The fourth quarter ended up with a pretty decent bounce in U.S. equities but not much of a recovery for the TSX. While commodities like oil (-17.9%), copper (-8.8%) and gold (-4.8%) continued to see downward pressure during the fourth quarter, the performance of the commodity-related equities was more muted. Instead, some index heavyweight stocks such as Valeant, Canadian Pacific Railway and Magna International weighed down the TSX. Much of this was earnings related, either coming up short of expectations for the current quarter or numbers coming down in future guidance. In Valeant’s case, issues around disclosure, potential regulatory investigations and now the medical leave of the CEO have pressured the stock. During the fourth quarter, the TSX returned -1.4% while the return for 2015 was –8.3% weighed down by Energy, Materials and Industrials sectors. While the annual number might sound bad, it actually looks good in comparison to the equal weighted TSX index, which was down -14.1% for the year. The equal weighted index is a better reflection of what has happened with the broad range of companies in the index during the year as it weighs each company equally while the headline TSX index is a market capitalization weighted index, meaning it can easily be skewed by the performance of a few large companies.

In Canada, after suffering a mild recession in the first half of 2015, the third quarter GDP growth rate was 0.6%. However, October’s GDP at 0% does not point to any real improvement and the recent trends in retail sales and employment continue to look daunting. While the latest reading of October retail sales managed to stay positive at 0.1%, after removing the effects of price changes, retail sales in volume terms declined 0.3%. Employment recovered in October mostly due to temporary work in public administration related to the Canadian elections only to see the unemployment rate move higher in November to 7.1% up from 6.6% in January of 2015. Overall, the Canadian economy continues to look weak especially compared to the U.S. Our Bank of Canada Governor, Stephen Poloz, has made it clear that monetary policy divergence from the U.S. will remain a prominent theme in 2016.

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