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Summary
- The stock market in Canada started off 2011 with a gain of 1.0% in January, basically all of it coming on the final day of the month. Larger stocks did better, a clear shift from the behaviour of the market over the past two years.
- The Canadian bond market drifted lower in January, losing 0.4% as long-term bond yields increased, generating a 1.9% monthly loss for the Long-Term Composite.
- Commodity markets were mixed to start the year. Gold prices fell by 6% last month while Nickel moved up by over 10%. Uranium was the star, though, rising another 15%. Oil prices drifted lower initially but then rallied on the news from Egypt.
- The Economic data continues to improve, particularly in the US where the recovery appears to be taking a stronger hold. Overseas growth was strong, particularly in Asia, while some weak spots were noted in parts of Europe still.
- In terms of stock sectors, the Basic Materials sector was the biggest loser last month, falling 5.4% due to an 11.0% decline in the Gold sub-index. Energy stocks had the most positive impact on the overall gains, moving up by 5.3% in January.
- Our Stock Market Outlook is still bullish over the medium-term as economic growth is recovering, profits continue to improve, interest rates remain low and stock valuations are reasonable. Stocks have had strong gains since the market lows last August and are always at risk of a short-term correction, particularly since investor sentiment levels have gotten somewhat bullish lately, as often seen at short-term market highs. But we view that only as a short-term risk. The overall fundamental outlook argues for higher stock prices over the next few years. Corporate profits are within 10% of their prior peak and there’s no reason to think that stock prices won’t do the same.