CAD December Market Performance

Noteworthy

Continued strong rally to end the year!  Global equities (MSCI ACWI Index) rallied by 2.3% in CAD (+4.8% in USD) and bonds (ICE BOFA Canada Broad Market Index) appreciated by 3.4% in CAD. These strong rallies were driven by sharply falling bond yields which in turn were driven by favorable inflation data. Markets are increasingly pricing in substantial rate cuts in the US and Europe during 2024. The CAD strengthened by 2.4% vs. the USD during the month.

Global equities

Global equities were up 2.3% in CAD (+4.8% in USD) with widespread large gains across major regions.  The S&P 500 was up 2.0% in CAD (+4.5% in USD) as Treasury yields continued to sharply decline during the month driven by favorable inflation data and by slowing employment growth. Lower than expected amounts of Treasury bond auctions also contributed to falling bond yields. US 10-year Treasury bond yields fell from 4.32% to 3.88% over the month and have declined over 100bps since the end of October. International developed stocks (MSCI EAFE Index) were up 2.8% in CAD (+5.3% in USD) driven by solid underlying appreciation. European stocks rallied due to falling bond yields despite continued macroeconomic weakness in Europe. Headline and core inflation also declined more than expected in Europe. Emerging market equities (MSCI EM Index) were up 1.5% in CAD (+3.9% in USD) with strong performance from Korea, Taiwan, and India equities driving gains. Globally, growth (+1.8% in CAD and +4.2% in USD) and value (+2.9% in CAD and +5.4% in USD) stocks both performed well (+4.2% and +5.4%). Industrial and financial stocks performed best (+5.1% and +3.3% in CAD and +7.6% and +5.8% in USD) while energy stocks performed worst (-1.9% in CAD and +0.5% in USD).  

Fixed Income

As mentioned, the ICE BOFA Canada Broad Market Index was up 3.4% for the month in CAD with interest rate declines primarily driving performance. Government and corporate bonds were up 2.9% and 3.4%, respectively, in CAD while provincial and municipal bonds were up 3.8% in CAD.  

Alternatives

The HFRX Global Hedge Fund Index was down 1.0% in CAD (+1.4% in USD) for the month with gains widespread across strategies in USD with currency detracting in terms of CAD returns. Directional strategies such as hedged equity and credit strategies performed well at -0.9% and +0.6% in CAD (+1.6% and +3.0% in USD).  Merger-arbitrage and convertible-arbitrage strategies also performed strongly at -0.3% and +1.3% in CAD (+2.1% and +3.8% in USD). Macro / trend following strategies performed worst at -2.2% in CAD (+0.2% in USD).  

Comments

Carlson: +0.2% in CAD (+2.6% in USD)

Unusually strong month for Carlson in USD terms, with performance driven by closings of certain M&A deals and narrowing M&A spreads in general.

Eminence: +10.2% in CAD (+12.9% in USD)

Strong outperformance vs. MSCI World and S&P Midcap Index benchmarks (+4.9% and 8.7% in USD) driven by a) idiosyncratic performance of certain software and other growth stocks and b) exposure to small caps with the Russell 2000 Index up 12.2% in USD for the month.