Even Better than the Real Thing?

Markets finally took notice last month of the myriad of risk factors which have been looming on the investment horizon and reacted in a predictable fashion: equity markets and bond yields declined while the U.S. dollar strengthened. The S&P 500 dropped by 1.4% last month but actually climbed 1% in Canadian dollar terms as the U.S. dollar strengthened by almost 2.5% relative to the Canadian dollar. The U.S. equity market finished May up about 7% so far this year in U.S. dollar terms but up only 3.8% for 2011 when measured in Canadian dollars. The Canadian Equity market was led lower by a substantial decline in the price of crude oil (down 10% during May) and dropped for a third consecutive month, falling a further 1% from its April close. May’s decline lowered the year to date return for the TSX index to 2.7%. The stronger U.S. dollar translated into a lower gold price last month (down 1.7%); although the yellow metal is still up over 8% from where it started 2011.