Index Return Monitor. January 11, 2017

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1 Index Return Monitor January 11, 2017 BRAD BROWN, CFA INVESTMENT STRATEGY GROUP See Legal Disclaimer and Important Disclosure Footnotes at the end of this report for disclosures, including potential conflicts of interest. It s The Most Wonderful Time Of The Year! December provided investors with an additional holiday gift by extending the November Trump/Santa Claus rally in to the final month of 2016 as optimism for the year to come was shared by many market participants. Equity markets marched on with the Dow Jones Industrial Average leading the pack with a gain of approximately 3.3% in December. The S&P/TSX Composite Index returned 1.4% in the month, finishing 2016 with an impressive annual return of nearly 18%. Our neighbours to the south posted a strong end to the year with the S&P 500 Index gaining 1.8% in December and finished 2016 with a 9.5% gain. With solid 2016 returns in the equity markets, year-end bonuses and the eggnog flowing it comes as no surprise that Stocks Finish 2016 Near All-Time Highs many investors likely had a happy holiday! The TSX remained in the green this month despite weakness in base metal stocks due in large part to the positive fourth quarter results from the Canadian banks which resulted in the banking sector gaining 4.3% in December. The surge in crude oil as OPEC and non-opec members agreed to reduce oil output mid-month also helped support Canadian equities. Stateside the markets were helped by renewed positivity and solid economic data as numerous consumer confidence numbers including the Michigan Consumer Sentiment Index and the Conference Board Consumer Confidence Index surged to levels not seen in over a decade. The ISM manufacturing index continued its recent strong upward trend from its August contractionary low of The recently released December figure posted the highest level since early 2015 and showed strong new orders data which suggests a positive direction for business activity. The ISM non-manufacturing business activity index also reached a 13-month high in November. Other recent U.S. data such as non-farm payrolls and retail sales have been relatively modest. The U.S. Federal Reserve (Fed) held their final meeting of 2016 on December 14 th, nudging the federal funds rate higher by 25 basis point in a widely expected move. U.S. yields surged higher along with the U.S. dollar following the decision. The December move brings the target overnight lending rate to a range of 0.50%-0.75%. The U.S. central bank noted that the monetary policy stance remains accommodative, and they expect some further strengthening in labor market conditions and a return to 2% inflation. The key takeaway for investors from the meeting was the change in the Fed s dot plot which shows the rate expected by Fed officials at the end of the coming years. The major change was that the expected year-end 2017 rate according to the dot plot is now 1.375% which suggests that the Fed officials see three 25 basis point rate hikes in 2017 versus the previously expected two hikes. Bellwether Indices Price Price Performance (% Change) S&P/TSX COMPOSITE INDEX 15, S&P 500 INDEX 2, DOW JONES INDUS. AVG 19, NASDAQ COMPOSITE INDEX 5,

2 Curves Steepen In December U.S. & Canadian yield curves steepened in December as the U.S. Federal Reserve increased its benchmark rate by 25 basis points as was heavily expected. The one unexpected takeaway was the change in the Fed s dot plot. The expected year-end 2017 rate according to the dot plot is now 1.375% which suggests that the Fed officials see three 25 basis point rate hikes in Canada & U.S. Yields Yield as of 31-Dec-16-1 mo -3 mo -6 mo -12 mo 3-month Canada T-Bills Canada 5yr Notes Canada 10yr Notes Canada 30yr Bonds US 3-month T-Bills US 5yr Treasuries US 10yr Treasuries US 30yr Treasuries U.S. Dollar Continues To Strengthen The U.S. Dollar gained ground against the Euro and Yen in December as the U.S. Federal Reserve increased the overnight lending rate by 25 basis points. The Canadian dollar fared better than others versus the USD, thanks in part to rising crude oil prices. Currency Moves Level Change Canadian vs. U.S. Dollar % -2.3% -3.8% 3.0% 3.0% Euro vs. Canadian Dollar % -4.2% -1.5% -5.9% -5.9% Euro vs. U.S. Dollar % -6.4% -5.3% -3.2% -3.2% U.S. Dollar vs. Japanese Yen % 15.4% 13.3% -2.7% -2.7% Trade Weighted U.S. Dollar % 7.1% 6.3% 3.6% 3.6% Crude Oil Pushes Higher; Precious & Base Metals Setback WTI and Brent crude oil pushed higher following the December 12 th agreement by OPEC and non-opec members to reduce oil output. WTI crude oil ended the final month of the year with a gain of 8.7% and an annual return of 45% in While base metals finished off 2016 significantly in the green, they gave back some of the gains in the final month as Copper and Nickel lost 4.9% and 10.8%, respectively. Commodities Level Price as of 31-Dec-16-1 mo -3 mo -6 mo -12 mo YTD % RJ CRB Commodity Index Gold Spot US$/oz Silver Spot US$/oz Brent Crude Oil West Texas Intermediate Oil NYMEX Natural gas Lumber Copper 3-month Nickel 3-month Aluminum 3-month Zinc 3-month January 11, 2017

3 European Equities Lead In CAD Terms European equities outpaced North American equities in Canadian dollar terms in December with the Bloomberg European 500 Index retuning 4.9%. Stocks rose in part on expectations of improving global growth and fiscal stimulus. Index Returns In Canadian Dollars 1 mo 3 mo 6 mo 12 mo YTD S&P/TSX COMPOSITE INDEX S&P 500 INDEX DOW JONES INDUS. AVG NASDAQ COMPOSITE INDEX BLOOMBERG EUROPEAN MSCI EAFE MSCI WORLD MSCI EMERGING MARKETS , as of December 31, 2016 Aggressive Growth Leads Mandates with higher exposure to equities once again outperformed bond-heavy mandates. Improving investor optimism and a shift to risk-on positions helped pushed yields higher and sent fixed-income investments lower. Long-Term Strategic Asset Allocation Investor Profiles (All In C$) Performance % Change (Global Equity/Cdn. Equity/Bonds/Cash) 1 mo 3 mo 6 mo 12 mo YTD CAPITAL PRESERVATION (5 / 15 / 65 / 20) INCOME (12 / 18 / 60 / 10) INCOME & GROWTH (25 / 20 / 50 / 5) GROWTH (45 / 20 / 35 / 0) AGGRESSIVE GROWTH (65 / 20 / 15 / 0) and FTSE TMX Global Debt Capital Markets, as of December 31, 2016 S&P Continues To Outperform The S&P 500 Index slightly outpaced the S&P/TSX Composite Index as the postelection rally combined with the year-end Santa Claus rally to give U.S. equities the edge. Bonds continued to sell off as the risk-on trade maintained its momentum with increasing consumer confidence and optimism in regards to the prospects of the U.S. economy. Asset Class Returns Total Return % Change Index Yield % 1 mo 3 mo 6 mo 12 mo YTD 31-Dec-16 EQUITIES S&P/TSX Composite Total Return S&P 500 Total Return BONDS FTSE TMX Canada Bond Universe Index FTSE TMX Canada Long Term Index FTSE TMX Canada Mid Term Index FTSE TMX Canada Short Term Index and FTSE TMX Global Debt Capital Markets, as of December 31, January 11, 2017

4 Banks & REITs Lead The financial sector helped the TSX rally in the last month of 2016, rising 3.2%. The financial rally was supported by strong results from the Canadian banks in the beginning of December. This strength offset the weakness seen in base metal stocks, which edged lower in the final month of S&P/TSX Sector Returns Index Price Index Weight GICS Sectors Consumer Discretionary Consumer Staples Energy Integrated O&G O&G Expl. & Prod Pipeline Financials Banks Insurance REITs (old)* REITs (new)* Health Care Industrials Info Technology Materials Gold Base Metals Fertilizer Telecom Services Utilities REIT Returns REIT Total Return Index (old)** REIT Total Return Index (new)** *Going forward the S&P/TSX Composite Real Estate Investment Trust Industry Index GICS level 3 listed above as REITs (old) will be replaced by the S&P/TSX Composite Index Real Estate listed above as REITs (new). **Going forward the S&P/TSX Capped REIT Total Return Index listed above as REIT Total Return Index (old) will be replaced by the S&P/TSX Composite Index Real Estate GICS Sector Total Return listed above as REIT Total Return Index (new). European Equities Outperform European equities finished the month of December higher outpacing the other international Indices. The German DAX led the charge returning a strong 7.9% in the final month of The MSCI Emerging Markets Index was modestly lower as the member countries have to contend with the prospects of revised trade deals and possible tariffs under the incoming Trump administration along with a strong U.S. dollar. International Indices Price Index Bloomberg Euro FTSE Eurotop 100 2, England FTSE 100 7, German DAX 11, French CAC 40 4, MSCI World 1, MSCI EAFE 1, MSCI Emerging Mkts Japan Nikkei , Hong Kong Hang Seng 22, Australia S&P/ASX 200 5, Taiwan Weighted 9, India Sensex 30 Index 26, January 11, 2017

5 Canadian Small Cap Stocks Lead The S&P/TSX Small Cap Index led all other Canadian and U.S. market cap size indices in December. The S&P/TSX Venture Composite Index was a close second returning 3.4%, only 0.2% less than the Small Cap Index. Small Cap Stocks Versus Large Cap Stocks Price Index CANADA S&P/TSX 60 INDEX S&P/TSX MIDCAP INDEX S&P/TSX SMALLCAP INDEX S&P/TSX VENTURE COMP INDEX U.S. S&P 100 INDEX S&P 500 INDEX RUSSELL 1000 INDEX S&P 400 MIDCAP INDEX S&P 600 SMALLCAP INDEX RUSSELL 2000 INDEX Value Beats Out Growth In Canada Canadian Value mandates outperformed growth in December. In the U.S. the picture was a little bit more mixed as style preferences where characterized by market cap sizes. Value outperformed growth for large-cap and smallcap mandates but lagged growth in the mid-cap space. Style Indices Price Index GROWTH DJ CANADA GROWTH INDEX S&P BARRA GROWTH INDEX RUSSELL 1000 GROWTH INDX S&P MID 400 BARRA GROWTH S&P 600 BARRA GROWTH INDX RUSSELL 2000 GROWTH INDX VALUE DJ CANADA VALUE INDEX S&P BARRA VALUE INDEX RUSSELL 1000 VALUE INDX S&P MID 400 BARRA VALUE S&P 600 BARRA VALUE INDX RUSSELL 2000 VALUE INDX January 11, 2017

6 Long-Term Returns Long-Term Returns (As Of 31-Dec-16) Return % Change (Annualized) 1 yr 2 yr 3 yr 5 yr 10 yr 15 yr 20 yr S&P/TSX Composite (price) S&P/TSX Composite Total Return S&P/TSX Income Trust Total Return na na na Dow Jones Industrial Average Dow Jones Industrial Avg TR na S&P S&P 500 Total Return na Nasdaq Comp FTSE 100 Index na German DAX France CAC na Japan Nikkei MSCI World MSCI (EMU) Europe na MSCI Emerging Markets na MSCI Emerging Markets Total Return na na MSCI EAFE MSCI EAFE Total Return na na MSCI Far East , CIBC World Markets Long-Term Returns In Canadian Dollars (As Of 31-Dec-16) Return % Change (Annualized) 1 yr 2 yr 3 yr 5 yr 10 yr 15 yr 20 yr S&P/TSX Composite (price) S&P/TSX Composite Total Return Dow Jones Industrial Average (in C$) Dow Jones Industrial Avg. Tot. Ret. (in C$) na S&P 500 (in C$) S&P 500 Total Return (in C$) na Russell 2000 (in C$) Nasdaq Comp (in C$) MSCI World (in C$) MSCI EMU Europe (in C$) na MSCI Emerging Markets (in C$) na MSCI EAFE (in C$) MSCI Far East (in C$) , CIBC World Markets, Canadian Dollar-based returns 6 January 11, 2017

7 Disclosures And Disclaimers This report is issued and approved for distribution to clients in Canada by registered representatives of CIBC Wood Gundy, a division of CIBC World Markets Inc., a subsidiary of CIBC, Member of the Canadian Investor Protection Fund and Member of the Investment Industry Regulatory Organization of Canada, and by its affiliates via their registered representatives. This report is not authorized for distribution in the United States. This document and any of the products and information contained herein are not intended for the use of private investors in the United Kingdom. This report is provided for informational purposes only and does not constitute an offer or solicitation to buy or sell any securities discussed herein in any jurisdiction where such offer or solicitation would be prohibited. The securities mentioned in this report may not be suitable for all types of investors. This report does not take into account the investment objectives, financial situation or specific needs of any particular client of CIBC Wood Gundy. Recipients should consider this report as only a single factor in making an investment decision and should not rely solely on investment recommendations contained herein, if any, as a substitution for the exercise of independent judgment of the merits and risks of investments. CIBC Wood Gundy suggests that, prior to making an investment decision with respect to any security recommended in this report; the recipient should contact one of our client advisers in the recipient s jurisdiction to discuss the recipient s particular circumstances. Non-client recipients of this report should consult with an independent financial advisor prior to making any investment decision based on this report or for any necessary explanation of its contents. CIBC Wood Gundy will not treat non-client recipients as its clients by virtue of their receiving this report. Past performance is not a guarantee of future results, and no representation or warranty, express or implied, is made regarding future performance of any security mentioned in this report. Information, opinions and statistical data contained in this report were obtained or derived from sources believed to be reliable, but CIBC Wood Gundy does not represent that any such information, opinion or statistical data is accurate or complete (with the exception of information contained in the Important Disclosures section of this report provided by CIBC World Markets or individual research analysts), and they should not be relied upon as such. All estimates, opinions and recommendations expressed herein constitute judgments as of the date of this report and are subject to change without notice. Nothing in this report constitutes legal, accounting or tax advice. Since the levels and bases of taxation can change, any reference in this report to the impact of taxation should not be construed as offering tax advice on the tax consequences of investments. As with any investment having potential tax implications, clients should consult with their own independent tax adviser CIBC World Markets Inc. All rights reserved. Unauthorized use, distribution, duplication or disclosure without the prior written permission of CIBC World Markets is prohibited by law and may result in prosecution. 7 January 11, 2017