 5.0%. After eight consecutive rate hikes, the Bank of Canada held its key interest rate steady at 4.5%.

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