Q1 – Where Do We Go From Here?

The first quarter of 2021 can be defined by the push for a $1.9 trillion stimulus package, which by far had the greatest impact on the U.S. outlook and the capital markets in our opinion. In addition, increased vaccination efforts has led to a renewed economic picture, with the growth rate now upgraded to 6.5%, two full percentage points above the view at the end of 2020. This represents an annual figure that hasn’t been seen since 1984, and of course Canada will be pulled along for the ride.

 

In general, stocks excelled in Q1, as the broader market played catch up while the NASDAQ cooled, but still managed to post a 2.8% return. The MSCI index was up 6.2%, with Taiwan up 11.5% alone, pass the ‘chips’ please. Following was Germany, France and the Dow, with a ‘cyclicals’ theme. The S&P 500 showing a healthy 5.8% rise, with the TSX placing 3rd overall on a solid 7.3% advance, led by energy, financials, consumer discretionary, and pot stocks. The one soft spot in the Canada was materials, sliding 7.2%, as metal prices went against the grain. Gold fell $191 (or -10%) in Q1, while silver was down -7.5%, despite a flurry of attention on social media and other internet platforms. Copper’s appreciation slowed somewhat too, but finished 13% higher. Lumber sailed through, up 15% in Q1 on robust home building activity and even agriculture joined the rally, with corn prices up 16.5%. Oil was the big winner, while off from its high it still ended the quarter close to $60, representing a 22% move.

 

The bond picture tells a different story, after getting whacked at the beginning of the year, and the 10-year Treasury yields touching a post-pandemic high of 1.77% later in the quarter. The end result was a very ‘bearish’ steepening of the curve, with Canada at the leading edge of the trend, bringing the Ten-year all the way back to pre-pandemic levels above 1.5%. Corporate bonds drifted too, after a dramatic rally at the end of 2020, while U.S. spreads widened over the quarter. All things considered the Canadian dollar was surprisingly the global leader in Q1, propped up by an improved growth story and a big bounce in commodity prices. This helped lift the loonie 1.3% to close out the first quarter as one of the few currencies to strengthen against the U.S. dollar, which also gained 3.7% on a trade-weighted basis – its first quarterly gain in a year. Perhaps, most surprising of all, was the Canadian GDP figures, which showed a solid 0.7% advance in January at the height of the second wave lockdowns while employment had dropped more than 200,000. BMO Capital Markets Economics Team has cited this ‘resiliency’ as the main reason for the bump in forecast for 2021 growth by half a point to 6.5%.

 

For a copy of our full market commentary for March 2021, please email us

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