Market Review and 2020 Outlook

Cathy Duval |

Market Review 2020

January Edition

This market review provides highlights from last year and presents our 2020 outlook and the issues that may affect them.  During the month of January, we will send another communication to our clients regarding our portfolio strategy.

Some highlights for the year ending December 31, 2019                                                                                          

Canadian Fixed Income

  • The Canadian Bond Universe (FTSE/TMX Index) had an excellent year with a return of 6.9%, a record since 2014!

  • After four rate hikes in 2018, the Federal Reserve changed course in July 2019 with three consecutive cuts. This is the reason why fixed income products made great gains for most of 2019.

Canadian Stock Markets

  • The S&P/TSX Index ended the year at 17 063 points, almost at its record level. The flagship index offered a return of 22.9% for the year. 

U.S. Stock Markets

  • The US market was the top-performing markets among the major geographic regions. This market bounced back from a poor 2018 to post their best year since 2013 with 31.5% return in US$ (24.8% in CND$).
  • Easier monetary policy and a de-escalation of trade tensions between Trump’s White House and China late in the year helped the S&P 500 finish the year near-record levels.

International markets

  • The MSCI EAFE Index (Europe, Asia, Far East) rose 22.7% in US$ (16.5% in CND$).


Crude oil

  • Political instability in Venezuela and an attack temporarily freezing nearly half of Saudi oil production have helped make 2019 a year of heightened volatility.

  • Black gold finally ended the year as the top-performing asset class with a 35.1% increase in $US (28.3% $CND.                

    • Outlook 2020: Prices are expected to remain strong this year, thanks to prolonged OPEC supply cuts, growth in demand, reduced trade uncertainties and a weakening U.S. dollar.


  • Yellow metal also impressed with an increase of 18.7% in US$ (12.7% in CND$). Geopolitical and economic uncertainties have pushed gold to its highest level since 2013.
    • Outlook 2020: Gold tend to benefit from a weak U.S. dollar and it is a good insurance against most of the major risks this year. However, we do not expect this year to perform as strongly as in 2019.  


  • The loonie has appreciated by 4.8% over the past year due to improved interest rate differentials between central banks in both countries.
    • Outlook 2020: Like other commodity-related currencies, the Canadian dollar has benefited from the de-escalation of trade tensions between the United States and China. The loonie could make further gains this year.

2020 Outlook

Economy and stock markets

Many investors were in low spirits at this time last year, a period where nearly all assets offered losses and the U.S. equity market had just undergone its worst December since 1931. Fast forward to today and we are looking at just the opposite picture, with 100% of the main risk assets that we track in positive territory on a year-over-year basis. Now what should we expect for 2020?

To answer this question, we propose an analysis of two main pillars of asset allocation:

  • Monetary conditions (referring to the central bank interest rate or key interest rate)
    • The main reason for the December 2018 stock market correction was the fear of restrictive monetary policies (rate hikes), while the Federal Reserve reported two potential rate hikes for 2019 after raising them four times the previous year. However, in the face of a slowdown in the manufacturing sector, a reversal of the yield curve, a highly unpredictable trade war and low inflation, the Fed finally made three rate cuts. These successive declines bode well for 2020. Indeed, it is a game plan that has already worked twice in the 1990s, contributing to a rebound in economic activity in subsequent years. We expect the Federal Reserve and the Bank of Canada to leave their target rates unchanged this year, which supports our basic thesis.
  • Global Growth
    • The strength of the U.S. Leading Economic Indicators Index, which unsurprisingly slowed last year, nevertheless continues to suggest continued growth.  This is partly due to the dynamism of the labour market, weekly applications for unemployment insurance benefits and an unemployment rate still far from the levels that suggest a recession.  The recent significant recovery in housing market activity is also to be considered. Moreover, the worst of the tariff war seems to be behind us, which should pave the way for a resumption of global growth and an outperformance of risky securities this year.


The bottom line? With monetary conditions set to remain accommodative and global growth bottoming out, 2020 is shaping up to be a positive year for risk assets. However, investors must temper their return expectations given the already high level of valuation for most financial assets. We can say that the stock market has taken a little ahead of 2020!


That being said, it is also important to consider that our baseline scenario may be influenced by certain risk factors. Here are the three main risks we will monitor over time:

  • Inflation: If inflation measures are rising significantly, this may mean that an increase in the key interest rate will arrive sooner than expected and will have an impact on economic growth and equity markets.
  • Geopolitics: This component should continue to keep investors in suspense, as fundamental disagreements are far from resolved.  President Trump's fiery temperament is an additional source of risk in this thorny issue. In addition, the recent crisis with Iran could also take up more space and cause unexpected uproar. For example, if Iran tried to close the Strait of Ormuz, the price of Brent crude would rise to $150 per barrel, according to some analysts, which would push up global inflation from 3.5 to 4.0%. Of course, global economic growth would be under pressure in such a context.
  • U.S. elections: The presidential campaign will bring its share of uncertainties as investors and businesses weigh the possibility of higher taxes and higher regulatory burdens compared to four other years of Trumpism.


In short, uncertainties remain, but some clouds have dissipated, and the economic environment is likely to be good. With winter setting in, a little more light ahead is definitely welcome!


I hope you enjoyed the New Year edition of our newsletter!  Sounda and I reiterate our availability to discuss topics that are important to you. We will have the opportunity to speak together in the next future to follow up on last year's results.  In the meantime, we remain available to answer any questions you may have.


Looking forward to talking to you!

514 871-3474

Sources :  Asset Allocation Strategy October 2020, Forex October 2020, Fixed Income Monitor October 2020


Disclaimer: The opinions expressed herein do not necessarily reflect those of National Bank Financial. The particulars contained herein were obtained from sources we believe to be reliable, but are not guaranteed by us and may be incomplete. The opinions expressed are based upon our analysis and interpretation of these particulars and are not to be construed as a solicitation or offer to buy or sell the securities mentioned herein. National Bank Financial is an indirect wholly-owned subsidiary of National Bank of Canada. The National Bank of Canada is a public company listed on the Toronto Stock Exchange (NA: TSX). National Bank Financial is a Canadian Investor Protection Fund member (CIPF)