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The index value of the Toronto Stock Exchange (TSX) has only now returned approximately to its pre-recession peak.
Chief Economist, CanaData
The index value of the Toronto Stock Exchange (TSX) has only now returned approximately to its pre-recession peak.
The Dow Jones Industrials (DJI) average achieved a similar milestone, reaching its former zenith, more than a year ago in February 2013. It has been climbing steadily ever since.
The same can be said for the Standard & Poor’s (S&P) 500 index.
NASDAQ has performed even better, surpassing its October 2007 summit two year ago in January 2012.
In May of this year, both the DJI and the S&P 500 established new best records at 16,736 and 1,924 respectively.
NASDAQ reached 4,372 early in the month and appeared set to challenge its February 2000 pinnacle of 4,696. But that dot-com-boom peak remains secure for the moment as investors on the digital exchange have recently been choosing to cash in their winnings.
All four major indices sank to their most recent trough levels in February, 2009. Since then, NASDAQ is +208%; the S&P 500, +162%; the DJI, +138%; and the TSX, +80%.
Prior to the economic downturn in 2008-2009, the more broadly-based S&P 500 was usually stodgier than the DJI. During the past five years, however, their roles have been reversed.
It’s been the S&P 500 that has shown the more dynamic growth. Even on a year-over-year basis, the S&P 500 is +18.0% while the DJI is +10.6%.
Year-over-year NASDAQ (+22.8%) has led both the S&P 500 and DJI while the TSX (+15.4%) has been positioned in the middle.
The TSX appears to be gradually re-acquiring respect.
Until recently, conventional wisdom was asserting that the Canadian economy would grow more slowly than its U.S. neighbor.
And the resource-sector firms, which dominate the Canadian landscape, would suffer from ongoing lethargy in commodities demand and pricing.
Contrary to the first of these expectations, 2014’s first quarter “real” (i.e., inflation-adjusted) gross domestic product (GDP) results for the two countries were the inverse.
The latest revision to the U.S. Q1 2014 GDP growth rate figure has dropped it from -0.1% to -1.0% quarter to quarter annualized. There was a larger than first-estimated draw-down in business inventories.
For the same period and on the same basis, Statistics Canada is saying the GDP growth rate north of the border was +1.0%. Better trade with the U.S., especially in energy products, provided a lift to GDP’s bottom line.
As for commodity markets, “steady-as-she-goes” global demand may be leaving their pricing in the doldrums, but the 10% decline in value of the Canadian dollar versus the U.S. greenback is delivering a substantial “virtual” increase.
Almost all contracts pertaining to raw materials express values in terms of U.S. currency.
Besides, there are some pockets of commodity demand that are on significant uptrends. Prices for fish products are soaring thanks to more and increasingly upscale (e.g., prawns) orders from a growing Asian middle class.
At the same time, concerns about farmers’ abilities to meet delivery schedules in some political “hot” spots, such as Ukraine, are supporting world grain prices.
There has also been good news from Canadian corporations in 2014’s Q1 with respect to their profits. Seasonally adjusted, they were +7.4% quarter to quarter and +12.3% year over year.
In most other corners of the world, the year-over-year change in stock market index values has been lower than in North America.
At +19.1%, the German DAX 30 is the exception; but London’s FTSE 100 is only +4.0%; Japan’s Nikkei 225, +6.2%; and Hong Kong’s Hang Seng, +3.1%.
The iShares MSCI emerging markets index is +4.6%, which separates into an Asian sub-set that is a little more positive, +6.3%, and a Latin American component that is in decline, -2.9%.
There is another index that has been gaining media attention lately. Its official name is the iShares MSCI Frontier 100 ETF, carrying an easy-to-remember ticker-tape designation “FM”.
The use of the word “frontier” has been chosen with deliberate care. The firms in the index are based geographically in what have been termed “pre-emerging” nations.
Some of the countries with representation include Kuwait, Qatar, Nigeria, Argentina, Pakistan, Kenya, Morocco, Kazakhstan, Vietnam and Romania.
This index has risen 23.5% year over year. That’ll get the heart pumping.
Or not. Before jumping in, be fully aware that the exceptional capital gain is accompanied by a risk factor that may ultimately induce a cardiac event.
For more articles by Alex Carrick on the Canadian and U.S. economies, please see his market insights. Mr. Carrick also has an economics blog.
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