Q4 | 2021

Market Intelligence


Read more on the drivers that are affecting equities and fixed income.

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Capital Markets Strategy Team

Manulife Investment Management’s outlook snapshot


The US economy and others around the world continue to recover at a gradual pace, supported by economic reopening and distribution of the COVID-19 vaccine. Excess savings and pent-up demand are expected to result in stronger consumption through 2021. We believe the bifurcation of the recovery ends as the services sector catches up to the manufacturing (equity-centric) recovery. In this environment, we should expect market returns to be average to below average over the next couple of years, with risk to the upside.
— The Capital Markets Strategy team
Canadian Equities
U.S. Equities
Developed Markets
Emerging Markets
Developed Markets Sovereigns
Corporate Credit

Canadian Equities:

The future is looking brighter. 

Our outlook for the S&P/TSX Composite Index remains positive. The demand for commodities, including oil, and their respective prices will likely remain near current levels with the potential to continue to increase as the global economic recovery takes hold.

  • Where commodities go, the S&P/TSX usually follows.

    The S&P/TSX Composite Index has often been referred to as a commodity‑linked index given that two of its largest sectors are commodities and energy. As the global economy continues to recover from COVID‑19 and government‑forced lockdowns, the demand for commodities is expected to continue increasing. The increased demand should bode well for S&P/TSX returns.

  • Improving oil prices should lead to a better earnings environment.

    Historically, earnings for the TSX has correlated with the change in the price of crude YOY. We believe the global economic recovery will lead to higher crude demand and prices, contributing to higher S&P/TSX earnings growth.

  • After a weak September, seasonality is now in your favour.

    September has historically been the weakest month for the S&P/TSX Price Index in terms of odds of a positive return. However, the fall and winter months have been strong months of the year with much higher probability of positive returns.

  • Dividend growers outperform.

    Our team screened the S&P/TSX Composite Index for companies with a five‑year dividend growth rate of at least 10% and a payout ratio of no more than 70%.  The model has a 10‑year annualized performance of 7.65%, while the S&P/TSX Composite Index returned 4.92% over the same period. These results assume all dividends are paid out and not reinvested.

U.S. Equities:

Continuing the march forward.


The economy is on the path to recovery and will be led by pent-up demand and elevated levels of savings.

  • Corrections are normal.

    Stock market corrections are very common and very difficult to predict. Since 1980, the S&P 500 index has fallen an average of 14.3% in any given calendar year but is positive 78% of the time with an average return of 10.3%.

  • Lack of volatility is not normal.

    It was not until the last day of Q3 that the S&P 500 had its first 5% pullback from its most recent peak. It is a rare occurrence to not have a minimum 5% pullback during a calendar year as there is an average of at least two such pullbacks per calendar year.

  • Pullbacks provide opportunities.

    Outside of recessions, history would suggest that when the market falls more than 5% from its 52-week high, that the 1-year forward return will be positive. Investors should take advantages of pullbacks when they present themselves during non-recessionary periods.. 

  • Earnings are likely to drive returns.

    The U.S. ISM purchasing managers’ index (PMI) shows that the momentum in manufacturing activity is still in place on a month‑over‑month basis. Historically, the ISM PMI leads S&P 500 Index earnings growth by six months. We believe that the manufacturing activity will keep earnings growth strong on a YOY basis into 2022.

International Equities:

Emerging markets have near term risks but positive longer-term outlook.


Europe continues to face challenges with supply chain issues and the UK is currently dealing with a fairly serious energy shortage causing higher prices and inflationary pressures. Meanwhile Asia is also dealing with increased regulatory control in China and potential material slowdown in economic growth. However, regardless of the short-term market reaction, pockets of opportunity remain, and we believe the longer-term focused investor stands to benefit specifically in the emerging markets.

  • Global exports will likely slow but remain strong.

    On a year‑over‑year basis, global exports for the five largest exporters in the world have slowed from their peak but remain strong. Supply chain disruptions, production backlogs, and port congestion will likely result in additional slowdowns in exports, but they should remain above pre-covid levels on the strength of global demand.

  • Copper prices are indicating a slowing Chinese economy.

    As China is the largest importer of copper, an increase in the price of copper is usually tied to an increase in demand from China. Due to its broad use throughout various industries, the price of copper is often seen as good indicator for the health of the Chinese economy. The recent slow down in year over year growth in the price of copper indicates a near term slowdown in the Chinese economy.

  • Despite short term headwinds, Asia equities may benefit from stronger economic growth.

    In their July World Economic Outlook, the International Monetary Fund projects that many regions around the world, especially emerging and developing Asia, could grow faster than the U.S. in 2021 and 2022. The improving economic outlook should benefit all regions lead by the emerging markets.

  • Longer-term fundamentals remain strong for Asia.

    As incomes rise, the Asian middle class is expected to grow by about 1.2 billion people by 2030, significantly boosting consumption. A strong middle class provides a stable consumer base that drives stable economic growth.

Fixed Income

Flexibility is required.


. It is normal following a recession that the longer end of the yield curve steepens out and we believe it will continue to steepen through 2021 as inflation and economic growth increase. In this environment, we believe credit does well and short duration bonds outperform longer duration. However, security selection and careful credit analysis is of paramount importance.

  • An increase in yields around the world won’t help income-focused investors.

    Although global sovereign bond yields may have bottomed and have started to increase in some areas, they won’t be going back to their long‑term averages in the near term. In addition, approximately $13 trillion USD of global bonds have a negative yield.

  • The U.S. 10-Year Treasury Yield should trend higher.

    A simplistic way of looking at the real US-10 Year Treasury yield is to reduce the yield by current inflation.  Over the last 10 years the median real yield has been 32 bps. If we were to apply that to inflation between 2.0%-2.5% that would imply a 10-Year yield of approximately 2.30%-2.80%.  We believe the risk to long yields is greater than 2.0% through 2022.

  • Move to the better relative opportunity.

    In an environment of improving global economic growth, yield curves are likely to steepen. Typically, when this happens, credit outperforms government bonds and lower duration outperforms longer duration. 

  • The Canadian dollar is undervalued relative to its historical relationships.

    The Canadian dollar has deviated from its historical correlation to oil prices and the 2-year interest rate spread with the U.S. As such, as at the end of the quarter it is trading significantly below its fair value. Our fair value model would suggest the CADUSD should trade near US$0.87, however external factors are limiting its upside Our 6–12-month target for the CADUSD is US$0.81-0.83.

Related viewpoints

Where are markets and the economy headed going into 2022?

The CMS team’s updated chartbook looks at the macro environment, equity and fixed-income markets, and portfolio positioning for 2021 and into 2022.
Read more

What factors have driven bond yields lower?

Why do bond yields fall? The word transitory should be used when talking about the 10-year U.S. Treasury yield, but not when the subject is inflation.
Read more

The opinions expressed are those of the contributors as of March 31, 2021, and are subject to change. A rise in interest rates typically causes bond prices to fall. The longer
the average maturity of the bonds held by a fund, the more sensitive a fund is likely to be to interest‑rate changes. The yield earned by a fund will vary with changes in interest rates.


Currency risk is the risk that fluctuations in exchange rates may adversely affect the value of a fund’s investments.

The opinions expressed are those of Manulife Investment Management as of the date of this publication and are subject to change based on market and other conditions.
The information and/or analysis contained in this material have been compiled or arrived at from sources believed to be reliable but Manulife Investment Management does not make any representation as to their accuracy, correctness, usefulness, or completeness and does not accept liability for any loss arising from the use hereof or the information and/or analysis contained herein. Manulife Investment Management disclaims any responsibility to update such information. Neither Manulife Investment Management or its affiliates, nor any of their directors, officers, or employees shall assume any liability or responsibility for any direct or indirect loss or damage or any other consequence of any person acting or not acting in reliance on the information contained herein.


All overviews and commentary are intended to be general in nature and for current interest. While helpful, these overviews are no substitute for professional tax, investment, or legal advice. Clients should seek professional advice for their particular situation. Neither Manulife, Manulife Investment Management Limited, Manulife Investment Management, nor any of their affiliates or representatives is providing tax, investment, or legal advice. Past performance does not guarantee future results. This material was prepared solely for informational purposes, does not constitute an offer or an invitation by or on behalf of Manulife Investment Management to any person to buy or sell any security and is no indication of trading intent in any fund or account managed by Manulife Investment Management. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. Unless otherwise specified, all data is sourced from Manulife Investment Management.


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