Markets Climb On Signs Of Progress

Despite the ongoing pandemic as well as Brexit and US election drama, markets climbed higher in the fourth quarter.

02.15.2021 - Ian Riach, Chief Investment Officer

Despite worsening COVID-19 pandemic numbers and the drama surrounding the US election and Brexit, equity markets worldwide ended the fourth quarter higher. As the November election drew closer, we saw some market volatility in October, which eroded September gains. However, the downward trend quickly reversed as the election outcome became clearer and the efficacy of both the Pfizer-BioNTech and Moderna vaccines were confirmed by health authorities in the United States, Canada and many European countries.

During the fourth quarter, the equity rally assumed a new character as growth stocks—particularly in the Information Technology and Communications sectors— lagged more cyclical-oriented sectors like Energy, Financial Services and Industrials. In the United States, the S&P 500 Value Index rose approximately 14.5%, bettering the S&P 500 Growth Index by over 380 basis points (both in USD).[1] This cyclical rebound helped Canada’s S&P/TSX Composite Total Return Index gain close to 9.0%. The Canadian dollar also benefited from higher commodity prices, rising over 4.5% for the quarter.[2]

Cyclical stocks tend to outperform in the early stages of an economic recovery. Though economic numbers announced during the quarter were anything but robust, improvement in some key areas helped fuel positive investor sentiment. The market mood also bettered as, given the introduction of vaccines, hopes for the reopening of economies worldwide overshadowed rising case counts. Developed markets were not alone in rising; the MSCI Emerging Markets Index gained almost 20% as renewed hopes of increased trade amid a global recovery bolstered stocks, especially in emerging Asian countries.[3]

Central banks and governments also recommitted their support. The Bank of Canada, for instance, announced in October that it would likely keep its policy rate steady until 2023 and started purchasing longer-dated bonds as part of its quantitative easing program.[4] This will have the effect of keeping borrowing costs low. The US Federal Reserve extended its lending program until at least March 2021.[5] During the quarter, various news agencies reported that European and United Kingdom central banks pledged to increase their support programs. Governments also pledged to do more by increasing direct payments to households in an effort to stimulate economic activity. All these promises of more liquidity helped bolster investor sentiment.

Though there seems to be a disconnect between the real economy and the stock market, investors are anticipating better times ahead and are thus favouring so-called “risk assets” over bonds. We share this view to a certain extent and increased our equity weights during the fourth quarter. We will, however, keep a close eye on valuations, as any hint of rising interest rates could put some valuations at risk.


Market Performance (%)Q4 20201-Year
S&P/TSX Composite Index 9.0% 5.6%
S&P 500 Index (CDN$) 7.6% 16.5%
MSCI EAFE Index (CDN$) 11.4% 6.5%
FTSE Canada Universe Bond Index 0.6% 8.7%
CDN$ Versus US$ 4.6% 2.0%

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, 2020.



  1. Source: Bloomberg L.P.:
  2. Source: Bloomberg L.P
  3. Source: Bloomberg L.P
  4. Tiff Macklem and Carolyn A. Wilkins, “Monetary Policy Report - Press Release,” October 28, 2020,
  5. “Federal Reserve Board announces extension through March 31, 2021, for several of its lending facilities,” Press Release, Federal Reserve, November 30, 2020,


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