Stocks rose in March, wrapping up a quarter where markets soared on optimism for an economic “soft landing” and excitement surrounding the opportunities in artificial intelligence. The Nasdaq Composite, S&P 500Index and Dow Jones Industrial Average all ended the first quarter with five consecutive months of gains, while all three benchmarks also touched record highs at some point in March. This quarter marked the S&P 500’s strongest start to a year since 2019 and the Dow’s strongest since 2021. The S&P/TSX Composite also reached a new all-time high in March, due to a broad rally in commodities.
Canada’s benchmark index was up 3.8% over the month and posted a 5.8% gain in the first quarter. Nine of the benchmark’s 11 underlying sectors were positive during the quarter, led by health care’s 17.7% return. With a decline of 10.0%, the telecommunication services sector was the weakest performer for the quarter. Small-cap stocks, as measured by the S&P/ TSX Small Cap Index, gained 7.2% over the quarter.
The U.S. dollar appreciated by 2.2% versus the loonie during the quarter, slightly boosting the returns of foreign markets from a Canadian investor’s standpoint. Note that all returns in this paragraph are in Canadian-dollar terms. U.S.-based stocks, as measured by the S&P 500, rose2.8% in March and finished the quarter higher by 12.9%. All underlying sectors were in the green for this quarter, led by telecommunication services and information technology, with returns of 18.5% and 15.3%, respectively. International stocks, as measured by the FTSE Developed ex US Index, rose 7.1% during the quarter, while emerging markets rose 4.3%.
The investment-grade fixed income indices we follow were mixed in the first quarter. Canadian investment-grade bonds, as measured by the FTSE Canada Universe Bond Index, were down 1.2% during the quarter. The key global investment-grade bond benchmark was down 2.1%, while global high-yield issues were up 1.3%.
Turning to commodities, natural gas tumbled 29.9% in the quarter, while the price of crude oil rose 16.1% in the same period. Gold, silver and copper all had a positive quarter, with respective gains of 7.0%,3.4% and 3.0%.
Inflation in Canada rose 2.8% year-over-year in February, down from 2.9% year-over-year in January. Notable contributors to this deceleration included cellular services, food purchased from stores, and internet access services. The Canadian economy added 41,000 jobs in February, but the nation’s unemployment rate rose to 5.8%. The Bank of Canada maintain edits key overnight rate at 5.0%, while stating that it will continue with quantitative tightening of its monetary policy to help control inflation.
U.S. nonfarm payrolls rose by 275,000 in February, but the unemployment rate climbed to 3.9%. The U.S. consumer price index increased 3.2%year-over-year in February. Driving the increase in the annual inflation rate was a 2.3% jump in energy prices. The Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditures price index, was up 2.5%year-over-year in February. The Federal Reserve maintained its policy rate at the current range of 5.25% to 5.5%, marking the fifth consecutive meeting at which the Fed has opted to hold interest rates steady.
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