Northern Trust Pension Universe Data: Canadian Pension Plan Returns Concluded the First Quarter With an Upbeat Tone Buoyed by Rising Stock Markets
The first quarter of 2024 was dominated by macro-economic data flows, with particular focus on inflation and its salient components. Despite some inflation targets coming into vision, most central banks maintained their current policy stance while adapting their monetary message to share more narrative around the potential, or further required conditions, for interest rate cuts as they carve out a path to normalization.
While investors await the ultimate pivot in monetary policy, the final stretch of the inflation journey comes with volatility as witnessed following the release of some stronger economic data points in the first quarter. Investor optimism surrounding the potential for interest rate cuts this year coupled with economic resiliency pushed equity markets higher for the period, with the U.S. market generating an impressive double-digit return. Conversely, the bond market reacted less favorably to some of the mixed data, eroding gains from the prior quarter and receding into negative territory for the period as yields marched higher.
“The transition through interest rate cycles within the economic ecosystem quite often can be a challenging path, necessitating the need for quality and granularity of data, comprehensive integrated tools and sound investment strategies, as pension managers navigate this journey,” said
The Northern Trust Canada universe tracks the performance of Canadian institutional defined benefit plans that subscribe to performance measurement services as part of Northern Trust’s asset service offerings.
The first quarter of 2024 witnessed some bumpy days in the financial markets driven by uncertainty surrounding the timing of monetary easing. Despite the strength of inflation figures during the period, market participants took comfort in its long-term direction. As investor optimism gained momentum and recession fears faded, global equity markets advanced higher by quarter end. Notwithstanding the favorable move in stocks, some of the stronger than expected economic data pushed the yield curve higher, creating more friction for bondholders, resulting in negative returns for the Canadian bond universe for the period.
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Canadian Equities , as measured by the S&P/TSX Composite Index, rose 6.6% for the quarter with the majority of sectors posting gains for the period.The Health Care sector was the best performer followed by the Energy and Industrials Sectors. The Communications Services and Utilities sectors witnessed the weakest performance, generating negative returns. -
U.S. Equities , as measured by the S&P 500 Index, advanced an impressive 13.5% in CAD for the quarter, driven mainly by the performance of the “Magnificent Seven”. All sectors posted positive results with the best performance from Communications Services, Energy and Information Technology sectors. - International developed markets, as measured by the MSCI EAFE Index, returned 8.7% in CAD for the quarter. Most sectors generated positive returns with Information Technology and the Consumer Discretionary sectors observing the strongest performance, while the Utilities sector posted the weakest results for the period followed by the Consumer Staples sector.
- The MSCI Emerging Markets Index increased 5.1% in CAD for the quarter. The majority of sectors generated positive returns with the Information Technology sector leading the way with double digit performance, while the Real Estate sector was the biggest laggard for the period.
The Canadian economy witnessed an easing of core inflation data during the quarter relative to the end of 2023, highlighting restrictive monetary policy is achieving its purpose. The labor market experienced positive job surprises in January and February and posted flat results in the month of March. Despite the strong labor figures, the unemployment rate jumped to 6.1% in March, up from 5.8% during the previous quarter, signaling employment growth has not kept pace with population growth.
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International markets continued the ongoing battle against inflation. The
Emerging markets witnessed positive returns for the quarter, but lagged results observed by developed markets. The lackluster returns were primarily driven by weakness in Chinese equities. During the period, the People’s
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The Canadian Fixed Income market, as measured by the FTSE Canada Universe Bond Index, declined -1.2% for the quarter. Provincial and Federal bonds witnessed declines while Corporate bonds posted a slight gain for the quarter. In terms of bond durations, long-term and mid-term bonds generated negative returns while short-term bonds observed a small gain for the period.
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