Overview

The economic statistics made for gloomy reading again this May. In the U.S., the current recession is now the longest since World War II, and with the news that the usually resilient U.S. consumer continues to save and not spend, it may be some time before the slump is over. Consumer borrowing declined by a further 5.2% in April, while the savings rate, at 4.2%, was the third consecutive month over 4%. U.S. employment figures, retail statistics, and housing starts continue to cast a pall over the U.S. economy. In Canada, there was a surprise in the labour market, with 35,000 new jobs being created in April, contrasting with economists predictions of a loss of 50,000.

These hopes of a bottom to the economic recession helped to inspire world stock markets in May—although there were periods of hesitation during the month. However, for Canadian investors, a surge in the value of the Canadian dollar saw the returns for many international markets enter negative territory when expressed in Canadian dollars. The loonie gained 9.3% against the U.S. dollar, from 83.82 U.S. cents per Canadian dollar to 91.60 cents at month’s end. While some of the increase was attributable to a decline of the U.S. dollar against other currencies, the dramatic increase in the price of crude oil in May also helped bolster the Canadian dollar. Oil rose from U.S.$51.12 per barrel to U.S.$66.31—a gain of 29.7%.

Canadian Markets

The S&P/TSX Composite Index had a very strong month, gaining 11.2% in May, and closed the month above the psychologically important 10,000 level. Given the gains for both oil and gold prices during the month, it was perhaps not too surprising that Materials and Energy were the strongest performing sectors. Materials gained 21.8% for the month and Energy 14.8%. The price of gold gained 10.2% to close at U.S.$979.15 per ounce, and as already mentioned, oil surged over 29% to U.S.$66.31 per barrel. Small cap stocks had a second consecutive double digit month of gains. After April’s 12.4% gain, May saw a further increase of 12.0% for the BMO Nesbitt Burns Small Cap Total Return Index. The Index is now up 27.5% on a year-to-date basis.

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