After a solid first quarter, April turned out to be a mixed bag for markets with fixed income and Canadian equities largely higher, while global equities were mixed.
Mixed economic data combined with modest inflation pressures helped to push bond yields lower in April. The yield on the benchmark Government of Canada ten year bond ended the month at 1.67%, down from 1.71% at the end of March. The DEX Bond Universe was up 0.5%, with long term bonds outperforming.
Worries over the situation in Ukraine also helped to boost some safe haven buying, keeping yields in check. It also helped to boost other safe haven assets, including gold, which is up nearly 8% so far this year. Energy was also stronger in the month. Combined, Canadian equities were higher, with the S&P/TSX Composite rising nearly 2.5%.
Global equity markets were a mixed bag. The S&P 500 gained 0.74% in U.S. dollar terms, but a rise in the Canadian dollar muted gains for those funds that do not hedge their currency exposure. Factoring in currency, the S&P 500 was actually lower by 0.14%. It was a similar story with other indices with the MSCI EAFE Index gaining 1.5% in U.S. dollar terms, but was only up 0.6% in Canadian dollar terms.
China struggled yet again as worries over the pace of economic growth weighed on sentiment,
Looking ahead, I continue to favour equities over fixed income. One subtle change in my outlook is that I am now starting to look at Canadian equities more favourably than I have in the past few months. Valuations in the U.S., particularly in technology and healthcare have become very extended. I expect that we will see more volatility in U.S. equities over the summer, which may result in some attractive buying opportunities. I am not suggesting that anyone sell their U.S. equity exposure, other than to take profits.