Canadian stocks fell in January, with the biggest monthly gain in nearly a decade, quickly denying losses from an ugly sale in December.
The rebound was part of a clean sweep across all major asset classes, which saw stocks, corporate bonds, the Canadian dollar and oil rise in unison until January as investors sought bargains.
The biggest losers of the sell-off became the biggest market movers of January, with investors buying big bank stocks and energy stocks with discounted valuations. The bank's shares fell partly on concerns about rising interest rates and Canadian oil stocks fell amid pressure on oil prices.
"In December, people were scared the market was breaking up," said Peter Imhof, portfolio manager at AGF Investments. "So this was a very important month."
But market sentiment has changed dramatically at the end of last month and in January. Assurances from the US and Canadian central banks that they would be patient with interest rate hikes gave investors confidence to increase inventories.
All of the shares, with the exception of 27, of the S & P / TSX Composite Index ended January in positive territory. The index itself rose 8.5 percent, marking the highest monthly gain since May 2009, when the recovery from the global financial crisis and the ensuing recession were just beginning. The Canadian index price-earnings index, which fell below 13 in December, has since risen closer to its long-term average at more than 14.
Despite only a month in the year, Canada is near the top of the developed capital market performance ranking, second only to Austria.
And for the first time in almost two years, the S & P / TSX Composite Index is beating the S & P 500 on a 12-month basis.
"If we can achieve some stability in energy prices, we will have a good chance of surpassing US performance this year," Imhof said.
January also saw a major improvement in domestic crude oil pricing, with Western Canadian Select closing the month at more than $ 44 a barrel, with Alberta introducing measures to cut output.
In November, Alberta oil hit a low of only $ 13.46, adding that domestic economic strains surpassed what was set to be a global slowdown in growth.
As the effects of trade tensions and competing tariffs began to pick up in economic readings, the Federal Reserve raised its interest rate in December, fueling concerns that the world's central bankers would bring about an over-tightening recession, said the senior economist of the Bank of Montreal. Sal Guatieri.
"At that time, the central bankers put the mantra of patience pretty heavy," Guatieri said. "That went a long way to comforting investors."
The rally that followed was as dramatic as the sell-off.
In 25 trading days since reaching the fund, Canadian stocks have amassed a decent year of gains, as a 12.8 percent jump brought the Composite S & P / TSX Index back to where it was in mid-October .
Large swings like this are expected in older markets, said Craig Basinger, chief investment officer at Richardson GMP.
"A late-stage market tends to be more volatile because bulls and bears are struggling," Basinger said.
It is also not uncommon in this type of market to see synchronized market movements, even in asset classes that tend to be negatively correlated, Basinger said.
Canadian defensive and cyclical stocks also advanced in January. As well as the Canadian dollar, which rose 3.9% in January to lead the group of 10 currencies. Canadian private securities, which historically move in the opposite direction of equities, also recorded price gains, with the iShares Canadian Corporate Bond ETF rising 1.8%. Even gold, which tends to thrive amid fear and volatility, has had a solid month.
But after experiencing a correction and recovery in hyper-speed, Canadian investors could use some quiet in the stock market, potentially establishing a basis on which stocks could develop for the rest of the year, Imhof said.
"It would be really good if we could change sides a little."