Equity Markets Strong Across the Finish Line

Robust Q4 returns capped off a strong 2019. See which markets led, which contributed and our thoughts on what’s next.

01.29.2020 - Ian Riach, Chief Investment Officer

Ian M. Riach, CFA
Chief Investment Officer
Fiduciary Trust Company of Canada

Equity Markets Strong Across the Finish Line


Global equity markets finished 2019 strong, posting robust returns in the fourth quarter. Easing trade tensions seemed to be the primary catalyst for the rally heading into the year’s end, culminating with announcements that the United States had struck deals with China and Canada. Phase 1 of the US-China trade pact and the new United States-Mexico-Canada Agreement are both expected to be ratified in January. In the United Kingdom, the Conservative Party’s majority election win cleared the path for Brexit to move forward. These events lifted some of the uncertainty that existed earlier in 2019 and bolstered investor sentiment. In addition, most major central banks worldwide continued to provide liquidity, which, as we have seen for the past 10 years, supports financial asset prices.

The United States led developed equity markets once again. There is an adage: “Bull markets don’t die of old age. They are killed by recessions.”[1] Halfway through 2019, many economic indicators—such as weak manufacturing activity, decreased business spending and declining exports—raised the probability of a forthcoming US recession. As a result, markets sold off in the spring and investors moved to the sidelines, awaiting further signals.

The first favourable sign occurred in October, as the US Federal Reserve lowered its target funding rate once again. Also, as trade concerns began to fade, so did recession concerns, prompting equity prices to resume their upward trend. So-called FAANG stocks, along with other technology-related names, resumed market leadership.

The Europe, Australasia and Far East area was the next best performing market, fuelled by gains in European and Japanese equities. Economic data remained mixed, but there was some positive news from Europe’s employment front and fiscal policy stimulus in Japan seemed to outweigh weaker corporate investment. As in the United States, substantial central bank action across the region, along with easing trade tensions, also benefited stock prices.

The Canadian equity market lagged its foreign counterparts by about half, even though the loonie appreciated against most major currencies. Despite strong fourth quarter gains by the influential resource sectors, the heavily weighted Financial Services sector barely broke even, weighing on overall returns.

Canada’s bond market was volatile, with yields rising during the quarter as investors rotated into equities. The Bank of Canada acknowledged some economic fragility, but chose to leave its overnight lending rate unchanged, citing the on-target inflation rate and flexibility current rates provide in the event of a slowdown.

Throughout 2019, there appeared to be a disconnect between equity market returns and economic and financial data. Stock indexes hit record highs as economic and corporate earnings growth decelerated. Central banks’ ongoing massive stimulus was one offsetting factor to the weaker data. In earlier commentaries, we questioned the sustainability of a prolonged stock market rally fuelled only by excessive liquidity in the face of slowing growth and profit pressures. Stunning 2019 returns heighten our concerns, as valuations continue to stretch beyond longer-term averages. While not at excessive levels, we feel valuations are vulnerable to disappointment and prefer to lean slightly to the cautious side in our portfolio positioning.


Market Performance (%)Q4 20191-Year
S&P/TSX Composite Index 3.2% 22.9%
S&P 500 Index (CDN$) 6.9% 25.3%
MSCI EAFE Index (CDN$) 6.1% 16.8%
FTSE TMX Canada Universe Bond Index -0.9% 6.9%
CDN$ Versus US$ 1.9% 5.0%

The above Index reviews are calculated from external sources and, where applicable, reflect total returns. All figures are in Canadian dollars and are as at December 31, 2019.




1.Ed Yardeni, “Bull markets don’t die of old age,” Business Insider, March 24, 2015,


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