Market Insights: April Fools?

Milestone Wealth Management Ltd. - Apr 01, 2022

Macroeconomic and Market Developments:

  • North American markets were mostly flat to slightly down this week. In Canada, the S&P/TSX Composite Index was up 0.06%. In the U.S., the Dow Jones Industrial Average down 0.12% and the S&P 500 Index decline 0.24%.
  • The Canadian dollar fell 0.35% this week, closing at $0.7986 cents vs. $0.8014 cents USD last Friday.
  • Oil prices were down strongly this week. U.S. West Texas crude closed at $99.46 vs. $113.90 USD last Friday for a decline of 12.7%. WTI Crude price is still up 34.5% YTD.
  • The price of gold dropped 1.6% this week, closing at $1928.50 vs. $1959.80 last Friday.
  • After back-to-back monthly declines in January and February, markets rebounded in March, with the S&P/TSX Composite and the S&P 500 Index both advancing by 3.6%. Although the S&P/TSX Composite is now in the green for the year, the S&P 500 Index remains down 4.6% YTD on a total return basis.
  • What should be discussed more, is the poor performance of bond markets, suffering its worst quarter in more than 40 years (1980). The Bloomberg U.S. Aggregate Bond Index was down close to 6% in the first quarter, while the FTSE Canada Universe Bond index declined 7%. This is on the back of 2021, which was the worst calendar year performance for global bonds since 1999. One can safely say now that the 40-year secular bull market in bonds ended last year.
  • U.S. Real GDP growth in Q4 was revised slightly lower to a 6.9% annual rate from a prior estimate and consensus expected of 7.0%. The GDP price index remained at a 7.1% annual growth rate. Nominal GDP growth – real GDP plus inflation – was revised lower to a 14.5% annual rate from a prior estimate of 14.6%.
  • The Canadian economy grew in January despite the headwind posed by restrictions to deal with an Omicron-fueled wave of Covid-19 infections, and early data indicated a strong advance in February once authorities lifted those measures. Canada's gross domestic product (GDP) increased 0.2% in January from the previous month to $2.017 trillion. That increase matched market expectations. The data agency also revised the GDP data for December, and now indicates output rose 0.1% versus the previous estimate of no gain, for an annualized rate of 6.7% in the fourth quarter.
  • Meanwhile, Statistics Canada said preliminary indicators point to a 0.8% rise in GDP for February, based on strength in the factory, commodity, hospitality and construction sectors. This prediction is a possible indication that the lifting of COVID restrictions is increasing output and spending. The economy is on track to grow at an annualized pace of more than 4% in the first quarter, which is twice the pace the BoC had been projecting as recently as January.
  • The U.S. Employment Report was released today. Nonfarm payrolls increased 431,000 in March versus a consensus expected 490,000. Payroll gains for January and February were revised up by a total of 95,000, bringing the net gain, including revisions, to 526,000. The unemployment rate fell to 3.6% in March from 3.8% in February, versus an expected rate of 3.7%. It is worth noting, the participation rate of 62.4% is now the highest it has been since COVID, and the average hourly earnings jumped to 5.6% year-over-year from 5.1% last month, versus an expected rate of 5.5%.
  • The U.S. Commerce Department reported that the Federal Reserve’s favorite inflation measure, the Personal Consumption Expenditures (PCE) Index showed intensifying price pressures in February, rising to its highest annual level since 1983. Excluding food and energy prices, the PCE Index increased 5.4% from the same period in 2021, the largest leap going back to April 1983. Including gas and groceries, the headline PCE measure jumped 6.4%, the fastest pace since January 1982.
  • Royal Bank of Canada became the latest Canadian lender to expand overseas with a 1.6 billion pound ($2.1 billion) all-cash offer for U.K.-based wealth manager Brewin Dolphin, which is one of largest British wealth management firms with 34 offices throughout the UK and assets under management of approximately $50 Billion pounds.
  • In oil & gas merger & acquisition activity, Vermilion Energy Inc. announced they have entered into an arrangement agreement to acquire Leucrotta Exploration Inc. for a net cash purchase price of $477M. Leucrotta is a Canadian publicly listed Montney-focused oil and natural gas exploration and development company with lands located in the Mica area of Northeast British Columbia and Northwest Alberta. The common shares of Leucrotta are listed on the TSX Venture Exchange under the symbol LXE.
  • Here is a link to a short video from Canaccord’s chief U.S. Strategist Tony Dwyer entitled Grading on the Curve: DWYER VLOG

Weekly Diversion:

Check out this heartwarming video of a Michigan girl, who is completely blind, making a basketball shot during her high school game. This moment is better than anything that’s come out of NCAA March Madness!

Charts of the Week:

Today may be April Fools’ Day, but there hasn’t typically been a lot trickery going on in April when it comes to the markets. Although April tends to bring in a lot of showers in terms of the weather, it has historically been one of the greener months of the year. As the following table shows, the Dow Jones Industrial Average in the U.S has gained an average of 1.46% over the last 100 years during April, with positive returns 62% of the time, ranking it as the third best month of the year behind only July and December. However, in the most recent two decades, April has gained an average of 2.21% with positive returns 85% of the time, easily making it the strongest month of the year. Let’s hope that positive track record continues for 2022.

Source: Bespoke Investment Group

March turned out triggering a fairly rare signal when it comes to how markets performed. Looking at the S&P 500 Index, at one instance it was down more than 3% at its worst point, yet closed the month up over 3%. In addition, March closed below the all-time high monthly close and closed with trailing 12-month positive returns. In fact, this has only happened 10 times before for any month in the last 50 years! As illustrated from the table below, this occurrence in the past has resulted in very strong forward-looking returns, especially outside of the one negative result back in July 1973. The average and median 12-month forward returns have historically been 14.1% and 15.7%. Omitting the most distant occurrence in 1973, the average jumps up to 18.6%.

Source: Steve Deppe, CMT

What may be prompting the situation? Our thought is that positive reversals in general, whether at an index or stock level, are usually very favourable as they indicate that markets found support and institutional buyers are stepping back in. That upward trend is exactly what just occurred in March. If we focus specifically on reversal months only, with just the two criteria above where the market was down more than 3% during the month but closed the month up over 3%, it expands the occurrences out to 24 prior instances. In this case, the average 12-month forward return has been even stronger, at 17.2% with positive returns 87.5% of the time. The only negative results were again in July 1973 and during the 2001-2002 recession. Those last two events are not included in the table above, unlike this March, due to the fact those did not occur when the month closed with a positive trailing 12-month return.

Source: Steve Deppe, CMT

Sources:, Globe and Mail, Financial Post, Connected Wealth, BNN Bloomberg, Tony Dwyer, Canaccord Genuity, First Trust, Statistics Canada, U.S. Commerce Department, Econoday, Steve Deppe, Bespoke Investment Group