Easy monetary policies and an improving U.S. and EU economic outlook mean that 2013 has been a great year for equity investors.
As the year comes to an end, the Toronto Stock Exchange is up nine per cent since the beginning of the year, with Air Canada the stellar performer at $7.48 per share, after hitting a 52-week low of $1.70.
Gold stocks, a major component of the TSX, have been the main underperformer this year, with the gold index down almost 50 per cent for the year. After rising in price for more than a decade, gold is now at $1,202 an ounce, down 28 per cent this year, the worst drop since 1981.
The TSX base metals component has fallen about 28 per cent, so the index is being pulled down by mining and energy stocks.
But some traders expect a recovery in the commodities sectors.
"I think commodities will outperform next year," said Marcus Xu, a portfolio manager at MY Capital Management in Vancouver.
Canadian bank stocks have done well, with Royal Bank and TD up more than 10 per cent on the year, while BMO was up eight per cent and CIBC up 5.5 per cent. All reported strong earnings in 2013.
On Tuesday, the TSX closed up 40 points at 13,621.
Soaring U.S. stock prices
The gain in U.S. stocks was much steeper, with the S&P 500 up 29 per cent on the year, led by tech darlings such as Tesla, Twitter, Best Buy and Netflix.
The Dow Jones average has been breaking records in recent months, and is up 26 per cent for 2013. It continued its gains Tuesday, rising 72 points to close at 16,576.
The U.S. economy appears to be in recovery, with the Fed beginning its long-anticipated tapering in January. It made a surprise announcement in December that it would begin buying $75 billion US of U.S. bonds per month, down from $85 billion.
Manufacturing orders are up and unemployment is down in the U.S. The stock market was also buoyed by a resolution of the budget impasse, which had threatened to overshadow the economy in January.
U.S. corporate earnings rose for a fourth straight year. Total earnings for S&P 500 companies in 2013 are forecast to increase 5.37 per cent, to a record $109.03 a share, according to data from S&P Capital IQ.
"It's tough to argue that companies are in anything other than good health," says Paul Atkinson, head of North American equities at Aberdeen Asset Management, a global fund management company.
Loonie down 6.4 per cent
The Canadian dollar closed the year down 6.4 per cent against the U.S. dollar, and it looks to remain below parity in the near future. The loonie rose 0.04 of a cent to close at 94.02 cents U.S. on Tuesday.
Declining commodity prices contributed to the loonie's fall, but the biggest pressure point was the Bank of Canada's outlook.
"Most importantly, the view on the Bank of Canada changed, as we came into this year expecting the BoC to hike rates at some point," observed said David Watt, chief economist at HSBC Bank of Canada.
"Instead, the Bank of Canada stepped back from its tightening bias and removed its tightening bias and now the discussion is actually whether the Bank of Canada might cut rates."
Other markets around the world are at six-year highs:
- Japan’s Nikkei index is up 56.7 per cent.
- London’s FTSE is up 14 per cent.
- Frankfurt’s DAX is up 23.9 per cent.
- Hong Kong’s Hang Seng Index is up 2.7 per cent, dragged down by its mainland-related stocks.
There was considerable gloom over Chinese stocks, despite signs that the Chinese economy may strengthen. The benchmark Shanghai Composite Index ended 2013 on a low note on Tuesday, closing at 2,115.98 points, a decline of 6.75 per cent from a year earlier.
Reuters polls show European stocks are expected to hit new highs in 2014, while Chinese, U.S. and other major stock markets are also forecast to post solid gains.
"There is almost a complacency about next year and how well it could go," said Hans Peterson, head of asset allocation at SEB investment management in the Netherlands.
"There is still abundant liquidity even if the Fed started to taper and that is still the main theme ... Everything looks nice and easy right now."
Bonds aren't such a pretty picture. The yield on the 10-year U.S. Treasury note climbed from 1.76 per cent to as high as 3 per cent in 2013 as investors sold bonds in anticipation of the Fed's pullback. The rise in yields and the corresponding decline in bond prices has meant losses for bond investors, prompting them to cut their holdings.