May 1st, 2011

Strategy Review

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.