Second Quarter 2012 Review

The Canadian equity market as measured by the S&P/TSX Composite Index declined 5.7% during the second quarter after a stellar start to the year. Only three sectors were positive with gains led by the health care, consumer staples and telecom sectors. Information technology was the worst performing sector along with the materials and energy sectors.

Global equity markets were also down with the MSCI World Index returning -3.0% in Canadian Dollars ($C). This was driven by the negative sentiment surrounding European sovereign debt as the troubled nations continue to struggle with heavy austerity measures aimed at reducing debt levels and securing financing for future obligations. U.S. equities declined 0.8%. This performance outpaced other equity markets including Japan, which fell 5.4% ($C). Emerging markets trailed developed markets, returning -6.9% ($C).

Fixed income posted positive returns with the DEX Universe Bond Index increasing by 2.2%. Provincial and municipal bonds outperformed the overall Index while Corporate and Federal bonds lagged. Long-term bonds outpaced shorter-term maturities as long-term and mid-term bond yields declined. The Canadian yield curve shifted downward and flattened while the U.S. yield curve also flattened due to falling yields. The Bank of Canada maintained its overnight rate at 1.0%, while the U.S. Federal Reserve left the Fed Funds Rate target unchanged at 0 - 0.25%.