For 2014, Let the Bulls Run!
The new year is a time of anticipation and reflection. When it comes to the financial markets, predicting the future is never possible. But as investors, let’s hope that 2014 builds upon the successes of the year that has passed.
In 2013, Canada’s economic news remained positive. Growth continued at a modest pace but commodities markets were slow to gain momentum, which impacted Canadian markets. Yet, the price of West Texas Intermediate (WTI) crude oil, a benchmark that influences our resource-dominated markets, hit triple digits and the Toronto Stock Exchange (TSX) performed positively.
In the U.S., 2013 was a year of new highs for both the S&P 500 and the Dow Jones Industrial Average (DJIA). These milestones were reached while U.S. economic recovery started to gain a stronger foothold.
Globally, over $126 billion* was raised in initial public offering (IPO) activity last year, which is over 25 percent more than was raised in 2012. This is a reflection of companies’ renewed confidence and ability to raise funds in the equity markets.
Despite the many positive strides that were made, there were signals of continuing challenges for investors closer to home. One of the biggest surprises last fall was that the expected tapering of the U.S. Federal Reserve’s Quantitative Easing (QE) program was put on hold in September. Canada followed suit with its signalling by keeping short-term interest rates low.
Up until that time, rising interest rates due to the expectation that the U.S. Federal Reserve would reduce its bond-purchase program impacted interest-sensitive investments. Although investor confidence has increased, and the tapering exercise began in late December, the delay in tapering created some worries over the closing months of the year.
If history is any indicator, the running of the bulls can outlast any bears. In Canada, since 1970, we’ve experienced eight bull markets that lasted an average of 53 months, while the eight bear markets over the same time period lasted an average of only 10 months. The story is much the same in the U.S., with the previous seven bull markets lasting an average of 51 months and the previous seven bear markets lasting an average of only 15 months.**
As the turn of a calendar year is often synonymous with new beginnings, perhaps this is the start of the continued upward momentum that we have been waiting patiently for in Canada. Let the bulls run!
Sources: *IPO data as at November 2013 after the Twitter IPO, Thomson Reuters. **TSX Composite Index or equivalent data and S&P 500 Composite Index monthly total return data from January 1970 to July 2013.