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Market Updates

Market Updates Source: Advisor Research Group
The following content is offered to clients of Fraser & Partners Investment Services of Aligned Capital Partners Inc. (ACPI) provided by Advisor Research Group Inc. The information in this commentary is for informational purposes only, from sources believed to be accurate, and is not meant to be personalized investment advice. The opinions expressed are those of the author and do not necessarily represent those of ACPI.

Last Week in the Markets – October 18 – 22, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

It was the second consecutive all-green week for our grid (above), an achievement that has not occurred during the pandemic. The TSX and Dow reached new all-time highs last week. The TSX has had an unbroken series of thirteen daily gains, last losing value on October 4th.

Domestically the most important news was the announcement that Canada’s overall inflation rate for September was 4.4%, compared with the U.S. rate of 5.4% for the same period. The assumption that current inflation is temporary and related directly to the reopening and recovery of economies is beginning to be questioned. When food, shelter, and transportation prices rise, 3.9%, 4.8%, and 9.1%, respectively, concern also rises. Eventually, inflation will pressure central banks like the U.S Federal Reserve and our Bank of Canada to slow price increases by slowing economic growth.  https://www.theglobeandmail.com/investing/markets/inside-the-market/article-inflations-return-is-just-in-time-for-halloween/   https://www150.statcan.gc.ca/n1/daily-quotidien/211020/dq211020a-eng.htm?HPA=1

This excellent progress on stock prices occurred with more negative news beyond inflation. Evergrande, China’s massive housing builder, continues to struggle with debt repayment issues ($300 Billion) and links to a housing bubble in that country as China’s Gross Domestic Product (GDP) growth stagnates.

Additionally, Covid-19 case counts continue to persist. Despite a drop of 25% over the past two weeks, nearly 75,000 cases are being reported daily in the U.S. In the developed economies of Europe, infection rates increase the further east you travel with the U.K. being an unfortunate exception as the leader in new cases. Covid Cases

What’s ahead for this week and beyond?

In Canada, wholesale trade and the raw materials price index for September and two very important indicators for August, the employment report and real GDP will be announced. On Wednesday the Bank of Canada will release its latest monetary policy announcement.

In the U.S., September’s goods trade deficit, wholesale and retail inventories, durable goods orders, pending home sales, and new home sales will be announced. Personal spending and real GDP, also for September, will be the most noteworthy economic indicators released this week.

Globally, GDP, business climate, consumer confidence, unemployment, and consumer inflation will be released for Germany. Eurozone figures for GDP, inflation, consumer confidence, and money supply are scheduled to be announced.

 

Last Week in the Markets – October 11 – 15, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

All of the indicators in our grid above made gains, achieving the first all-green week since August. Equities rose 1.5% to 2.5% with the major indices approaching or setting new 52-week highs. The Canadian dollar rose along with the price of oil. Oil has doubled in the past year, which is good news for Energy investors, but will increase consumer and producer inflation. Gold which gained last week is still down more than 7% in the past year. The positive performance for stocks and oil was achieved despite the mixed news that was announced:

  • The International Monetary Fund (IMF) released is “World Economic Outlook” with the headline “Global recovery continues, but the momentum has weakened, and uncertainty has increased”. The slowdown has been attributed in part to supply disruptions in advanced economies and worsening pandemic conditions in developing countries. IMF’s World Economic Outlook
  • Consumer inflation rose 5.4% in September. The Federal Reserve has been maintaining that the higher inflation rate situation is temporary. Concern is growing that inflation may not be as transitory as hoped based on recent data from the housing market.
  • Expectations to taper Federal Reserve bond purchases, which would increase the cost of long-term borrowing is continuing to grow. The move to taper is being driven by increasing inflation, but also potentially delayed by stalling Gross Domestic Product and employment numbers. Based on the Fed’s announcements an increase to the benchmark interest rate is not expected until 2022 or 2023. https://www.federalreserve.gov/monetarypolicy/files/fomcminutes20210922.pdf

What’s ahead for this week and beyond?

In Canada, September inflation through the Consumer Price Index will be released, which will heavily influence Bank of Canada actions. The central bank’s Business Outlook Survey, housing starts, manufacturing sales are all on the calendar.

In the U.S., industrial production, capacity utilization, building permits, and housing starts, and existing home sales for September will be released. A number of Purchasing Managers Indexes (PMIs) that predict upcoming business and wholesale activity are also on the schedule.

Globally, important economic indicators from China will be announced with real Gross Domestic Product, trade balance, retail sales, and industrial production scheduled for announcement. Japan’s CPI and Eurozone inflation and consumer confidence will also be announced.

 

Last Week in the Markets – October 4 – 8, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

157,000 jobs were added in Canada last month, soundly beating the expectations of analysts. The unemployment rate fell to 6.9%, the lowest level since the pandemic began in March of 2020.  Unfortunately, companies are still looking to hire more workers and 400,000 people have not rejoined the workforce.  https://www150.statcan.gc.ca/n1/daily-quotidien/211008/dq211008a-eng.htm?HPA=1

In the U.S. 194,000 jobs were added in September, which is the lowest monthly increase in 2021 and well below the estimated number of new jobs for the month. Unemployment is down to 4.8%, also the lowest level since the pandemic began. For September its was less job seekers (labour force participation) than more jobs that lowered the unemployment rate.  As workers delay their return-to-work wages have increased nearly 5% since last year. https://www.bls.gov/news.release/empsit.nr0.htm

The disappointing results in the U.S. job market may delay the Federal Reserve’s move to taper its bond-buying program. Despite the mixed news for jobs, the resultant Fed response moved equity markets upward last week.

Increasing energy prices, which act like a consumer tax, did not weigh down equity markets either. The price of oil increased an additional 5% last week and has nearly doubled in the past year. It is now at its highest level in 7 years. Economic output is being negatively affected in China and Europe as energy shortages are occurring widely. OPEC+ agreed to increase output in an effort to reign in prices, increase their revenues, and allow recovery to continue.  https://www.theglobeandmail.com/business/industry-news/energy-and-resources/article-opec-likely-to-stick-to-existing-oil-output-policy-amid-covid-19/

What’s ahead for this week and beyond?

In Canada, markets were closed on Monday for Thanksgiving that started a week with August’s manufacturing sales, industrial production, wholesale trade, and September’s existing-home sales on the schedule.

In the U.S., bond markets were closed on Monday for Columbus Day. Inflation for September via the Consumer Price Index (CPI), U.S. Federal Reserve minutes from Sept 21-22, retail sales, import prices, and business inventories are scheduled for release this week.

Globally, China’s trade surplus, CPI, Germany’s CPI, Eurozone, and Japan’s industrial production are on the calendar.

 

Last Month in the Markets – September 1 – 30, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened in September?

It was a difficult period for equities in North America and around the world last month. Oil gained strongly. American indices gave back 5% of their Year-to-Date gains, dropping them back from their former levels of 15-20% for 2021. Recently equity indices have been rising early in the month, dipping midway and then recovering and achieving a gain for the month. Unfortunately, September started poorly, dipped further, and finished the last few days of the month with more losses.

(source: Bloomberg https://www.bloomberg.com/markets, MSCI https://www.msci.com/end-of-day-data-search and ARG Inc. analysis)                                                      

The influences over capital markets last month were many and varied:

  • The announcement of Canadian jobs growth was stronger than the weak expectations as 90,000 jobs were added during August, the unemployment rate fell from 7.5% to 7.1%. However, 200,000 less jobs exist now than in February 2020
  • To continue to bolster our economy the Bank of Canada left its supportive monetary policy actions unchanged. The Bank Rate is ½%, and the overnight rate and the deposit rate have been held steady at ¼%. The bond buying program also remains unchanged. This signaled that the economy has not recovered significantly to trim monetary supports. BoC Announcement
  • Inflation in Canada surged to its highest level since 2003 as prices in August rose 4.1% compared with a year earlier. August becomes the fifth consecutive month where inflation exceeded the Bank of Canada’s target annualized year-over-year rate of 2%. Our central bank still maintains that this heightened inflation level is temporary. When measuring inflation since the start of the pandemic the overall rate is only slightly above the Bank’s 2% target.
  • The Liberals led by Prime Minister Trudeau were reelected to the same minority government that it had prior to Monday’s Canadian federal election. They did gain an additional two years, potentially, to their mandate. A significant plank in their election platform is to increase taxes on Canadian major banks, which nearly every Canadian investor owns directly and indirectly. Election Summary
  • A lingering condition that has been influencing economic growth is supply-chain disruptions. As businesses reopen and attempt to return to full production, the availability of raw materials and component parts has not been universal. For example, the backlog of vehicles is large as the shortage of computer chips prevents the delivery of fully finished new cars and trucks to buyers. Recently automakers have announced plant closures and layoffs until the supply chain issues are resolved. Similar situations are found all across the economy, and until it is resolved, the return to full production will be difficult.
  • In the U.S. their year-over-year inflation rate fell slightly from 5.4% in July to 5.3% in August. The month-to-month inflation rate also declined. Prices rose 0.3% in August compared to July, down from 0.5% for the period of June to July. This very slight moderation, and the lower core rate of inflation at 4.0% for August versus 4.5% for July, supports the Federal Reserve’s position to maintain current programs.
  • The U.S. Federal Reserve kept its monetary policy for interest rates and bond-buying unchanged in its announcement on Wednesday, but indicated, “If progress continues broadly as expected the Committee judges that a moderation in the pace of asset purchases may soon be warranted.” Any change that reduces support for economic growth, in this case measures to keep long-term borrowing costs lower, will negatively affect markets in the long term. Fed Press Release
  • Political negotiations over the federal government’s debt ceiling were concluded at the final moment with an extension into December. Focus returns to President Biden’s centerpiece infrastructure bill, which could provide significant fiscal stimulus for economic activity as monetary stimulus may be reduced.
  • Concerns that China’s housing and property developer, Evergrande, could default on interest payments triggered and/or contributed to a decline in equity indices. Evergrande’s $300 Billion debt load and $100 Billion in real estate sales last year represent a significant concentration risk but should not threaten the stability of the global banking system.

What’s ahead for October and beyond?

The list above suggests that many items could influence capital markets and balances in investment accounts. The major indicators that affect overall markets are economic growth measured as Gross Domestic Product, inflation through the Consumer Price Index (CPI), employment (monthly new jobs, unemployment rate), and monetary policy by central banks (interest rates and bond-buying) since these will affect corporate performance. Other unpredicted shocks can occur (like the pandemic), but the major economic indicators are an excellent place to begin your analysis and limit your preoccupation. Trust investment professionals who monitor economic indicators, and local and global developments continuously.

 

Last Week in the Markets – September 27 – October 1, 2021


(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

All of the major indices suffered losses, especially the technology-heavy NASDAQ that dropped more than 3% last week. Most of the news negatively affecting equity markets last week emanated from the U.S.

  • The negotiations in Washington over the debt ceiling and the infrastructure bill dragged on past the end of the week and into the weekend.
    • The House of Representatives passed measures on Thursday evening, just prior to the deadline, raising the debt ceiling until early December when the same type of posturing and politicizing will return. The threat to the AAA rating the U.S. holds for debt is threatened each time this ceiling is negotiated.
    • The massive $3.5 Trillion infrastructure bill proposed by President Biden is stalled in the House and will now be discussed and debated after his social policy package is passed by the Democrat-controlled Congress.
      • Progressives within the Democrat ranks have blocked approval of the infrastructure bill and have created a rift within the party as legislative delays persist.
    • The Federal Reserve, and by extension the Bank of Canada, appears poised to allow long-term interest rates to rise as the bond-buying measures will likely be tapered soon.

The good news is that short-term interest rates are not expected to be changed by the Fed or other central banks soon; forecasts are placing that action about one year away.

What’s ahead for this week and beyond?

In Canada, data will be released for building permits and trade balances for August. The September employment report will be released, where 60,000 new jobs are expected along with the unemployment rate falling to 6.9%.

In the U.S., August wholesale trade, factory orders, trade balance, and consumer credit will be announced.  Purchasing Managers Indices from ISM will be released along with the U.S. jobs report for September where nearly 500,000 new jobs are expected, and the unemployment rate should fall to 5.1%.

Globally, markets in China will be closed until Friday to observe its National Day and Golden Week. OPEC+ will hold a meeting via videoconference. Eurozone retail sales, Germany’s factory orders, trade surplus, and industrial production will also be released.

 

Last Week in the Markets – September 20 – 24, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

Major domestic and international events influenced markets last week including:

  • The U.S. Federal Reserve kept its monetary policy for interest rates and bond-buying unchanged in its announcement on Wednesday, but indicated, “If progress continues broadly as expected the Committee judges that a moderation in the pace of asset purchases may soon be warranted.” Any change that reduces support for economic growth, in this case, measures to keep long-term borrowing costs lower, will negatively affect markets in the long term. Fed Press Release
  • Concerns that China’s housing and property developer, Evergrande, could default on interest payments triggered and/or contributed to a decline in equity indices. Evergrande’s $300 Billion debt load and $100 Billion of real estate sales last year represent a significant concentration risk but should not threaten the stability of the global banking system.
  • The Liberals were re-elected to the same minority government they had prior to Monday’s Canadian federal election. They did gain an additional two years, potentially, to their mandate. A significant plank in their election platform is to increase taxes on Canadian major banks, which nearly every Canadian investor owns directly and indirectly. Election Summary

Potentially, the next major influences on capital markets will be the U.S. government’s debt ceiling and progress on President Biden’s infrastructure bill, as well as progress against the coronavirus.

What’s ahead for this week and beyond?

In Canada, employment numbers (new jobs, labour force participation, unemployment rate) for July will be announced. Real Gross Domestic Product (GDP) for July, an important indicator, will be released along with the industrial product price index and raw materials price index for August.

In the U.S., durable goods orders, goods trade deficit, wholesale and retail inventories, pending home sales, home price index, personal spending and income, construction spending, automobile sales, and Purchasing Managers Indices, all for August, are scheduled for release in a busy week.

Globally, Eurozone money supply, consumer and economic confidence, inflation, and jobless rate will be released along with Japan’s jobless rate retail sales and industrial production and Germany’s consumer inflation and unemployment.

 

Last Week in the Markets – September 13 – 17, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

For the second consecutive week, all indicators in our grid above lost ground except for oil. The losses for equities were not as severe as the previous week but were also not inconsequential. The year-over-year (1Yr) advances still remain in the 24 – 38% range, and so far, year-to-date (YTD) equities have gained between 13 -18%. Inflation fears and resultant monetary policy responses have heavily influenced markets lately.

Inflation in Canada surged to its highest level since 2003 as prices in August rose 4.1% compared with a year earlier. Comparing July 2020 to July 2021 the inflation rate was 3.7%. August becomes the fifth consecutive month where inflation exceeded the Bank of Canada’s target annualized year-over-year rate of 2%. Our central bank maintains that this heightened inflation level is temporary. Also, when measuring the rate of inflation since the pandemic began the overall rate is only slightly above the 2% target.

In the U.S. their year-over-year inflation rate fell slightly from 5.4% in July to 5.3% in August. The month-to-month inflation rate also declined. Prices rose 0.3% in August compared to July, down from 0.5% for the period of June to July. This very slight moderation, and the lower core rate of inflation at 4.0% for August versus 4.5% for July, supports the Federal Reserve’s position to maintain current programs.

It appears that inflation is peaking, but not disappearing, which removes the pressure on the Federal Reserve, Bank of Canada, and other central banks to take more immediate action to slow inflation.

What’s ahead for this week and beyond?

In Canada, retail sales for July and the new housing price index for August will be released. The Federal government has tentatively scheduled a release of July’s budget balance. A summary of party stances on election issues can be found at https://www.theglobeandmail.com/politics/article-canada-federal-election-20210-party-plaform-guide/

In the U.S., housing starts, building permits, existing home sales for August will be announced. The Chair of the Federal Reserve, Jerome Powell, will speak following the Federal Open Market Committee’s announcement of monetary policy and an update to economic projections.

Globally, capital markets are closed at the beginning of the week in Japan and China. Eurozone consumer confidence, manufacturing, and service Purchasing Managers Indices (PMI) will be released. The Bank of England will announce its monetary policy, and the European Central Bank released its economic projections.

 

Last Week in the Markets – September 7 – 10, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

After the closing of markets in Canada and U.S. to observe Labour Day, it was an extremely active week. Like many of us during a holiday-shortened week, five days of activity were packed into four.

The week ended with our jobs report for August that beat expectations by adding 90,000 in the month. The unemployment rate fell to 7.1% from 7.5%. The Canadian economy is 200,000 jobs below February 2020 levels, which has the hospitality sector making up much of the lost ground as reopening continues.

To continue to bolster our economy the Bank of Canada left its supportive monetary policy actions unchanged. The Bank Rate is ½%, and the overnight rate and the deposit rate have been held steady at ¼%. The bond-buying program also remains unchanged. https://www.bankofcanada.ca/2021/09/fad-press-release-2021-09-08/

A lingering condition that has been influencing economic growth is supply-chain disruptions. As businesses reopen and attempt to return to full production, the availability of raw materials and component parts has not been universal. For example, the backlog of vehicles is large as the shortage of computer chips prevents the delivery of fully finished cars and trucks to new buyers. Recently automakers have announced plant closures and layoffs until the supply chain issues are resolved. Similar situations are found across the economy, and until it is resolved, the return to full production will be difficult.

As a result, equity markets have reflected the current and looming issues as the major North American indices lost value last week. As noted in previous Market Updates, volatility is expected to increase while these issues work themselves out.

What’s ahead for this week and beyond?

In Canada, manufacturing sales and new orders for July and the Consumer Price Index for August along with the existing home sales, housing-starts and average home prices will be released.

In the U.S., inflation for August through the Consumer Price Index is the most significant indicator to be released this coming week. Industrial production will also be announced along with the important retail sales figures.

Globally, Japan’s industrial production, machine orders, and trade balance, China’s retail sales, industrial production, Eurozone consumer inflation, industrial production, and trade surplus will all be released.

 

Last Week in the Markets – August 30 – September 3, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

Equity indices continued to power ahead again last week.  Unfortunately, the thirty corporations, https://www.theglobeandmail.com/investing/markets/indices/DOWI/components/, that comprise the Dow Jones Industrial Average (Dow or DJIA) lost ground. After maintaining value for the first four days, twenty of the thirty Dow firms lost value on Friday. That is, the one-day performance of only twenty firms, albeit large companies like Amex, IBM, Coca-Cola, and 3M, caused the Dow index to finish in negative territory for the week.

For perspective, the Dow has still returned more than 15% in 2021. The other major North American equity indices have delivered 20% so far this year.

A growing concern is the trajectory of this success. “Will it continue, how long will it continue, what will occur if it doesn’t continue”, are popular questions from investors. Forecasts for corporate growth and profitability continue to rise while Gross Domestic Product (GDP) growth forecasts are beginning to flatten. Since GDP is a fair proxy for an aggregate of corporate performance the forecasts are starting to contradict each other. The typical response to this contradiction has been increased volatility.

The increasing number of Covid-19 hospitalizations and severe sickness related to the highly contagious Delta variant as in-person schooling, dining and entertainment could lead to a renewed round of economic effects that could also contribute to greater swings in capital markets. As always, a well-designed plan that can be adapted to changing conditions, like increasing volatility, is much better than no plan at all.

What’s ahead for this week and beyond?

In Canada, after closing for the observance of Labour Day that closes capital markets on Monday the major domestic, economic news will be the Bank of Canada’s policy announcement on Wednesday. On Friday the employment report for August will be released.

In the U.S., markets will be closed on Monday before the release of the July jobs report producer price index, wholesale trade, and the most recent weekly jobless claims later in the week.

Globally, China is scheduled to announce consumer and producer inflation, trade surplus, and foreign reserves.  Eurozone factory orders, Q2 Gross Domestic Product, and Germany’s industrial production and trade surplus will be released. The European Central Bank will hold a monetary policy meeting on Thursday.

 

Last Month in the Markets – August 2 – 31, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened in August?

Overall, it was a positive month for most Canadian investors. The broad-based North American equity indices rose, as did the All-Country World Index (ACWI), above. August gains for these indices ranged between 1 and 4 per cent. The large corporates represented in the Dow performed the worst at a still impressive 1¼% improvement while the tech-heavy NASDAQ topped out at exactly 4% more than its July closing level. The NASDAQ had been lagging behind its peers, but the second half of August has allowed it to catch and surpass the Dow, TSX and ACWI.

The range for Year-to-Date performance for equity indices has risen to between 15 and 20%, which is an extremely healthy gain in any year. Also remarkable since only 8 months (two-thirds) of a news-filled 2021 have passed. August was the fourth consecutive month that equity indices started well, then suffered a mid-month dip, before regaining their footing and finishing in positive territory.

(source: ARG analysis, Bloomberg and MSCI)

The influences over capital markets last month were many and varied:

  • U.S. Gross Domestic Product (GDP) has grown 6.4% during 2021
  • Canadian GDP grew by more than 5% in the first quarter before the announcement that it had shrank by 1.1% in Q2. Analysts had expected further growth of 2.5% during the second quarter. The Canadian economy is suffering from supply-chain shortages, which caused it to miss vehicle production and export targets, for example. The Canadian dollar reacted slightly to this news, but has already dropped in value against the U.S. dollar prior to the GDP news
    https://www.theglobeandmail.com/investing/markets/inside-the-market/market-news/article-canadian-dollar-retreats-after-surprise-gdp-contraction-in-second/
  • July job growth has been strong in both countries with 94,000 new jobs in Canada and 943,000 in the U.S. The unemployment rate in Canada has fallen to 7.5% and 5.4% in the U.S.
  • The U.S. consumer inflation rate for July was 5.4%. The core inflation rate that excludes food and fuel rose 4.3%, which was slightly lower than June’s year-over-year increases.
  • The U.S. Senate passed a bipartisan infrastructure bill of $3.5 Trillion package.
  • In Canada, the spending continues to accelerate by the governing Liberals. The trend could be in jeopardy if their negotiated mandate with the NDP ends following the next election.  
  • Oil fell for the month despite mostly positive news on the demand-side
  • A primary driver in the rise of equities at the end of the month was the announcement on Friday, August 27th by the Chair of the Federal Reserve, Jerome Powell. His remarks came at the conclusion of the annual Jackson Hole Symposium. Some changes are on the horizon for monetary policy but are not imminent. Consistency, and lack of unpredictability, typically provides positive momentum to markets
  • The Fed’s current program of buying $120 Billion in bonds each month, which injects liquidity into capital markets, will likely be “tapered” by the end of the 2021. The liquidity (along with low interest rates) encourages personal and corporate borrowing and spending to fuel further economic growth.
  • Secondarily, the need to temper inflation with an interest rate increase is being handled with extreme care. The major concern is that a rate rise now will cause lasting damage to a temporary, pandemic-recovery related period of price increases. The need to act is reduced because inflation is limited to a narrow band of goods and services, the areas with the highest inflation are moderating, wages are not positioned to support further inflation growth.
    https://www.federalreserve.gov/newsevents/speech/powell20210827a.htm

More uncertainty is likely to arrive soon as the extent of the Delta variant’s virility becomes better known, the reactive vaccine mandates begin enforcement, and the return to school for mostly unvaccinated children occurs. More uncertainty requires more planning, not less as some people believe. The monitoring of local and global events and their impact on markets will continue to be monitored.

What’s ahead for September and beyond?

Closer to home for Canadians, the federal election campaign continued. Whatever one might think about the timing of this election, it is difficult to complain about its duration. The seemingly endless rounds of primaries and debates in the U.S. make our 36-day election almost quaint by comparison. Canadians have a sooner-than-expected opportunity to pass judgement on the current government and local MPs.

 

Last Week in the MarketsAugust 23 – 27, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

Last week produced another all-green week for our grid, above. While some of the recovery, especially for equities, has been very strong, this has occurred only three other times in 2021.

A primary driver in the rise of equities last week was the announcement on Friday by the Chair of the Federal Reserve, Jerome Powell, at the conclusion of the annual Jackson Hole Symposium. Some changes are on the horizon for monetary policy but are not imminent. The Fed’s current program of buying $120 Billion in bonds each month, which injects liquidity into capital markets, will likely be “tapered” by the end of 2021. The liquidity (along with low interest rates) encourages personal and corporate borrowing to fuel economic growth.

Secondarily, the need to temper inflation with an interest rate increase is being handled with extreme care. The major concern is that a rate rise now will cause lasting damage to a temporary, pandemic-recovery related period of price increases. The need to act is reduced because inflation is limited to a narrow band of goods and services, the areas with the highest inflation are moderating, and wages are not positioned to support further inflation growth. https://www.federalreserve.gov/newsevents/speech/powell20210827a.htm

After hitting an 8-month low on August 20th, the Canadian dollar has risen sharply; 1.6% last week and outpaced the TSX’s 1.5% gain. The TSX relied heavily on the results of the major banks who bested profit expectations based on reduced loan-loss provisions and increasing retail banking performance. The banks’ collective performance of quarterly profit above $15 Billion caused Prime Minister Trudeau to propose increased taxation.

https://www.theglobeandmail.com/business/article-td-profit-gains-on-reversal-of-pandemic-loan-loss-provisions-rise-in/

What’s ahead for this week and beyond?

In Canada, real Gross Domestic Product (GDP) for the second quarter is scheduled for release along with July’s trade balance, labour productivity and building permits.

In the U.S., pending home sales, construction spending, goods and services trade balance, and factory orders will be announced. The most important data, especially affecting monetary policy, on the schedule is August employment numbers, which includes labour force participation and unemployment. A number of Purchasing Managers Indices (PMI) will also be released by Markit and ISM.

Globally, Japan retail sales, industrial production, unemployment and consumer confidence will be released. Eurozone inflation, Germany consumer inflation U.K. markets are closed for the Summer Bank Holiday.

 

Last Week in the Markets August 16 – 20, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

North American markets were heavily influenced by U.S. monetary policy last week. The minutes from the most recent the Federal Reserve’s Open Market Committee meetings suggest that the bond purchase program could be scaled back sooner than anticipated. While no decisions have been made and no actions have been taken, it appears that markets are realizing that enhanced stimulus measures are not an indefinite solution.

The overall results last week were typical under these circumstances. Firstly, uncertainty rose on the increased likelihood of more future, negative news from the Fed, which caused equities to retreat by the end of the week.  Then this less supportive monetary policy that could cause business activity to fall, and the demand for oil to also fall as corporate activity stalls, resulted in a 9% drop in the price of oil. The outflows from equities were invested into gold, which experienced a small price increase last week, and is well below its summertime high of $1900+ in early June. In summary, equities dipped, along with oil, and the safe haven of gold rose.

Much closer to home the rhetoric and campaigning for the upcoming federal election is increasing. More details are available at https://liberal.ca/ , https://www.conservative.ca/ , https://www.ndp.ca/ , https://www.greenparty.ca/en , https://www.blocquebecois.org/

What’s ahead for this week and beyond?

In Canada, wholesale trade, and employment, payrolls and hours, and the industrial price index for July are scheduled to be announced. For equity investors, the major banks will be releasing their latest quarterly results.

In the U.S., July’s new and existing home sales, wholesale and retail inventories, durable goods orders, and personal income and spending will be released. On Friday Federal Reserve Chair, Jerome Powell, will deliver remarks as the annual Jackson Hole Symposium concludes. Expect the markets to react should he indicate, even obliquely, any changes to their near-term plan of holding bond purchases and interest rates steady.

Globally, Purchasing Managers Indices for Japan and the Eurozone will be released along with Europe’s consumer confidence and money supply, and Germany’s Gross Domestic Product and retail sales.

 

Last Week in the Markets August 9 – 13, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

The most important news released was the U.S. consumer inflation rate for July. Prices rose 5.4% higher than the previous year. The core inflation rate that excludes food and fuel rose 4.3%, which was slightly lower than June’s year-over-year increases. Categories that are closely associated with reopening, and have had large increases in previous months, have slowed their rise and in some cases retreated. Overall, the increases were in line with expectations and the slowing of price increases is excellent news.

The Federal Reserve is watching inflation very closely, as always, and has portrayed that these larger than desired inflation numbers as temporary and that they would moderate quickly. It appears that the Fed has been correct, and its watching-and-waiting approach to monetary policy changes has been prudent.

As a result, equity markets have responded favourably with new highs achieved for major indices in the U.S. and Canada. Despite a small loss for the NASDAQ last week, the major indices have risen 15 to 19 percent in 2021.  MSCI’s All-Country World Index (ACWI) has gained nearly 14% over the same period, which is remarkable with the unevenness of economic recovery based on vaccination rates around the world.

Another positive contributor to equity markets in North America last week was the predicted increase in fiscal spending by the U.S. federal government. The Senate passed a bipartisan infrastructure bill as a larger $3.5 Trillion package is pursued by Democrats, which is causing additional negotiation and perhaps delay.

In Canada, the spending continues to accelerate by the governing Liberals. The trend could be in jeopardy if their negotiated mandate with the NDP ends following the next election.

What’s ahead for this week and beyond?

In Canada, last week’s light calendar for economic announcements rebounds with a full slate, including June’s manufacturing sales, wholesale trade, new orders and retail sales, July’s housing starts, and existing home sales.

In the U.S., after last week’s important news regarding domestic inflation, the calendar is lighter with July’s retail sales, industrial production, housing starts, and Federal Reserve meeting minutes scheduled for release.

Globally, production and inflation will dominate the news with China’s retail sales, industrial production, Japan’s real GDP, inflation, trade balance, and industrial production, and the Eurozone’s real GDP and inflation scheduled.

 

Last Week in the Markets August 2 – 6, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

It was a strong week for equities compared to commodities in our grid above. Canada’s TSX, America’s S&P 500, Dow and NASDAQ, and the global MSCI All-Country World Index each gained 1% over the past five-day trading session.

Gross Domestic Product (GDP) and employment expansion continue to drive equity advances. In the U.S. GDP has grown 6.4% during 2021, and Canadian GDP has grown by more than 5% in the first quarter as we await Q2 GDP numbers domestically. July job growth has been strong in both countries with 94,000 new jobs in Canada and 943,000 in the U.S. The unemployment rate in Canada has fallen to 7.5% and 5.4% in the U.S.

Strong jobs growth combined with increasing wages could drive inflation concerns. Many countries: China, Germany, U.S., and Canada, will announce inflation numbers for July this week, and we will see whether these concerns are justified, and eventually whether monetary policy will be affected. For the near future, it appears that bond-buying programs and interest rates will be held steady by central banks around the world.

Should inflation numbers be higher than expected (or above the desired range set by central bankers) most analysts believe that action will be delayed until the impact of the delta variant of Covid-19 is known. As we wait, the measures in place by the Bank of Canada, the Federal Reserve, and other banks will continue to support equities markets.

What’s ahead for this week and beyond?

In Canada, producer inflation will be the lone indicator of importance on the economic release calendar.

In the U.S., job openings and labour turnover for June are scheduled for release and second-quarter productivity.  July’s consumer and producer inflation will be announced.

Globally, the Tokyo Olympics concluded on Sunday and Japanese markets will be closed on Monday. China will release its latest inflation numbers through the Consumer and Producer Price Indices. Germany will also release its inflation data.

 

Last Month in the Markets July 1 – 30, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened in July?

The first month in the second half of 2021 has concluded. Overall, the results were a continuation of the solid performance shown in the preceding six months. More specifically, the results for equities in July were similar to June. Both months started reasonably well, endured a small mid-month dip in values, and then managed a recovery for the balance of the month. On balance, July’s recovery was about the same as June’s. The TSX did slightly better in June, the S&P 500 returned an identical percentage, the Dow reversed June’s loss, and the NASDAQ provided a solid performance, but not as strong as June’s lofty 5%.

Progress against the pandemic is still driving markets. By the time that July had concluded the forces included the ongoing rise of virus variants, a stalling vaccination rollout in the U.S. and elsewhere, increasing cases counts, new record levels of infection in many jurisdictions, nearly 100% of deaths comprised of unvaccinated people, and the re-introduction of restrictions to slow the spread of the virus.

(source: Bloomberg https://www.bloomberg.com/markets, MSCI https://www.msci.com/end-of-day-data-search and ARG Inc. analysis)                    

The recovery of Gross Domestic Product (GDP) in North America has been impressive. Once restrictions began to lift, pent-up demand and access to goods and services have moved economic indicators ahead briskly. The drivers have been the unleashing of savings caused by deferred purchases and the spending of government payments to individuals. The expectation is that consumer spending, which comprises about two-thirds of GDP, will continue to power economic expansion as the recovery continues.

The concern that inflation would lead to central bank actions to contain it has fallen slightly. The effects of increasing demand and supply shortages appear to be temporary. Commodity price increases have slowed, manufacturing levels have grown, and the services sector’s recovery should help return inflation closer to the Federal Reserve’s desired level of a 2% long-term average. With inflation more in check, the earlier guidance that interest rate increases should materialize in 2023 seems more likely.

American consumer inflation rose to 5.4% in June, the highest year-over-year price increase during a month since 2008 and the global financial crisis. Prices of goods and services fell during the early months of the pandemic, and June 2021 price spikes are being compared against the lows of June 2020.  https://www.federalreserve.gov/newsevents/pressreleases/monetary20210616a.htm https://www.bankofcanada.ca/2021/07/opening-statement-140721/
https://www.theglobeandmail.com/business/economy/article-bank-of-canada-trims-bond-buying-raises-inflation-forecast-as-economy/

Despite the high rate of inflation, the U.S. interest rates are unchanged. Federal Reserve Chair, Jerome Powell, announced that both interest rates and bond-buying programs would remain in place following the meeting of the Federal Open Market Committee. The dual mandate of managing inflation and maximizing employment continues to require $120 Billion in bond purchases monthly and its benchmark interest rate, the federal funds rate, to remain at a range of 0 to ¼ percent.

Canadian inflation slowed somewhat in June compared to May, down to 3.1% from 3.6%. The core inflation rate also improved and sits at 2.2%. Like the Federal Reserve, the Bank of Canada will closely monitor inflation levels and respond with monetary actions like interest rate increases should they feel price increases are more permanent than the conditions caused by reopening like supply chain shortages and releasing pent-up demand. https://www.theglobeandmail.com/business/economy/article-canadas-annual-rate-of-inflation-hit-31-in-june/

The Bank of Canada also held its benchmark interest rate unchanged at ¼% as the country and world continue to emerge from the pandemic. The central bank does not expect to raise rates until the second half of 2022 at the earliest even as variants of concern continue to rise and virus containment is not universal.

The two themes discussed in detail at the press conference were increased confidence and continued attention.  Governor, Tiff Macklem, mentioned falling case counts, progress on vaccinations, and easing measures as evidence of recovery and an expectation for its continued momentum. Also, ongoing scrutiny must be applied to the “dynamics of recovery and inflation”.

As expansion continues, the Bank’s forecast for inflation has been increased. Bank of Canada economists believe that inflation will be above 3% for the balance of 2021, before nearing the Bank’s target of 2% during 2022, rise again in 2023 and then back to 2% in 2024. The belief is that pent-up demand is outstripping decreased supply temporarily; when supply rebounds inflation is expected to slow, and more typical price increases will return.

What’s ahead for August and beyond?

Case counts driven by vaccination levels will continue to heavily influence markets. The surest way to reach full recovery is to prevent the need for social and economic measures to control the virus.

As of August 1st, 72% of Canadians have received at least one dose and 60% are fully vaccinated placing us in 9th and 11th place, respectively, among countries. In the U.S., 57% of Americans have received one dose or more, and 49% are fully vaccinated (32nd and 27th place, respectively).  https://www.nytimes.com/interactive/2021/world/covid-vaccinations-tracker.html

 

Last Week in the Markets July 26 – 30, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

Corporate results held investors’ attention last week in both New York and Toronto as the busiest week for quarterly reporting occurred. The results have been very strong in the U.S. as nearly 90% of firms have beaten estimates by nearly 20%. Technology companies led the way with Google, Amazon, Apple, Microsoft, Facebook and Shopify delivering solid profitability and profit growth compared to last year.

Federal Reserve Chair, Jerome Powell, announced that both interest rates and bond-buying programs would remain unchanged following the meeting of the Federal Open Market Committee. The dual mandate of managing inflation and maximizing employment continues to require $120 Billion in bond purchases monthly and its benchmark interest rate, the federal funds rate, to remain at a range of 0 to ¼ percent. The announcement, as always, was worded carefully to avoid influencing markets unnecessarily.  For example, Powell stated, “the economy has made progress toward these goals, and the Committee will continue to assess progress in coming meetings”. https://www.federalreserve.gov/newsevents/pressreleases/monetary20210728a.htm

Canadian inflation slowed somewhat in June compared to May, down to 3.1% from 3.6%. The core inflation rate also improved and sits at 2.2%. Like the Federal Reserve, the Bank of Canada will closely monitor inflation levels and respond with monetary actions like interest rate increases should they feel price increases are more permanent than the conditions caused by reopening like supply chain shortages and releasing pent-up demand. https://www.theglobeandmail.com/business/economy/article-canadas-annual-rate-of-inflation-hit-31-in-june/

What’s ahead for this week and beyond?

In Canada, markets will be closed on Monday for the observance of mid-summer holidays. Markit’s Purchasing Managers Index (PMI) for July will be released. Additionally, building permits, merchandise trade balance, and employment figures for July will be announced.

In the U.S., both Markit and ISM will release their manufacturing and services PMIs for July, along with non-farm payroll numbers. June construction spending, factory orders, ADP’s national employment report, goods and services trade deficit, and wholesale inventories.

Globally, manufacturing and services PMIs for China, Japan, and the Eurozone for July will complete the purchasing managers’ view of recovery. Two other important measures, Japan’s household spending and Germany’s industrial production will also be released.

 

Last Week in the Markets July 19 – 23, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

Each of the indicators in the grid reversed their performance of the previous week. Two weeks ago, we had only one gainer; gold, as all the others lost ground. Last week, gold was the only loser as all of the other indicators increased in value. The TSX and Dow each gained a little more than 1% as the S&P 500 and NASDAQ gained, 2% and 3%, respectively.

The positive finish for the week belies the turmoil that preceded the strong finishes for equity indices. The Dow started the week by dropping 2% on Monday. By the close of markets on Monday the S&P 500 and TSX had dropped about 3% in less than a week. By the end of the week, the U.S. indices had not just recovered, they touched all-time highs.

The expectation that volatility will rise as we emerge from the pandemic materialized last week. The prevalence of the Delta variant of the virus has caused increased cases in many nations. Vaccination rates vary dramatically between nations and are, generally, slowing in the U.S., particularly outside major cities. The World Health Organization is warning of a two-track pandemic, where wealthy and technologically advanced nations diverge from less wealthy nations.

The method to avoid another devastating wave, according to local and international health agencies like the Centers for Disease Control and the World Health Organization, is vaccination. Canada is a global leader.

What’s ahead for this week and beyond?

In Canada, inflation data for June will be released by StatsCan through the Consumer Price Index. May’s Gross Domestic Product (GDP) will represent the overall economic rebound as vaccination rates were climbing and reopening was being carefully managed six to ten weeks ago.

In the U.S., June’s new home sales, durable goods orders, and pending home sales will be announced. GDP for the second quarter will be released along with July’s consumer confidence. On Wednesday, the Federal Reserve announcement will be immediately followed by a press conference with the Fed’s Chair, Jerome Powell.

Globally, the upcoming week’s calendar includes Japan’s manufacturing purchasing managers index and jobless rate, Germany’s consumer confidence, unemployment, and CPI. Also, several indicators for the Eurozone will be announced and include economic and consumer confidence, GDP, CPI, and employment numbers.

 

Last Week in the Markets July 12 – 16, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

On Wednesday the Bank of Canada held its benchmark interest rate unchanged at ¼% as the country and world continue to emerge from the pandemic. The central bank does not expect to raise rates until the second half of 2022 at the earliest even as variants of concern continue to rise and virus containment is not universal.

The two themes discussed in detail at the press conference were increased confidence and continued attention.  Governor, Tiff Macklem, mentioned falling case counts, progress on vaccinations and easing measures as evidence of recovery and an expectation for its continued momentum. Also, on-going scrutiny must be applied to the “dynamics of recovery and inflation”.

As expansion continues the Bank’s forecast for inflation has been increased. Bank of Canada economists believe that the rate will be above 3% for the balance of 2021, before nearing the Bank’s target of 2% during 2022, rise again in 2023 and then back to 2% in 2024. The belief is that pent-up demand is outstripping decreased supply temporarily. When supply rebounds inflation is expected to slow, and more typical price increases will return.

American consumer inflation rose to 5.4% in June, the highest year-over-year price increase for a month since 2008 during the financial crisis. Prices of goods and services fell during the early months of the pandemic, and June 2021 price spikes are being compared against the lows of June 2020. Despite the high rate of inflation, the Federal Reserve has also left rates unchanged. https://www.federalreserve.gov/newsevents/pressreleases/monetary20210616a.htm

https://www.bankofcanada.ca/2021/07/opening-statement-140721/

https://www.theglobeandmail.com/business/economy/article-bank-of-canada-trims-bond-buying-raises-inflation-forecast-as-economy/

What’s ahead for this week and beyond?

In Canada, it will be a light week for economic announcements with Aprils’ household credit, retail sales for May, and housing prices for June as the major announcements.

In the U.S., housing starts, new house prices, existing home sales are scheduled for announcement. Also, the Purchasing Managers Indices from Markit for the month of July will be released.

Globally, the light week for economic news continues. The major releases on the calendar are Japan’s inflation numbers and trade balance, and the Eurozone’s consumer confidence. On Thursday the European Central Bank will conduct a Monetary Policy Meeting that will discuss the effects of the pandemic, the recovery, the vaccination program, and recent weather events on the region’s economy.

 

Last Week in the Markets July 5 – 9, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

It was another strong week for North American equities.  Even though U.S. markets were closed for the Independence Day festivities on Monday, four days was enough time for modest gains on the Dow and NASDADAQ, while the S&P 500 achieved another new, all-time high. Canada’s TSX repeated the previous week’s performance by treading water again. Last week’s gain of 0.16% easily reversed the preceding loss of 0.02% from the week ending July 2nd.

Negative news has been neutralized by Canadian jobs growth. Jobs rebounded well in June as expansion and recovery continued as re-opening moved forward. 230,000 new jobs were added last month after losing 63,000 jobs in May. The unemployment rate has been falling slowly, but unfortunately, it is as much a reflection of the lowering of job seekers as job finders. The second half of the year is traditionally a time of a strong job market (summer employment and holiday season hiring, for example). As more people re-enter the job market the seasonal hiring increases should hold the unemployment rate steady or continue to slow its decline. Despite the uncertainty associated with the pandemic’s lingering effects a strong second half to the year for jobs growth and productivity.

The recovery of Gross Domestic Product (GDP) in North America has been impressive. Once restrictions began to lift pent-up demand and access to goods and services has moved economic indicators ahead briskly. The drivers have been the unleashing of savings caused by deferred purchases and the spending of government payments to individuals. The expectation is that consumer spending, which comprises about two-thirds of GDP, will continue to power economic expansion as the recovery continues

What’s ahead for this week and beyond?

In Canada, industrial inflation, manufacturing sales, housing starts, and existing home sales numbers will be released. On Wednesday the Bank of Canada will release its latest Monetary Policy Report.

In the U.S., June consumer and producer inflation data for June will be released along with retail sales. Consumer inflation is forecast to rise 0.4% from May which would quell worries for interest rate rises to stifle inflation.

Globally, China will release its trade surplus figures, retail sales, industrial production, and second quarter Gross Domestic Product. Germany, UK, France, and the collective Eurozone will all announce their inflation data.

 

Last Month in the Markets June 1 – 30, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened in June?

In many ways the last month of the first half of 2021 was typical:

  • North American and global equities were stronger during June, except for the NASDAQ,
  • the Canadian dollar weakened against its American counterpart,
  • gold dropped since its popularity as a safe haven has retreated as control over the pandemic through vaccinations increases,
  • crude oil rose in value as restrictions are loosened business and personal activity have pushed the price of oil higher by 52% this year. This price pressure has been felt at the gas pump,
  • new record highs were reached on the TSX and S&P 500. During June equities began well, experienced a mid-month drop, and regained those losses by the end of the month.

(source: Bloomberg https://www.bloomberg.com/markets, MSCI https://www.msci.com/end-of-day-data-search and ARG Inc. analysis)                      

The TSX, where most Canadians’ equity holdings reside, is the leader in year-to-date performance besting the major American indices by as much as 3% for the first six months of the year. This performance occurred despite the 68,000 job losses in Canada for May that pushed the unemployment rate to 8.2%. The U.S. added 559,000 jobs in May, which was below the consensus expectation of 670,000 jobs. In both countries the staging and scale of reopening weighed heavily on employment and jobs numbers. As Canada reopens jobs are expected to be added in large numbers during the second half of the year. In the U.S. May’s new job creation was double the number of April as they continue deeper into their recovery.

As of the end of May Canada has 700,000 fewer jobs than pre-pandemic levels while the U.S. has nearly 8 million less jobs. There is significant opportunity to add jobs as each economy recovers. The level of unemployment will likely result in new jobs, not higher wages, as expansion occurs. This should lessen and/or delay inflation, which could spur central bank action of interest rates increases.

Much of the turmoil during the third week of the month when equity indices lost as much as 3½% was attributed to the U.S. Federal Reserve’s statements on Wednesday, June 16th.  Although interest rates remained stagnant, the spectre of inflation was prominently featured in the announcement by Jerome Powell, Fed Chair, and will influence the timing of future interest rate increases. The Fed has two primary mandates, control inflation and maximize employment. The Fed is watching inflation closely and could cause a reversal or slowing of employment gains to stifle inflation.

The latest announcement from Powell and the Federal Open Market Committee (FOMC) states, “The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run.”  Since inflation has been below 2%, it will be allowed to float above 2% for some time to arrive back at the 2% average for the longer term. The Federal Reserve expects to increase interest rates in 2023, and perhaps twice.  https://www.federalreserve.gov/newsevents/pressreleases/monetary20210616a.htm

The Bank of Canada held its monetary policy steady with bond purchases and interest rates unchanged in their announcement on the prior Wednesday. Inflation is at the upper end of the bank’s preferred range, but the temporary nature of the recovery has slowed any monetary policy changes. This could be a foreshadowing of upcoming Federal Reserve (in)action.  https://www.bankofcanada.ca/2021/06/fad-press-release-2021-06-09/

Inflation and monetary policy responses will heavily influence equities over the next few weeks and months.  Canadian inflation for May was 3.6%, a slight increase from April’s 3.4%. The Bank of Canada has had a similar stance as the Federal Reserve regarding inflation. Inflation will eventually cause interest rate increases if it exceeds targets. However, both the Canadian and American central banks are similarly cautious and take action after deliberation. The recovery is not complete and measures, like an interest rate increase, that are intended to reduce inflation by slowing the economic rebound will not be viewed favourably by most but will be necessary at some point in time.

In Canada, the latest jobs figures are more optimistic than one month ago. After losing 207,000 jobs in April the loss of 68,000 jobs was less severe. The unemployment rate rose in May to 8.2% from April’s 8.1%.  Labour force participation is a little troubling as youth and women are no longer seeking employment due to the adverse business conditions. In the U.S. nearly 600,000 jobs were added in May as reopening is occurring more quickly than Canada and many other countries.

The jobs and Gross Domestic Product rebounds in the U.S. should foreshadow the long-term expansion in Canada and globally as the pandemic ends and the virus is controlled.

What’s ahead for July and beyond?

Case counts driven by vaccination levels will continue to heavily influence markets. The surest way to reach full recovery is to prevent the need for social and economic measures to control the virus.

As of July 1st, 68% of Canadians have received at least one dose and 31% are fully vaccinated placing us in 3rd and 32nd place, respectively, among countries. In the U.S., 54% of Americans have received one dose or more and 47% are fully vaccinated (26th and 13th place, respectively).  https://www.nytimes.com/interactive/2021/world/covid-vaccinations-tracker.html

 

Last Week in the Markets June 28 – July 2, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

North American equities did reasonably well last week as the first half of 2021 has concluded. The U.S. major indices gained between 1 and 2% in five days of trading, and the TSX lost only 4 points, which is essentially flat for the week. The observance of Canada Day on Thursday had markets here closed, while the U.S. will celebrate their independence on Monday, July 5th.

The major news regarding economic recovery centred on American jobs. The Bureau of Labor Statistics announced that 850,000 jobs were added in June. More than one-third of the additional gains were from the hospitality industry, where wide-spread reopening has occurred. The sector has 13% less jobs than prior to the pandemic indicating that more gains can still be made.

Unfortunately, nearly 7 million less people are employed than in February 2020, with a total of 9.5 million unemployed persons and the unemployment rate at 5.9%. Significant room exists for rapid economic expansion and jobs growth to regain former levels of productivity with 4 million Americans experiencing long-term unemployment of 27 week or more.  https://www.bls.gov/news.release/pdf/empsit.pdf

In Canada, labour force participation has grown faster than in the U.S., which has caused the unemployment rate to seem higher. The unemployment rate is making steady progress by falling to 9.8% from 10.2%, which is significant because labour force participation (the number of people working and seeking employment) is rising.

What’s ahead for this week and beyond?

In Canada, the Bank of Canada’s Business Outlook Survey for the second quarter and June’s employment report will be released. In May Canada lost 68,000 jobs, the expectation is a gain of 138,000 jobs and unemployment to fall 0.4% from May’s figures.

In the U.S., markets will be closed for the observance of Independence Day on Monday. Meeting minutes from the Federal Reserve’s Open Market Committee will be released along with wholesale inventories, consumer credit and job openings, and labor turnover for May.

Globally, Eurozone retail sales, Japan household spending, China’s foreign reserves and foreign direct investment, consumer and producer price indices, and money supply. On Friday G20 Finance Ministers will conduct a meeting in Venice.

 

Last Week in the Markets June 21 – 25, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

It was an all-green week of our grid! That is just the third time it has been achieved in 2021 and the first time since April. All of the losses from two weeks ago that were caused by concerns over changing Federal Reserve announcements regarding inflation have been reversed.

The S&P 500 reached a new all-time high last week as well indicating that monetary policy jitters may be temporary. In more good news in the U.S., banks passed stress tests and President Biden passed his infrastructure plan.

In Canada, the latest jobs figures are more optimistic. After losing 207,000 jobs in April the loss of 68,000 jobs was less severe. The unemployment rate rose in May to 8.2% from April’s 8.1%. Labour force participation is a little troubling as youth and women are no longer seeking employment due to the adverse business conditions.  Overall 570,000 less jobs exist in Canada from pre-pandemic levels, but that number is expected to fall sharply as more Covid-19 restrictions are lifted.

In the U.S. nearly 600,000 jobs were added in May as reopening is occurring more quickly than Canada and many other countries. The jobs and Gross Domestic Product rebounds in the U.S. should effectively foreshadow the long-term expansion in other countries and globally as the pandemic ends and the virus is controlled.

What’s ahead for this week and beyond?

In Canada, real GDP for April will be announced showing the effects of pandemic restrictions. Also, the industrial and raw materials price index, merchandise trade balance, building permits for May, and the Markit Purchasing Managers Index (PMI) for June will be released. Domestic markets will be closed on Thursday for Canada Day.

In the U.S., the economic release calendar includes May’s factory orders, pending home sales, and construction spending. Data for June will focus on employment with ADP’s national employment report and the Bureau of Labor Statistics’ non-farm payroll reports where 700,000 new jobs are predicted compared to May’s 559,000.

Globally, a number of important indicators will be announced, Japan’s PMI, jobless rate, retail sales, industrial production and consumer confidence, Eurozone’s PMI, consumer and producer price indices (CPI and PPI), economic and consumer confidence, Germany’s CPI, unemployment, and retail sales. Lastly, expect oil prices to react to the upcoming OPEC+ meeting.

 

Last Week in the Markets June 14 – 18, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

It was a disappointing week for most investors last week as the major North American equity indices, the Canadian dollar, and gold all fell. Gold dropped by nearly 6%, while equities lost between ¼% and 3½%.

Much of the turmoil and negative results are being attributed to the U.S. Federal Reserve’s statements on Wednesday. Although interest rates remain unchanged, the spectre of inflation was prominent in the announcement by Jerome Powell, Fed Chair, and will influence the timing of future interest rate increases according to Powell’s press conference. The Fed has two primary mandates, control inflation and maximize employment. The Fed is watching inflation closely and is willing to risk reversing employment gains as recovery from the pandemic continues in order to stifle inflation. The latest announcement from the Federal Open Market Committee (FOMC) states, “The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run.” Since inflation has been below 2%, it will be allowed to float above 2% for some time to arrive back at the 2% average for the longer term. The Federal Reserve expects to increase interest rates in 2023, perhaps twice.  https://www.federalreserve.gov/newsevents/pressreleases/monetary20210616a.htm

Canadian inflation for May was 3.6%, a slight increase from April’s 3.4%. The Bank of Canada has had a similar stance as the Federal Reserve regarding inflation. Inflation will eventually cause interest rate increases if it exceeds targets. However, both the Canadian and American central banks are similarly cautious and take action after deliberation. The recovery is not complete and measures, like an interest rate increase, that is intended to reduce inflation by slowing the economic rebound will not be viewed favourably by most but will be necessary at some point in time.

What’s ahead for this week and beyond?

In Canada, April figures for employment and jobs will be released along with retail sales for the same period. May’s wholesale trade and manufacturing sales are also scheduled for release.

In the U.S., existing and new home sales, wholesale and retail inventories, durable goods orders, and personal income and spending for May are scheduled for release. Also, first-quarter data for real Gross Domestic Product (GDP) and pre-tax corporate profits will be announced.

Globally, Eurozone consumer confidence, purchasing managers index (PMI), and money supply information is on the calendar. Japanese PMIs and retails sales figures will also be announced.

 

Last Week in the Markets June 7 – 11, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

Equities performed well, both absolutely and relatively. All of the major North American indices increased in value except for the Dow. The TSX and S&P 500 reached new all-time highs again as the NASDAQ continues its climb. These results were achieved despite negative U.S. inflation news that has been ignored by equity markets.

Consumer prices rose 5% in May compared to a year ago and rose 0.7% from April. The concern is a response from the Federal Reserve to reign in inflation by raising interest rates. Inflation is reduced with this action because economic output is also slowed. During the recovery from the pandemic as societies reopen any lessening of output could cause longer-term injury to the economy.

Since the size and duration of the inflation is unknown in the unique reopening phase, and central banks’ responses are also unknown, uncertainty could spook markets. At this time it appears that both investors and banks are taking a wait-and-see approach.

The Bank of Canada held its monetary policy steady with bond purchases and interest rates unchanged in their announcement last Wednesday. Inflation is at the upper end of the bank’s preferred range, but the temporary nature of the recovery has slowed any monetary policy changes. This could be a foreshadowing of upcoming Federal Reserve (in)action.  https://www.bankofcanada.ca/2021/06/fad-press-release-2021-06-09/

Inflation and monetary policy responses will heavily influence equities over the next few weeks and months.

What’s ahead for this week and beyond?

In Canada, April’s manufacturing sales, new orders, and wholesale trade will be announced. May housing starts, existing home sales, and average prices are scheduled. Inflation numbers that guided the Bank of Canada’s policy will be released through May’s Consumer Price Index (CPI).

In the U.S., the calendar includes the release of the latest figures for May’s building permits, housing starts, industrial production, and retail sales. Federal Reserve Chair, Jerome Powell, will announce monetary policy and economic projections on Wednesday following the Federal Open Market Committee’s meeting.

Globally, inflation around the world will dominate news as Japan, Germany and the entire Eurozone CPI will be announced. Also, Chinese retail sales and industrial production will be announced.

 

Last Week in the Markets May 31 – June 4, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

It was a great four days for U.S. stocks with Memorial Day on Monday, and a great week for Canadian and global equities that enjoyed another week of positive gains. For the second, consecutive week the TSX was the best performing index gaining nearly 1%. The TSX also maintains its first-place position in Year-to-Date increases for 2021.

This performance persisted despite the 68,000 job losses in Canada for May that pushed the unemployment rate to 8.2%. Conversely, the U.S. added 559,000 jobs during the same period, which was below the consensus expectation of 670,000 jobs.

In both countries the staging and scale of reopening weighed heavily on employment and jobs numbers.  As Canada reopens jobs are expected to be added in large numbers during the second half of the year. In the U.S. May’s new job creation was double the number of April as they continue deeper into their recovery.

As of the end of May Canada has 700,000 fewer jobs than pre-pandemic levels while the U.S. has nearly 8 million less jobs. There is significant opportunity to add jobs as each economy recovers. The level of unemployment will likely result in new jobs, not higher wages, as expansion occurs. This should help delay inflation, which would spur central bank action to increase interest rates.

What’s ahead for this week and beyond?

In Canada, the most significant economic announcement for the upcoming week will be the Bank of Canada’s latest monetary policy announcement on Wednesday.

In the U.S., inflation figures through the Consumer Price Index (CPI) for May are scheduled to be released.  Wholesale inventories, Q1 flow of funds and May’s budget balance will also be announced during a relatively light week for domestic economic news.

Globally, China will announce its trade surplus. money supply and foreign reserves. Japan and the Eurozone will deliver real GDP numbers. The European Central Bank will hold a policy meeting to analyze their economic indicators and global trends to influence upcoming monetary policy statements. On Friday the Group of Seven (G7) countries will hold a summit meeting.

 

Last Month in the Markets May 3 – 31, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened in May?

Last month was a particularly strong month for Canadian equities as the TSX rose by 3¼%, besting the major U.S. indices and MSCI’s All Country World Index (ACWI). The TSX had been even higher but lost a little ground on May 31st when U.S. markets were closed for Memorial Day.

Each of the North American equity indices experienced their lowest points for the month after one-third of May had passed. The TSX fell less on May 10/11 and then delivered consistent gains for the rest of the month to out-distance its American rivals. After the first five months of 2021, the TSX leads the S&P 500, Dow, and NASDAQ in Year-to-Date performance as well.

The Canadian dollar has risen 5.5% in 2021 which provides an additional boost to domestic investments compared to U.S. dollar holdings.

(source: ARG analysis, Bloomberg and MSCI)

The first week of May ended with pessimistic and disappointing employment news. Renewed pandemic restrictions for Canadians were implemented in April and led to 207,000 job losses, about 35% more than expected. The Canadian unemployment rate announced at the beginning of May was 8.1%. In the U.S. 266,000 new jobs were added when almost 1 million additional jobs were expected. Instead of increasing the number of new jobs from March’s result of 770,000, employment growth fell by about 200,000 jobs. About 7 million less jobs exist in the U.S. than before the pandemic began, and the unemployment rate is 6.1%.

About two-thirds of North American Gross Domestic Product (GDP) is comprised of consumer spending.  The purchase of products and services by individuals and families is the largest contributor to GDP.  Consumers without income (i.e. jobs) will exhaust their savings and stall economic recovery. Monitoring job data domestically and internationally is critical to understanding progress against the pandemic.

The dip in equity markets attributed to jobs data was enhanced by the announcement of U.S. inflation figures for April. U.S. inflation is higher than expected at an annualized rate of 4.2% over one year ago and 0.8% more than the last reported month (March). The monthly core inflation rate, which excludes food and energy, rose 0.9%. This is the largest one-month inflation increase in 40 years, which was 1981.

Many American states reduced restrictions simultaneously causing a surge in domestic demand, leading prices higher as supply lagged. Wage growth could support further price increases once short-term stimulus savings are spent. Currently, wage growth is not positioned to fuel additional price increases. The Federal Reserve and other central banks closely monitor inflation to determine if monetary action is needed. The primary method to slow inflation is an increase in interest rates.

Higher interest rates directly increase the cost of borrowing, which raises the cost of living of consumers and for business expansion, which would slow Gross Domestic Product (GDP) growth. Central bankers would rather choose to control interest rates than have inflation control the economy. It is much more complicated than that, but inflation and high (or higher) interest rates are typically bad for most people and investors. The lone exception would be those who rely solely on interest income.

During the last full week of May, the TSX was led by the Financial sector as the major Canadian banks released positive earnings reports. The Bank of Montreal, CIBC, Royal Bank, and TD announced results that exceeded expectations for the latest quarter. Most of the increased performance has been attributed to declining loan losses and the accompanying reserves necessary to cover unpaid debt. The default rate on outstanding credit is a strong indicator of the health of the overall economy.

American firms have also delivered impressive quarterly earnings. According to FactSet and Standard&Poors analytics, 86% of U.S. public companies have beaten analyst profit projections, and the expected profits are more than 20% than anticipated.

In the short term, the alignment of corporate profits and equity prices should provide some predictability for investors. Early emergence from the pandemic had the promise of recovery driving stock prices, it appears that much of that promise is being delivered and markets are continuing to react positively.

What’s ahead for June and beyond?

GDP growth based on a broad reopening of the economy will drive capital markets. The major contributor to safely reopening is the administration of vaccines.

As June begins 58% of Canadians have received at least one dose of vaccine, which ranks Canada as 7th worldwide. Four of the six countries ahead of us have very small populations, 500,000 or less, and small geographies. Unfortunately, less than 6% of Canadians have been fully vaccinated. Our reopening will depend on increasing the rate of vaccination and full vaccinations over the summer.

 

Last Week in the Markets May 24 – 28, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

North American equity indices delivered another week of strong returns. The Canadian dollar was the sole declining indicator on the grid (above), but only just slightly. Gold moved back into positive territory for its Year-to-Date returns as oil continued its rise as well.

For the TSX the major Canadian banks led the Financial sector, and the Financial Sector led the entire index higher on its strength. The Bank of Montreal, CIBC, Royal Bank, and TD announced results that exceeded expectations for the latest quarter. Most of the increased performance has been attributed to declining loan losses and the accompanying reserves necessary to cover unpaid debt. The default rate on outstanding credit is a strong indicator of the health of the overall economy.

American firms have also delivered impressive quarterly earnings. According to FactSet and Standard&Poors analytics, 86% of U.S. public companies have beaten analyst profit projections, and the expected profits are more than 20% than anticipated. The explanation is that consumer and business demand is rising quickly across the U.S. as restrictions are relaxed more quickly than in other countries. The driver of reopening is declining infection rates as vaccinations continue.

In the short term, the alignment of corporate profits and equity prices should provide some predictability for investors. Early emergence from the pandemic had the promise of recovery driving stock prices, it appears that much of that promise is being delivered and markets are continuing to react positively.

What’s ahead for this week and beyond?

In Canada, first-quarter real Gross Domestic Product (GDP) will be announced. The annual growth rate is expected to be almost 7%. On Friday employment data for May will be released, which will show the effects of the latest restrictions to combat the pandemic in various regions across the country.

In the U.S., the markets are closed to observe Memorial Day. Once the business week begins, construction spending and Markit and ISM’s purchasing managers indices are scheduled for release.

Globally, Japan will release its industrial production, retail sales, household spending, and consumer confidence numbers. Germany will release its inflation, which as the largest European economy could influence future decisions for the European Central Bank. Germany will also release retail sales and unemployment numbers.

 

Last Week in the Markets May 17 – 21, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

It was another mixed week for investors as the North American equity indices moved in both directions. The TSX and NASDAQ increased, while the S&P 500 and the Dow decreased in value. The culprit that interrupted the recovery in markets last week is inflation. The threat of inflation, since it has not actually appeared yet, is causing some uncertainty in markets as the pandemic finally seems to be corralled, if not controlled.

The concern regarding inflation is that central banks, like the Fed and the Bank of Canada, will move to curtail it by slowing economic recovery. Their primary method would be to increase interest rates.

Higher interest rates directly increase the cost of borrowing, which raises the cost of living of consumers and for business expansion, which would slow Gross Domestic Product (GDP) growth. Central bankers would rather choose to control interest rates than have inflation control the economy. It is much more complicated than that, but inflation and high (or higher) interest rates are typically bad for most people and investors. The lone exception would be those who rely solely on interest income.

The good news, of course, is where equity values are compared to February or May of 2020. For a broad-based portfolio that mimics the market indices, even with a significant portion dedicated to low-interest fixed-income vehicles, the last year has been positive. Equities have weathered the Covid-19 storm well overall despite some significant variation among some stocks.

What’s ahead for this week and beyond?

In Canada, April’s manufacturing sales and March’s employment, payrolls, and hours will comprise the announcements for a shortened week due to the Victoria Day celebrations.

In the U.S., new home sales, pending home sales, durable goods orders, personal income, and spending, and first-quarter real Gross Domestic Product for April will be announced next week prior to the Memorial Day observance on May 31st. President Biden will release an annual budget as well.

Globally, Germany will announce its Gross Domestic Product and consumer confidence for April. German data will be a component of the overall consumer confidence for the Eurozone that will also be released.

 

Last Week in the Markets May 10 – 14, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

Equity markets lost value and renewed volatility last week as U.S. inflation for April was releasedAfter Monday, the North American indices dipped dramatically. Thankfully, they regained a large portion of their lost ground by the end of the week despite ending the week “in the red.  Driving the drop is U.S. inflation that is larger than expected at 4.2% over one year ago and 0.8% more than the last reported month (March)The core inflation rate, which excludes food and energy, rose 0.9% over MarchThis is the largest one-month inflation increase in 40 years, which was 1981.

The Federal Reserve and other central banks will be paying close attention to inflation to determine if it is directly related to reopening during the pandemicMany American states reduced restrictions simultaneously causing a surge in domestic demand, leading prices higher as supply laggedWage growth could guide price increases once short-term stimulus savings are spentIt appears, at this time, that wage growth is not positioned to fuel additional price increases.

It should be noted that during periods of inflation bond yields have tended to increaseThe longterm allocation within an investment portfolio should be monitored continuously, this period of increased inflation and accompanying bond yields is no exception.

Canada’s inflation numbers will be released during the coming week, and are expected to mirror U.S. figures, but in a more muted manner since our reopening is lagging the timing in the U.S.

What’s ahead for this week and beyond?

In Canada, April’s housing starts, existing home sales, average home prices and retails sales will be announcedInflation for April will also be released through the Consumer Price Index as we proceed toward the Victoria Day holiday observed this year on May 24th.

In the U.S., housing starts, building permits and existing home sales for April are the major indicators on the calendar.

Globally, China will announce its industrial production and retail sales, Japan will announce its Gross Domestic Product (GDP), trade balance, inflation and industrial production, Europe will also announce its GDP along with consumer confidence.

Last Week in the MarketsMay 3 – 7, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

North American equities did well last week except for the NASDAQ index which experienced a rare, negative reversal when the other indices roseThe NASDAQ’s technology firms, especially the largest like Facebook, Amazon, Alphabet (Google) and Microsoft, have not delivered the performance lately that has allowed the index to grow the most in the past year. Thankfully, the week ended with the equity indices rising.

The week also ended with pessimistic and disappointing employment newsRenewed pandemic restrictions for Canadians were implemented in April leading to 207,000 job loses, about 35% more than expectedIn the U.S. 266,000 new jobs were added when about 1 million additional jobs were expectedInstead of increasing the number of new jobs from March’s result of 770,000, employment growth fell by about 200,000 jobsAbout 7 million less jobs exist today than before the pandemic began.

The unemployment rate in the U.S. stands at 6.1% and 8.1% in CanadaThe rates do not seem as discouraging as expected until a little more investigation occursThese indicators are lower because labour force participation has fallenThat is, many are not actively seeking employment and are no longer included in the calculation as those who have lost their job and want another.

About two-thirds of North American Gross Domestic Product (GDP) is comprised of consumer spendingThe purchase of products and services by individuals and families is the largest contributor to GDPConsumers without income (i.e. jobs) will exhaust their savings and stall economic recoveryMonitoring job data domestically and internationally is critical to understanding progress against the pandemic.

What’s ahead for this week and beyond?

In Canada, the Bank of Canada Governor Tiff Maklem will hold a webcast where he will review the central banks actions and lay groundwork for upcoming measuresMarch’s industrial price index, manufacturing sales and new orders and wholesale trade information will be released.

In the U.S., inflation figures for April will be released through the Consumer Price Index (CPI)Budget deficit figures, retail sales, import and export price indices, industrial production and business inventories are also scheduled for release.

Last Month in the Markets: April 1 – 30, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened in April?

The month began with North American, European and many other markets closed for the observance of Good Friday on April 1st. When trading did begin the results were positiveThe major indices rose 2 – 5% for the month, which is a strong performance by nearly any standard, despite difficulties during the month and on the final day of trading.

(source: ARG analysis, Bloomberg and MSCI)

The first week ended very positively for North American and global equity investorsThe broad-based indices of the TSX, S&P 500 and MSCI’s All-Country World Index achieved record highsA number of contributing elements played a part: 

  • The US employment report that was released on Good Friday provided a positive start to the month. The Canadian jobs exceeded expectations for employment and job creation, too. 
  • Purchasing Managers Indices (PMI) from ISM for services companies indicated an increasing optimism for economic growth 
  • The International Monetary Fund (IMF) increased its forecast for global growth to 6% from 5.5% 

During the second week of the month equity indices reached new record levels againDriven by strong economic data and falling government U.S. bond yields the TSX, Dow and S&P 500 reached all-time highs 

  • The American and Chinese economies, the world’s two largest, are growing at accelerating rates based on recently released data for Gross Domestic Product, employment, consumer confidence and consumer spending.  
  • Another bellwether of an economy’s health is the earnings reported by banksReversing overly pessimistic reserves set aside for loan losses have led to stronger profits.
    US bank profitability 
  • The TSX was pushed higher by positive economic progress in the U.S. and China. 
  • The Bank of Canada (BoC) released its quarterly Business Outlook, which achieved its highest level since 2018.
    BoC BOS Spring 2021 

Week 3 was a reversal when North American and global equities, the Canadian dollar, gold and oil fell. 

  • The results can be directly related to faltering success against the COVID-19 pandemicInternationally, surges in cases in the less developed nations, particularly India and Brazil, and in more developed nations, like Japan have increased the likelihood of ongoing economic damage 
  • The Canadian federal government released its first budget in two years that included $101.4 Billion in new spending to provide pandemic relief and position Canadians and businesses for future economic successThe budget deficit is projected at $354 Billion for the year ended March 31, 2021 and $155 Billion for the current fiscal year. 
  • The Bank of Canada (BoC) held its benchmark interest rate unchanged in its continued support for economic recoveryIt has forecast Canadian Gross Domestic Product (GDP) growth for the first quarter at 7%Based largely on this high rate of growth the BoC is planning to reduce its bond purchase program and has indicated that interest rates may increase sooner than earlier projections.
  • The European Central Bank (ECB) kept its interest rates steady and indicated that bond purchases would be increased to support the collective Eurozone economy. 
  • All of these developments reminded markets of the pandemic’s effects. 

Results were mixed for the last week of the month that left major indices mostly unchangedA number of contradictory influences contributed to these results: 

  • Solid corporate earnings have been turned in for the latest quarter. 
  • President Biden continued to advance his economic recovery plan with several trillion dollars of spendingThe bills introduced include the $1.8 Trillion American Families Plan (education, child-care and social supports), the $2.3 Trillion American Jobs (infrastructure) and the approved $1.9 Trillion American Rescue Plan (pandemic relief and stimulus).
  • U.S. and Canadian economic expansion/recovery is occurring more quickly than first anticipated
    • Canadian retail sales are rebounding more quickly than expectedAs an example, Shopify which is a major component of the TSX, reported sales much higher (about double) and profits (almost triple) ahead of expectations.
  • The Federal Reserve continues to support economic recovery despite a rise in the rate of inflation which could eventually cause interest rate increasesThe Bank of Canada made a similarly toned announcement nearly two weeks ago.
  • Pandemic case numbers are again rising in many parts of the world with the threat of renewed lockdowns and restrictions loomIndia has had more than 400,000 cases daily while they experience shortages of critical supplies like oxygen.

All of this allowed the NASDAQ, S&P 500 and Canada’s S&P/TSX indices to reach all-time record highs during the week before falling back on Friday.
https://www.nytimes.com/2021/04/29/business/economy/united-states-gdp.html

What’s ahead for May and beyond? 

After another month the effects of the latest pandemic efforts will be seenThe co expansion of vaccination programs will oppose the increasing number, contagiousness and severity of virus variants as governments enact legislation to combat negative economic and public health outcomes.

At the present time many indicators are positiveEconomic growth (GDP) in Canada and the U.S. is strongQuarterly company earnings are exceeding expectations, especially for large consumer IT/internet firms like Facebook, Apple, Amazon, Microsoft and Alphabet (Google)Central banks continue to support recovery with monetary policy and have focused on promoting a rise in GDP, not inflation fearsGovernment fiscal policy, spending on stimulus, infrastructure and worker supports, have bolstered the economies in Canada and the U.S.

The latest pandemic support measures from the Canadian federal government can be found at https://www.canada.ca/en/department-finance/economic-response-plan.html

Last Week in the MarketsApril 26 – 30, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

Results were mixed for North American equities with markets ending on a down note that left major indices essentially flat for the weekA number of contradictory influences contributed to these results:

  • Solid corporate earnings have been turned in for the latest quarter.
  • President Biden continued to advance his economic recovery plan with several trillion dollars of spendingThe bills introduced include the $1.8 Trillion American Families Plan (education, child-care, and social supports), the $2.3 Trillion American Jobs (infrastructure) and the approved $1.9 Trillion American Rescue Plan (pandemic relief and stimulus).
  • U.S. and Canadian economic expansion/recovery is occurring more quickly than first anticipated
    • Canadian retail sales are rebounding more quickly than expectedAs an example, Shopify which is a major component of the TSX, reported sales much higher (about double) and profits (almost triple) ahead of expectations.
  • The Federal Reserve continues to support economic recovery despite a rise in the rate of inflation which could eventually cause interest rate increasesThe Bank of Canada made a similarly toned announcement nearly two weeks ago.
  • Pandemic case numbers are again rising in many parts of the world with the threat of renewed lockdowns and restrictions loomIndia has had more than 400,000 cases daily while they experience shortages of critical supplies like oxygen.

All of this allowed the NASDAQ, S&P 500, and Canada’s S&P/TSX indices to reach all-time record highs during the week before falling back on Friday.
https://www.nytimes.com/2021/04/29/business/economy/united-states-gdp.html

What’s ahead for this week and beyond?

In Canada, March’s merchandise trade balance is the sole major expected economic announcement.

In the U.S., Purchasing Managers Indices from Markit and PMI for April, March’s construction spending, goods and services trade index and factory orders data are all scheduled for release.

Globally, Eurozone manufacturing PMI is on the calendar, as well as German retail sales, industrial production, and factory ordersChinese markets will be closed at the beginning of the week before they announce their April trade surplusAlso, the Bank of England monetary policy announcement and report on Wednesday.

Last Week in the MarketsApril 19 – 23, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

It was an “all red” week for North American and global equities, the Canadian dollar, gold, and oilAgain, the results can be directly related to faltering success against the COVID-19 pandemicInternationally, surges in cases in the less developed nations, particularly India and Brazil, and in more developed nations, like Japan have increased fears of ongoing and increasing economic damage.

The federal government released its first budget in two years that included $101.4 Billion in new spending to provide pandemic relief and position Canadians and businesses for future economic successThe budget deficit is projected at $354 Billion for the year ended March 31, 2021 and $155 Billion for the current fiscal year.

The Bank of Canada (BoC) held its benchmark interest rate unchanged in its continued support for economic recoveryIt has forecast Canadian Gross Domestic Product (GDP) growth for the first quarter at 7%Based largely on this high rate of growth the BoC is planning to reduce its bond purchase program and has indicated that interest rates may increase sooner than earlier projections.

Vaccine reluctance in the U.S. has placed serious doubts that herd immunity will be achieved even as nearly 30% of Americans have received a full course of the vaccineThe White House announced a proposal to increase taxes on capital gains that increased downward pressure on equitiesIt was counter-balanced by first quarter earnings reports that generally exceeded analysts’ expectations.

The European Central Bank (ECB) kept its interest rates steady and indicated that bond purchases would be increased to support the collective Eurozone economy.

What’s ahead for this week and beyond?

In Canada, February’s retail sales, employment reports and Gross Domestic Product (GDP) are scheduled for release as are March’s industrial and materials price indices.

In the U.S., durable goods orders and goods trade deficit, pending home sales and personal spending and income for March will be announcedOn Wednesday, the Federal Reserve will release their latest monetary announcement and conduct a news conference featuring Chair, Jerome PowellLater, on Wednesday evening, President Biden will deliver his first address to the Joint Session of Congress (Senate and House members).

Last Week in the Markets April 12 – 16, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

Equity indices reached new record levels again last weekDriven by strong economic data and falling government bond yields in the U.S. the TSX, Dow and S&P 500 reached all-time highs.

The American and Chinese economies, the world’s two largest, are growing at accelerating rates based on recently released data for Gross Domestic Product, employment, consumer confidence and spending.

Despite the good news, the U.S. dollar fell against foreign currencies since it is generally corelated with its falling bond yieldsThe falling dollar led to a rise in commodity prices, like gold and oil in our grid aboveHowever, another bellwether of the U.S. economy’s health is the earnings reported by banksThey have exceeded expectations and are 60-250% ahead of last yearReserves set aside for loan losses have been larger than necessary and reversing these allowances have led to stronger profits.
US bank profitability

Here at home, the TSX was pushed higher by developments in the U.S. and China, which have a strong influence over our economy’s ability to growAnother contributor was the Bank of Canada (BoC) releasing its quarterly Business Outlook, which achieved its highest level since 2018Demand is increasing and high-contact industries continue to struggle.
BoC BOS Spring 2021

These achievements are linked to pre-surge data and continued vigilance is necessary.

What’s ahead for this week and beyond?

In Canada, the schedule includes the release of March housing starts and new housing price index, manufacturing sales and inflation through the Consumer Price Index (CPI)The Bank of Canada will release its policy announcement and monetary policy report on WednesdayThe biggest news in an already busy week for announcements will be the federal budget, which is scheduled for Monday.

In the U.S., leading indicator, new and existing home sales for MarchMarkit Purchasing Managers Indices (PMI) will show corporate confidence for expansionA number of large industrials will release their latest earnings reportsincluding United, American and Southwest Airlines, Coca-Cola, IBM, P&G, J&J, Netflix, AT&T, American Express, Travelers, Kimberly-Clark, CSX, Xerox.

Globally, Japan releases its March trade surplus and February industrial production, along with its PMI and inflation numbersThe European Central Bank (ECB) holds its policy meeting.

Last Week in the Markets: April 5 – 9, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

The week ended very positively for North American and global equity investorsThe broad-based indices of the TSX, S&P 500 and MSCI’s All-Country World Index achieved record highsA number of contributing elements played a part: 

  • The US employment report that was released on Good Friday provided a positive start to the weekThe same report for Canadian jobs exceeded expectations for employment and job creation. 
  • Purchasing Managers Indices (PMI) from ISM for services companies indicated an increasing optimism for economic growthThe perspective of corporate purchasers is a strong leading indicator of future economic activity. 
  • Minutes from the latest Federal Reserve meetings that were released midweek reconfirmed their commitment to low interest rates. 
  • The International Monetary Fund (IMF) increased its forecast for overall global growth to 6% from 5.5% 
  • With a drop in the value of the U.S. dollar commodity prices rose, except for oilForeign exchange influences also lifted the materials sectorin the indices as metals rose. 
  • The largest technology firms also rose; Amazon, Apple, Microsoft, Alphabet (Google) and Facebook that comprise one-fifth of the S&P 500, contributing strongly to overall record highs. 

 What’s ahead for this week and beyond? 

In Canada, the Bank of Canada will release its latest business outlook, which influences its future monetary policyAlso, February’s manufacturing sales and new orders, and March’s existing home sales and average prices from the red-hot housing market will be announced. 

In the U.S., March inflation numbers will be released through the Consumer Price Index (CPI)as will the budget deficit, retail sales and industrial productionThe Federal Reserve Chair, Jerome Powell, will speak at the Economic Club of Washington, where he is expected to continue his organization’s strong support of recovery.

Last Week in the MarketsMarch 29 – April 1, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

The markets were closed on Friday, and the shortened week proved to be a spring tonic for most investmentsThe equities indices and oil gained, while the Canadian dollar essentially broke-even and gold lost value only slightly.

It was mostly news from the U.S. drove values higherevidenced by the Dow’s new record high and the S&P 500 rising above 4,000 for the first timeThe vaccine schedule is accelerating with many American states beginning to include all adults in the rollout as more than 200 million are expected to have received at least one dose in the near future. Pfizer announced that its vaccine was safe and highly effective for early teensFiscally, the Biden administration unveiled its infrastructure plan with expenditures totaling $2.25 Trillion. Transportation, manufacturing, workforce development, housing, elderly care, electrical and broadband grid, and clean energy are all included.

In Canada, our Gross Domestic Product (GDP) numbers for January was revised higher. The TSX reflected this and American news to finish the week just below 19,000 points. The leading Canadian index has gained nearly 9% in 2021, one of its best quarters, and is currently beating the major U.S. indices in Year-to-Date performance, which is a rare achievement. The TSX gain has been across many sectors to achieve this large an increase this early in the year.
https://www.spglobal.com/spdji/en/indices/equity/sp-tsx-composite-index/#overview

What’s ahead for this week and beyond? 

In Canada, February’s merchandise trade balance will be announced along with Canadian employment numbers for the month of March. The reopening should be reflected in the jobs growth achieved last month.

In the U.S., the scheduled announcements for the week include February’s factory orders, wholesale inventories, and the goods and services trade balance. The Federal Reserve Chair, Jerome Powell, will join a combined World Bank and International Monetary Fund meeting to debate the global economy in 2021.

Globally, European markets remain closed on Monday, while its jobless rate for the region will be posted on Tuesday. Mid-week the G20 finance ministers and central bank governors will meet via videoconference.

Last Month in the Markets – March 1 – 312021

(source: ARG analysis, Bloomberg and MSCI)What happened in March?

The markets have reacted directly to local and global success against the pandemic continued, as expected, throughout the month of March.  As vaccinations were finally building some momentum, restrictions began to be relaxed and the unfortunate response has been a rise in Covid-19 cases across Canadathe United States and many other countries.  This pattern of rising infection rates after lowering restrictions will continue as long as herd immunity has not been achieved as economies are reopened.  Our ability to contain the spread of the virus will depend on the number, variety and infectiousness of virus variants as well as protective measures and vaccinations.

For retail investors the volatility that was witnessed in March is expected to persist for the rest of the spring, the summer and into the autumn of 2021.

(source: ARG analysis, Bloomberg and MSCI)

However, the news in March was not all negative, several bright spots emerged: 

  • Each of the major North American indices and the All-Country World Index (ACWI), above, have made strong gains to date in 2021 ranging from almost 3% to nearly 8% during the first quarter.
  • Despite a 3% loss this month the price of oil has risen 23% in 2021 and almost 200% from one year ago.
  • The U.S. Covid-relief bill passed through Congress and was signed into law.  The $1.9 Trillion bill contains multiple measures to provide rent relief for individuals and businesses, support for households with direct payments to individuals and specific initiatives to assist lower income individuals.
    • Later in the month, stimulus cheques began to arrive for American families and are expected to increase consumer spending in the short term.
    • For longer term economic recovery, a proposed infrastructure bill has been introduced by the Biden administration.  Both measures are designed to spur economic recovery.
  • Indicators show that growth in the inflation rate has slowed or are lower than previously predicted.  Consequently, central banks are not expected to take any action that would slow economic growth in an attempt to tamp down inflation.  The Bank of Canada held its interest rate and bond-buying program steady in its announcement on March 10th.
  • The U.S. Federal Reserve also continued its communication that interest rate increases are not expected until 2024, which provided price support for equity values. 
  • In Canada the Federal and Provincial government fiscal measures and Bank of Canada monetary policy moves have been generally successful.  Fortunately for families and the most vulnerable, foreclosures and evictions have not risen as quickly as employment and business closures, but it has been very difficult for many.
    • Governments and the central bank were forced to conduct operations virtually while designing and implementing solutions in record time.  A recap of some of the activity can be found here, it serves as a reminder of the challenges we have faced and solutions and revisions that have been enacted.
      Bank of Canada article
  • The Organization for Economic Cooperation and Development (OECD) has increased its forecast for global GDP growth for this year.

Despite all of the dire predictions and upheaval to families and individuals, including the loss of life in Canada and around the world, the markets which reflect economic health have performed well.  Record highs have been reached recently by the Dow, S&P 500 and the TSX, after the NASDAQ had been setting records.

What’s ahead for April and beyond?

Expect many measures to slow or contain the spread of the coronavirus to be announced in the next few days.  Just as March ended and April began, Quebec City and Gatineau are on lockdown, school closing schools have been warned for the days immediately following Easter and Passover (and would lead into the rescheduled “March Break” in Ontario).

Markets will be watching the Covid-19 cases, hospitalizations, ICU occupancy and deaths closely.  There will be more economic stress ahead as a third wave moves through major economies.

Should you have any questions regarding the effect of the pandemic on your investments, do not hesitate to contact our office.

Last Week in the Markets March 22 – 26, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

It was a mixed week for North American equities as the TSX and NASDAQ lost ground while the S&P 500 and the Dow moved ahead.  The primary driver of equity values continues to be the progress against the pandemic, both domestically and globally.  Restrictions in Europe are being reimposed as case rates have begun to climb, which is a phenomenon that is also reappearing in Canada and the U.S.  Additionally, concerns are rising concerning the safety and efficacy of vaccines as side effects, variants and second doses scheduling evolves.

Nonetheless the major equities indices have logged strong gains for the first 12 weeks of 2021.  The NASDAQ lags the field at 2% for the year while the Dow leads with slightly more than 8% gains.

Stimulus cheques began to arrive for American families and are expected to increase consumer spending in the short term.  For longer term economic stimulus a proposed infrastructure bill has been introduced by the Biden administration.  Both measures are designed to spur economic recovery.

In Canada, the Federal and Provincial government fiscal measures and Bank of Canada monetary policy moves have been generally successful.  Fortunately for families and the most vulnerable, foreclosures and evictions have not risen as quickly as employment and business closures, but it has been very difficult for many.  Like many businesses, governments and our central bank were forced to conduct operations virtually and imagine, design, and implement solutions in record time.  A recap of some of the activity can be found here, it serves as a reminder of the challenges and solutions, as well as the timing and sequencing of them.
Bank of Canada article

What’s ahead for this week and beyond?

In Canada, the most significant economic release will be January’s Gross Domestic Product numbers which measures Canada’s overall output.  The pace of its growth will indicate how well we are recovering during the pandemic.  Also, the TSX will be closed on Friday.

In the U.S., markets will be closed on Friday and economic releases will be lighter than usual during the short week.  February’s construction spending, along with March’s Purchasing Manager’s Index (PMI) from both ISM and Markit are on the calendar.

Last Week in the Markets: March 15 – 19, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

Despite the overall negative finish for American equities indices by the end of the week, there was some positive news in other waysBoth the S&P 500 and the Dow, along with the TSX, rose to record all-time highs again last week before falling backThe TSX breached 19,000 points briefly before, essentially, breaking-even for the week by only gaining 2 points.

Rising bond yields that are drawing investments away from equities into debt investments seems to be the main culprit for the dip at week’s endBond yields tend to help the Financial sector, which provided stability for the TSX when oil prices fell more than 6% last week and dragged down the Energy sectorAdditionally, initial jobless claims rose last week, retail sales and housing starts fell below expectationsThe severe weather was blamed, especially its effects in Texas.

Thankfully, the Federal Reserve’s continued communication that interest rate increases are not expected until 2024 provided price support for equity valuesConcern for equities would grow if the Federal Reserve reversed itself on rate increases to battle rising inflationHowever, if the pace of vaccinations rises and infection rates begin to fall, then pandemic restrictions should be liftedA more open society here and abroad will lead to increased jobs growth and consumer confidenceSince consumer spending is about 60% of the economy the increases in employment and confidence coupled with U.S. stimulus cheques should lead to rapid economic growth.

These assumptions will require close monitoring to ensure the desired results are occurring.

What’s ahead for this week and beyond?

In Canada, it will be a relatively light week for the reporting of economic indicators with the two measures of note being February’s wholesale trade and manufacturing salesBoth Ontario and Quebec are scheduled to provide their budgets for the coming year.

In the U.S., a lot more reporting activity is scheduled with the data for February on existing and new home sales, durable goods orders, and personal income and spendingOn Wednesday Federal Reserve Chair, Jerome Powell and Treasury Secretary, Janet Yellen, will appear at House Financial Service Committee to provide a quarterly CARES Act report.

Last Week in the Markets: March 8 – 12, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

The positive economic announcements and legislative events of last week caused North American and global equities to gain ground last week

  • Indicators show that growth in the inflation rate have slowed or are lower than predictedConsequently, central banks are not expected to take any action that would slow economic growth while tamping down inflationThe Bank of Canada held its interest rate and bond-buying program steady in its announcement on March 10th.
  • The U.S. Covidrelief bill passed through Congress and was signed into lawThe $1.9 Trillion bill contains multiple measures to provide rent relief for individuals and businesses, increases for consumer spending with direct payments to households and additional Democrat-led initiatives to assist lower income individuals.
  • The Organization for Economic Cooperation and Development (OECD) has increased its forecast for global GDP growth for this year.
  • Applications for unemployment benefits fell to levels not seen since November and job openings are rising faster than expected according to the U.S. Bureau for Labor Statistics.

All of these factors, and more, contributed to last week’s success for equities as record highs for the Dow Jones Industrial Average, S&P 500, Canada’s TSX and Germany’s DAX were reached.

One year ago, we were at the trough of coronavirus effects on equity markets as we struggled with business closingsThe year-over-year equity returns (50-85% above) reflect the rebound in equities from this low pointThe mathematical calculations will continue to show steep gains from one year ago but are really depicting a return to pre-pandemic levels and now onto record high levels.

What’s ahead for this week and beyond?

In Canada, February housing starts, home sales and average price will be announced along with inflation through the Consumer Price IndexJanuary data will be released for Canadian retail sales and manufacturing sales and new orders.

In the U.S., retail sales, industrial production and capacity utilization, building permits and housing starts for February will be released.

Last Week in the MarketsMarch 1 – 5, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week? 

The TSX did well last week, along with the S&P 500 and the DowStatsCan announced Canadian GDP, and it was higher than expected for December and the fourth quarter of last yearOur expanding economy seemed to be prevailing in small measures despite the negative restrictions that have been put in-place to control the pandemicThe rise in the price of oil help boost the Energy sector, the second largest sector comprising the TSX indexFinancials, the largest sector of the TSX, continued to benefit from last week’s strong bank earnings that totaled nearly $14 Billion and from rising bond pricesHigher bond rates typically raise earnings for Financials, the high earnings could be poised to increase should the pandemic and its economic effects be lessening.

On Friday, the U.S. jobs report for February was releasedMany of the measures remained unchanged although 379,000 non-farm jobs were addedThe unemployment rate held firm at 6.2%, 10 million Americans were unemployedOne year ago, prior to the pandemic, the unemployment rate stood at 3.5% with 5.7 million unemployedThe groups that are taking the brunt of pandemic induced job loss are African Americans and HispanicsNearly 2 million have had their full-time jobs downgraded to part-time employmentThe employment numbers will continue to be a representation of economic recovery.
https://www.bls.gov/news.release/empsit.nr0.htm

Canadian economic policy makers are watching the U.S. economy’s recovery since it is our largest trading partner and our economy’s health is closely tied to it.

What’s ahead for this week and beyond?

In Canada, it will be our turn for February employment numbersOn Wednesday, the Bank of Canada will release its latest interest rate decisionComments by Tiff Macklem, Bank of Canada Chair, will be closely monitored and analysed as inflation fears and bond rate uncertainty have risen.

In the U.S., the focus of economic releases will be inflation for February with the release of the Consumer and Producer Price Indices (CPI and PPI, respectively)Inflation as a positively corelated indicator of economic growth is the measure that central bankers are watching to guide any interest rate increasesNone are expected in the near term but noting inflation’s movement could provide some hints of interest rate changes.

Last Week in the Markets: February 22 – 26, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

It was a trying week for North American equity investorsThe major indices fell by 2% and the NASDAQ doubled that declineThe Canadian dollar lost another percentage point to its American counterpartThe lone gainer on our grid was oil, but it did not feel like positive progress at the gas pump, at least for Canadian consumers. 

The results by the large Canadian banks provided support for the TSX and its most heavily weighted sector, FinancialsThe Bank of Montreal and Scotiabank led off with profits higher than pre-pandemic levels for the most recent quarterCIBC, RBC and TD also delivered impressive resultsLower loan-loss provisions, lower credit default rates, increased revenues were the reasons the banks were able to exceed analyst earnings expectationsThe institutions were able to best their own expectations and are admittedly further ahead on recovery that they expectedCollectively, they earned $13.9 Billion in the quarter ending on January 31st. Thankfully, nearly every Canadian investor holds bank stock directly or within mutual funds or ETFs.
https://www.theglobeandmail.com/business/article-big-six-banks-beat-own-predictions-climbing-above-prepandemic-levels/  

In news that does affect every Canadian household, Mark Machin, Chair of the Canada Pension Plan Investment Board (CPPIB), resigned last week amid controversy surrounding his international travel during the pandemicHe is currently in Dubai where he has received the coronavirus vaccineThis is the latest example that a leader’s judgment and integrity is demonstrated more broadly than merely with at-work decisionsThe Board of Directors felt that the leader of a nearly $500 Billion public investment fund should be available for in-person conversations, meetings, and decisions during a period of market volatilityJohn Graham, the former head of credit investing at the CPPIB, will now lead the organization.
https://www.theglobeandmail.com/business/article-head-of-canadas-largest-pension-fund-steps-down-in-the-wake-of-covid/  

What’s ahead for this week and beyond?

In Canada, December and the 2020 Q4 Gross Domestic Product numbers will be released and will provide the latest data on our economic recoveryJanuary’s building permits and trade balance are also scheduled.

In the U.S., the Purchasing Managers Index from ISM for both products and services will be releasedThese reports summarize the forward-looking confidence of corporate buyersFebruary’s employment numbers will demonstrate if the U.S. recovery has resulted in improvements in jobs, job creation and joblessness.

Last Week in the MarketsFebruary 16 – 19, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

North American equity indices faltered by the end of last week.  After the TSX, S&P 500, Dow and NASDAQ reached new all-time highs on Tuesday they all finished the week lower. The uptick was caused by news of better progress against the coronavirus as cases, hospitalization and deaths have stabilized and, in many locations, fallenVaccine distribution (or at least news of increased production and distribution) also contributed to gains early last weekEquities have been very responsive, both positively and negatively, to Covid-19 news and are not expected to lose their correlation soon, or perhaps ever. 

As economic recovery proceeds the spectre of inflation reappeared after those equity peaks were reached.  Most global indices finished the week below where they started the week, the Dow being a notable exception. Canada’s Consumer Price Index (CPI) had its largest monthly increase in about a year, which was driven by the prices of durable goods and gasoline. The U.S. Producer Price Index (PPI) rose at higher levels than recently seen. Both indices have moved closer to the long-standing target inflation rate of 2%. The Federal Reserve and Bank of Canada have indicated that they will begin raising interest rates once an average of 2% inflation is reached. The fear is that growth would need to be trimmed to control inflation before economic recovery is fully achieved. Rates are at the bottom of their effective range, and since they cannot be lowered, eventually they will rise. The reaction in equity markets seems to account for a long-term basis, and interest rate increases are not expected in the near term 

https://www150.statcan.gc.ca/n1/daily-quotidien/210217/dq210217a-eng.htm

https://www.bls.gov/ppi/#news

https://www.edwardjones.com/us-en/market-news-insights/stock-market-news/markets-week

What’s ahead for this week and beyond?

In Canada, it will be a relatively light week for economic data announcements with employment data for December the lone major event on the calendar. To fill the news void, the Canadian major banks will all release their most recent quarterly performance on three middle days of the weekSince these stocks are so widely held their results are meaningful to almost every Canadian investor. 

In the U.S., housing data will be well represented in news releases as January’s new home sales and pending sales will be released. Federal Reserve Chair, Jerome Powell, will testify before the House Financial Services Committee and will likely reaffirm his organization’s continued support for economic recovery through monetary policyJanuary’s consumer spending and income, durable goods orders will also be released. 

Last Week in the MarketsFebruary 8 – 12, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

Several positive influences created an all-green grid (above) and set records for the TSX and the S&P 500Even the safe haven of gold improved as equities didPositive news elsewhere, particularly in the U.S., typically leads to positive results hereLast week was no exception: 

  • Coronavirus infections, hospitalizations and deaths continued to improve globally 
  • Corporate earnings in Canada and the U.S. provided optimistic news that was generally better than expected 
  • Stimulus measures in the U.S. built additional momentum for their eventual enactment 
  • Janet Yellen, the new Secretary of the Treasury, indicated that recovery could be swift if stimulus measures can be bold enough 
  • The Federal Reserve indicated that it would continue to support recovery in the long term as U.S. inflation has not shown itself and consequently will not need to be trimmed with higher interest rates in the near future 
  • The U.S. dollar faltered slightly, which allowed the Canadian dollar to advance against it and allowed the price of gold and oil to rise 

Improvements still remain possible on the dual fronts of vaccine development and distribution, and the gains made to-date have yet to include all of these two still unrealized areas. 

Lastly, on Saturday at 3:49 pm Eastern Donald Trump was acquitted in his second impeachment trial when 57 Senators voted guilty and 43 Senators said, not guiltymostly along party linesA two-thirds majority (67 votes) is required for conviction. 

What’s ahead for this week and beyond?

In Canada, even with markets closed on Monday for various provincial observances the economic releases will include December’s retail sales, manufacturing sales and new orders, and January’s housing starts, new housing price index, existing home sales and price averages and inflation via the Consumer Price Index (CPI). 

In the U.S., markets will also be closed for Washington’s Birthday (also known as Presidents’ Day)Scheduled for release during the shortened week are December’s retail sales and business inventories, January’s industrial production and capacity utilization, building permits, housing starts and existing home sales. 

Last Week in the Markets: February 1 – 5, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week? 

Overall, it was one of the best 5day trading sessions for equitiesThe major North American indices and the All-Country World Index (ACWI) jumped 4 to 6%The ACWI, TSX and the S&P 500 reached new all-time highsThe performance for last week pulled the indices out of negative territory for 2021 Year-to-Date (YTD), except the NASDAQ which was already positive for the yearThe advances were broad based, especially on the TSX and S&P 500 where every sector made positive contributions. 

Weekly gains like these were last delivered nearly a year ago but were partially recovering losses that had just occurredThe year-over-year results have all of the indices ahead of their pre-pandemic levels. 

Most of last week’s success relied upon progress in Washington toward a stimulus packageThe alignment of the House of Representative, the Senate and the Presidency to Democrat-control has made passing resolutions and legislations easierSome may disagree with the policies or the methods being put forth, but the stalemate seems to have been broken. 

It was not all good newsIn the U.S. employment growth has slowed with only 49,000 jobs added in JanuaryThe unemployment rate is 6.3% with 10.1 million unemployed “well above their pre-pandemic levels in February 2020 (3.5% and 5.7 million, respectively)”In Canada employment fell by 213,000 in January pushing the unemployment rate to 9.4%the highest rate since August 2020. 

https://www.bls.gov/news.release/empsit.nr0.htm
https://www150.statcan.gc.ca/n1/daily-quotidien/210205/dq210205a-eng.htm

What’s ahead for this week and beyond? 

In Canada, we are settling in for one of the coldest weeks of the winter, if not the last few, for most of the countryThe economic release schedule seems stalled by the cold with very little of note plannedEarnings season continues with many firms reporting their latest results as we approach a new federal government budget announcement. 

In the U.S., relatively quiet week is also anticipated from scheduled economic releasesThe most important economic news will likely be centred around the stimulus legislationPositive progress toward enacting legislation will cause markets to improve, and the opposite is also trueThe trial of Donald Trump for his actions on January 6th will begin, which will test principles and allegiances for U.S. Senators. 

Last Week in the MarketsJanuary 25 – 29, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

It was a mixed week for economic data releases and news in-generalPlaced against optimistic expectations less than buoyant news and new investor activism caused equity markets to fall last week. 

  • The manufacture, delivery and administration of the vaccine has slowedThe completion of a new U.S. stimulus bill to combat the virus at the consumer and household level has been delayed by political machinationsU.S. Gross Domestic Product (GDP) for the fourth quarter and durable goods orders fell short of expectations. 
  • Thankfully Canadian GDP was better than expected for November, which could suggest that firms are adapting reasonably well to the operating conditions that they have been facing for nearly one year. 

On Wednesday, the U.S. Federal Reserve made its interest rate decisionLike our Bank of Canada “the Fed” has indicated that it will hold the benchmark lending rate steady until inflation rises to an average of 2%, which will prove that economic expansion has occurred in a sustainable mannerJerome Powell, Federal Reserve Chair, announced that the Federal Funds rate would remain unchanged and stay in the range between 0 and ¼ percent. https://www.federalreserve.gov/newsevents/pressreleases/monetary20210127a.htm 

What’s ahead for this week and beyond?

In Canada, the latest employment numbers, for January, are scheduled for release on Friday before markets openAlso, trade deficit data for December and the purchasing managers index are on the calendar. 

In the U.S., purchasing managers indices for products and services are scheduled along with the trade deficit reportJanuary’s jobs numbers for non-farm payroll will provide additional guidance for a stimulus bill and counter offers as the negotiations continue between Republicans and Democrats. 

Last Week in the Markets January 18 – 22, 2021  

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

On Wednesday, the Trump presidency concluded with the Inauguration of President Biden at the U.S. Capital, the scene of riots just two weeks earlierOnce in power Biden immediately signed nearly twenty Executive OrdersMost reversed his predecessor’s policies or were focused on combating the coronavirus by increasing the manufacturing of protective equipment, vaccines, and testing, requiring masks on Federal property and during interstate travel, and identifying additional treatment options. 

One of the executive orders revoked permission for the Keystone XL pipeline, which is “devastating for Alberta”.  President Obama’s decision to ban cross-border shipments via this pipeline was reversed by Trump, and then reversed again by the new President of the United StatesThe strength of this action based on its timing and lack of consultation with Premier Kenney or Prime Minister Trudeau suggests that there is little appetite for Biden (or Trudeau) to negotiate this decisionEconomically and politically this is troubling news for Alberta and Canada, and those holding senior offices, federally and provincially.
https://www.theglobeandmail.com/opinion/article-the-scrapping-of-keystone-xl-is-devastating-for-alberta-and-jason/
https://www.theglobeandmail.com/politics/article-with-a-more-important-fight-to-win-trudeau-is-prepared-to-surrender-in/  

Also, on Wednesday, the Bank of Canada made its latest interest rate announcement amid the continuing environment of historically low interest ratesThe “effective lower bound has described the overnight rate at ¼ of a percentThe possibility of a “micro cut” had been the subject of speculation ahead of the Bank’s decision to hold the rate unchanged.
https://www.bankofcanada.ca/2021/01/fad-press-release-2021-01-20/
https://www.theglobeandmail.com/business/article-market-eyes-boc-ahead-of-possible-policy-rate-microcut/  

What’s ahead for this week and beyond?

In Canada, pandemic effects will be expressed in our economic activity as November’s Gross Domestic Product (GDP) is releasedDecember’s building permits and raw materials price index is also on the schedule. 

In the U.S., the Federal Reserve will release its interest rate decision on WednesdayA number of indicators from December are also scheduled: durable goods orders, personal income and spending, new home salesOn Monday, the House of Representatives will be sending the Articles of Impeachment for Donald Trump to the Senate triggering a trial that is scheduled to begin on February 8th.
https://nyti.ms/2Y7n04x  

Last Week in the Markets: January 11 – 15, 2021

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

The coronavirus and political turmoil in the United States had a strong hold on equity markets last weekCase counts and hospitalizations have not improved and concerns that impeachment proceedings would slow the legislative agenda for the incoming U.S. administration hurt most indices, except for the S&P500. 

Iits quarterly “Business Outlook Survey” released on Monday, the Bank of Canada indicated that businesses were poised to move positively forward prior to the latest round of lockdownsMore than half of firms expected revenuestaff and investments to increase this yearSurveys were conducted during the second half of November and into early December prior to the latest round of lockdowns. Similar sentiments are held in the U.S. where many businesses expect late 2021 and 2022 to be the timing of a resurgence of economic activity that must wait for the vaccine to be administered widelySurviving the winter and into the summer is the most pressing priority for many businesses, especially after news that the stores of vaccine earmarked for second doses are unavailable as the Trump administration concludesFirms on both sides of the border are less optimistic than they have been and have been moving the timing of economic recovery further into the future. 

https://www.theglobeandmail.com/business/economy/article-boc-says-business-hiring-investment-outlook-was-improving-heading-into/

https://www.bankofcanada.ca/2021/01/business-outlook-survey-winter-2020-21/

https://www.nytimes.com/2021/01/11/business/economy/coronavirus-business-outlook.html  

StatsCan data supports this pessimismIts recently released employment numbers show employment fell by 63,000 in December, the first decline since AprilUnemployment remained almost unchanged since November at 8.6%Also reflecting lowering expectations, the number of people seeking work, Labour Force Participationfell for the second consecutive monthhttps://www150.statcan.gc.ca/n1/daily-quotidien/210108/dq210108a-eng.htm  

What’s ahead for this week and beyond?

In Canada, the Bank of Canada will release an interest rate decision on WednesdayThere is little, if any, room to move rates to spur economic activity, and would most likely be overwhelmed by coronavirus setbacksDecember’s Consumer Price Index along with November’s retail sales will provide insights into our recovery.

In the U.S., the data scheduled for release revolves around housing with December’s building permits, housing starts and existing home sales on the calendarThe biggest event will be the inauguration of Joe Biden on January 20th and his immediate plans for stimulus, Covid-19 measures and a longer-term infrastructure plan.

Last Week in the Markets: January 4 – 8, 2021  

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

It appears that Canadian equities benefited frodevelopments elsewhere, particularly in the United States, rather than local to news to cause Canadian equities to riseA strengthening U.S. economy, our largest trading partner, is always positive for Canadian investors. 

  • On Wednesday two Democrat Senate candidates defeated the Republican incumbents in run-off electionsWith Democrats poised to control the White House, Senate and House of Representatives, a robust stimulus package will more likely materialize quickly and has already provided encouraging economic newsFor example, the price of oil has rose 8% last week, and the Energy sector led the TSX to a 3½% gain. 
  • Wednesday was also one of the most important days in American democracyThe ballots of the Electoral College were to be counted and certified by the Vice-President, Mike PenceFollowing a speech by Trump that inflamed his supporters, thousands of his most ardent supporters marched on the Capital and seized it. https://globalnews.ca/video/7560200/trump-mob-storms-capitol-hill-halts-biden-confirmation  
  • By 4 a.m. on Thursday order had been restored and the Electoral College vote was finally certifiedThe overnight markets and futures indicated that the confirmation of Joe Biden will be a positive for markets. The new administration is predicted to better manage the pandemic and pass important legislation smoothly, like the long-promised infrastructure billhttps://www.nytimes.com/2021/01/08/us/politics/biden-economy-pandemic.html  
  • News soured by early Friday when the Bureau of Labor Statistics in the U.S. reported that employment fell by 140,000 jobs in December and the unemployment rate remained unchanged as workers abandoned the job search10.7 million Americans are officially jobless and 6.7% are unemployed, both measures are nearly double the pre-pandemic levelsHowever, the positive political news continued to power markets at the end of the week.
    https://www.bls.gov/news.release/empsit.nr0.htm  

What’s ahead for this week and beyond?

In Canada, a quiet week for economic announcements is scheduled with the Bank of Canada’s business survey for the 4th quarter and December’s existing home sales on the calendar. 

In the U.S., a robust week includes December data for industrial production and capacity utilization, retail sales and inflation with Import and Export price indices and Producer and Consumer price indices.

Last Year in the Markets – January 2 – December 31, 2020

 

(source: ARG analysis, Bloomberg and MSCI)

What happened in 2020? 

A more contrite question might be “what didn’t happen in 2020?”  Along many dimensions, it was very difficult and volatile year for Canadians and almost everyone on the planet, because of many factorsIn addition to the coronavirus, we endured government reactions to the pandemic, a contentious U.S. election cycle, the continuation of the Brexit saga, on-going trade tensions between and among many nations, and racial unrest and protest to name a few of the challenges we faced last year. 

Financially, at least, the year ended much better for capital markets than was expected in early spring and during the summer2020 had a “Bull-Bear-Bull” cycle over the course of the last twelve monthsAll of the major North American equity indices finished in positive territory, which seemed almost unimaginable after markets lost one-third or more of their value by mid-March 

By midyear, even after a slight market recovery, many investors felt that several years of savings and gains had been lost foreverFor those with patience and who held the market broadly enough to mimic the major indices, far better results were achieved than permanent lossesAt its worst 2020 delivered little or no gain, and at its best investors overweight in technology stocks experienced excellent results. 

(source: ARG analysis, Bloomberg)

Overall, the TSX performed the worst among the major North American equity indices returning slightly more than 2% for the yearAt the other end of the spectrum was the NASDAQ that delivered over 43%The Dow and S&P 500 returned 7% and 16%, respectively, by the end of 2020. 

Since each index has a unique composition and concentration of firms, each of which are affected differently, provides some insight into overall performance 

  • TSX 
  • concentration on financial services firms and banks with potential increases in loan defaults and energy (oil and gas) with decreased global demand = 2.17% 
  • Dow 
  • 30 very large U.S. corporates that are unable to respond quickly to unpredictable and large effects of a global pandemic = 7.25% 
  • S&P 500 
  • 500 US corporations with diversification that, on average, are smaller and more agile than the Dow = 16.26% 
  • NASDAQ  
  • concentration on technology stocks that benefited from the move to remote work and online spending = 43.64% 

One year ago, 2020 started well for equity markets with solid gains being posted over the first seven weeks of the year, despite a small dip in JanuaryUnfortunately, most of us were unaware that the coronavirus was gathering strength as it spread in Asia, Europe, and North AmericaThe efficiency of markets was displayed in late February when the success that most investors had been enjoying quickly reversed itselfOver the next month the value of equity indices dropped by 30-40% as the extent and severity of the then epidemic was growing. 

In the autumn after about 6 months of increased volatility, North American indices had recovered sufficiently to erase the losses of February and MarchA local peak was reached in September followed by a short period of lossesThe last quarter of the year saw a challenge to the steady progress against the pandemic as measures were relaxed, which led to a resurgence of cases, hospitalizations and deaths across Canada, the U.S. and western Europe, which comprises the largest economies other than China and JapanDespite the worsening of the pandemic, equity indices performed very well in November and December. 

An apparent disconnect between economic performance and stock market values has emerged since equities are climbing as the virus’ return forces new restrictions on businessesMany of the market rebounds in 2020 have seemed to rely upon the future results of current actions 

Monetary policy decisions by the Federal Reserve and the Bank of Canada to maintain very low interest rates, to indicate that rates will not rise until inflation returns and to purchase high volumes of bonds to promote liquidity factored heavilyMarkets saw these actions as positive, which they are, but rates were already low and expected to remain at the bottom end of their effective rangeIn the U.S., the initial stimulus package provided some relief for businesses and households, but many months passed before any additional, substantive relief was discussedThe second wave of cheques from Congress have yet to be dispersed. 

In Canada, our government’s actions were far from perfectmany corrections and clarifications had to be issued after initial rounds of both fiscal and public health initiatives were undertakenFrom a positive perspective money was put directly into the hands of Canadians to provide economic, social, and emotional securityThe financial bill has yet to be tallied and will likely far exceed estimatesHowever, when the time to pay arrives we should be in much better condition than had we taken a minimalist approach. Time, of course, will tell. 

Progress on an effective coronavirus vaccine has provided plenty of upward pressure on equities, but substantial revenue increases, for most firms, will not materialize until more normality returnsOnce real and predictable progress is made against the pandemic, the gap between economic performance and equity valuation will narrow. 

What’s ahead for January and beyond?

For equitiesprofitability drives a company’s stock price and market value over the long-term, not the promise of a vaccine or stimulus checks for individualsBusinesses will need substantial assistance to begin a sustainable rebuilding of their firms and in-turn, the Canadian economy. 

To prepare for 2021 and beyond, Finance Minister, Chrystia Freeland, provided an economic update at the end of NovemberAdditional stimulus of $70-100 Billion has been planned once the pandemic is under control and the stimulus is expected to be parsed out over the next three Federal fiscal yearsFurther details are expected to be released in the 2021 Federal Budget in late February or early March. The projected budget deficit for this year has been updated to $381 Billion, $121 Billion for 2021/22 and $50 Billion for 2022/23The stimulus package, when presented inside the next Federal budget, will make it a confidence vote, which could end the current Liberal minority government’s rule and cause a spring electionVideo of the announcement from CBC is found at https://www.cbc.ca/player/play/1825866819963 

Public health measures are being renewed and strengthenedA summary can be found at https://www.theglobeandmail.com/canada/article-coronavirus-rules-by-province-physical-distancing-open-closed/  

The public health success against Covid-19 domestically and internationally will continue to affect financial markets as 2021 unfoldsMuch success in vaccine development has occurredUnfortunately, the predicted vaccination schedule has been too optimistic. 

Vaccinating those most at risk like healthcare workers, the elderly and those with severe, existing health issues, will require additional calendar time, delaying vaccinations for the rest of the populationUntil herd immunity is effectively achieved a return to everyday life will elude usWithout a return to everyday life pressure on many businesses that comprise indices will persist. 

Essentially, two approaches are available for investors; 1) remain patient or 2) focus on investments that can withstand additional downturns and could benefit from the eventual success against the pandemicRegardless of your chosen approach, I recommend a conversation to confirm plans and strategies since we have concluded the most difficult year in decades, if not a century.

Last Week in the Markets: December 14 – 18, 2020

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

News regarding vaccine development pushed North American and international equity indices upward at the beginning of the week. By Friday, the optimism for the end of the pandemic had faded as the number of cases, hospitalizations and deaths continued to escalate. Growing concerns regarding the manufacture, storage, delivery, administration, tracking, dosing and staff training for the largest global medical effort slowed markets after the initial excitement of emergency approvals waned.

Another significant negative influence on markets in the U.S. is the lack of a new stimulus deal from Congress to assist American families and businesses. Negotiations between the Republican-controlled Senate and the Democrat-led House are expected to run through the holiday season. https://www.theglobeandmail.com/opinion/editorials/article-the-vaccines-are-here-is-canada-ready/
https://www.theglobeandmail.com/investing/markets/inside-the-market/market-news/article-premarket-world-stocks-subdued-by-brexit-us-stimulus-doubts/

In Brussels, Brexit negotiations between the EU and the U.K. have not reached an agreement with the ultimate deadline of December 31st looming. Without trade treaties that facilitate labour mobility and trade, the pandemic ravaged economies of Europe will suffer further damage.  https://www.cbc.ca/news/world/boris-johnson-eu-post-brexit-trade-talks-to-continue-1.5839560

The Bank of Canada (BoC) kept the overnight rate unchanged at ¼ % with interest rates at the bottom end of their effective range and our economy suffering from the pandemic. The BoC will also continue to purchase bonds at the rate $4 Billion per week to maintain liquidity in capital markets. Interest rates are projected to stay at very low levels until “the 2 percent inflation target is sustainably achieved. In our October projections, this does not happen until into 2023”.  https://www.bankofcanada.ca/2020/12/fad-press-release-2020-12-09/

What’s ahead for this week and beyond?

In Canada, October’s manufacturing and retail sales will provide insight into our economic recovery at the industrial and personal level. November’s Consumer Price Index that tracks inflation for households is expected to reflect the low level of economic activity associated with pandemic restrictions.

In the U.S. this Wednesday, it will be the Federal Reserve’s turn to announce monetary policy. A number of economic indicators displaying November data are also on the schedule; housing starts and building permits, import and export price indices, industrial production and capacity utilization, and retail sales.

 

Last Week in the Markets: December 7 – 11, 2020

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

News regarding vaccine development pushed North American and international equity indices upward at the beginning of the week. By Friday, the optimism for the end of the pandemic had faded as the number of cases, hospitalizations and deaths continued to escalate. Growing concerns regarding the manufacture, storage, delivery, administration, tracking, dosing and staff training for the largest global medical effort slowed markets after the initial excitement of emergency approvals waned.

Another significant negative influence on markets in the U.S. is the lack of a new stimulus deal from Congress to assist American families and businesses. Negotiations between the Republican-controlled Senate and the Democrat-led House are expected to run through the holiday season. https://www.theglobeandmail.com/opinion/editorials/article-the-vaccines-are-here-is-canada-ready/
https://www.theglobeandmail.com/investing/markets/inside-the-market/market-news/article-premarket-world-stocks-subdued-by-brexit-us-stimulus-doubts/

In Brussels, Brexit negotiations between the EU and the U.K. have not reached an agreement with the ultimate deadline of December 31st looming. Without trade treaties that facilitate labour mobility and trade, the pandemic ravaged economies of Europe will suffer further damage.  https://www.cbc.ca/news/world/boris-johnson-eu-post-brexit-trade-talks-to-continue-1.5839560

The Bank of Canada (BoC) kept the overnight rate unchanged at ¼ % with interest rates at the bottom end of their effective range and our economy suffering from the pandemic. The BoC will also continue to purchase bonds at the rate $4 Billion per week to maintain liquidity in capital markets. Interest rates are projected to stay at very low levels until “the 2 percent inflation target is sustainably achieved. In our October projections, this does not happen until into 2023”.  https://www.bankofcanada.ca/2020/12/fad-press-release-2020-12-09/

What’s ahead for this week and beyond?

In Canada, October’s manufacturing and retail sales will provide insight into our economic recovery at the industrial and personal level. November’s Consumer Price Index that tracks inflation for households is expected to reflect the low level of economic activity associated with pandemic restrictions.

In the U.S. this Wednesday, it will be the Federal Reserve’s turn to announce monetary policy. A number of economic indicators displaying November data are also on the schedule; housing starts and building permits, import and export price indices, industrial production and capacity utilization, and retail sales.

 

Last Week in the Markets: November 30 – December 4, 2020

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

It was a record-setting week for American equity indices. The S&P500 and the NASDAQ reached new all-time highs as the Dow breached the 30,000 level again. The TSX with less lofty achievements did reach year-to-date returns of nearly 3% and continues to edge toward its peak in February.

Federal Finance Minister, Chrystia Freeland, provided an economic update. Additional stimulus of $70-100 Billion has been planned for the next three years set to begin once the pandemic is under control.  Further details will be released in the 2021 Federal Budget in late February or March. The projected budget deficit for this year has been updated to $381 Billion. Video of the announcement from CBC is found at https://www.cbc.ca/player/play/1825866819963

The latest details of the current Canada’s Covid-19 Economic Response Plan are available here: https://www.canada.ca/en/department-finance/economic-response-plan.html#industry

The major Canadian banks beat analyst expectations as they delivered their quarterly financial reports.  Profits have declined from the same period one year ago, but bested analyst projections with lower loan-loss provisions since the delinquency and default rates have been better than anticipated. It appears that Canadians have been more financially resilient to this point in the pandemic. https://www.theglobeandmail.com/business/article-td-profit-tops-forecasts-as-loan-loss-provisions-ease-wholesale-unit/

The unemployment rate in the U.S. has fallen slightly to 6.7% as 245,000 jobs were added in November, which was the seventh consecutive month of job increases since the onset of the pandemic. Recovery remains elusive without a stimulus package agreed at the legislative level and as nearly 5 million more Americans are unemployed compared to February.  https //www.bls.gov/news.release/jec.nr0.htm https://www.nytimes.com/video/us/politics/100000007486804/pelosi-coronavirus-stimulus-deal.html

What’s ahead for this week?

In Canada, the Bank of Canada will announce its latest interest rate decision on Wednesday. Governor Macklem indicated in the last decision that the rate will remain low until we have recovered economically from the pandemic.  Further measures could be taken regarding market liquidity.

In the U.S., the most important economic information scheduled will be the inflation numbers contained in the Consumer Price Index and the Producer Price Index from November.

 

Last Month in the Markets: November 2 – 30, 2020

(source: ARG analysis, Bloomberg and MSCI)

What happened in November?

After two consecutive months of “all red” grids, markets returned to the performance displayed in August when increasing values dominated and gold was the only indicator that lost value.

During November, North American and global equity indices surged ahead by 10 to 12 percent. Allowing the TSX to end the month with both its Year-to-Date and Year-over-Year back in positive territory, the first time it has been achieved since late February. The Dow bested the NASDAQ in monthly returns, which has not occurred since September 2019. This indicates a positive relativity for major U.S. corporates compared to technology stocks, especially when the Dow’s slight November “win” is held in context of the Dow and NASDAQ’s Year-to-Date performance of 3.86% and 35.96%, respectively.

(source: Bloomberg https://www.bloomberg.com/markets and ARG Inc. analysis)   

This improving market performance for equities occurred during the backdrop of the U.S. elections of November 3rd and the advance of the pandemic.

  • As predicted, the outcome of the presidential election was delayed. The result hinged on the counts and recounts in Wisconsin, Pennsylvania, Michigan, Arizona and Nevada.
  • Also, as predicted, Donald Trump promoted his own legal challenges by questioning absentee, advance and mail-in voting procedures in several states. A sitting President, who is seeking re-election, contesting the results created fear for many that turmoil, political unrest and violence would result. Thankfully, the unfounded allegations have been dismissed in courts across the U.S. and it appears that a peaceful, smooth and delayed transition has finally commenced.
    • For markets, especially equities in the U.S., this turmoil followed by increasing calm, albeit slow to arrive and small in stature, has given markets a boost.
  • Infections, hospitalizations, and deaths continue to rise globally, particularly in the United States where daily rates are approaching and surpassing the peaks of late spring and summer.
  • AstraZeneca provided positive vaccine development news to counter disease spread, adding to announcements by other vaccine makers. Earlier in the month Moderna announced that their coronavirus vaccine, which utilizes a similar RNA-based process as Pfizer, was equally effective at a 95% level of efficacy. The success of the first two companies who are using similar technologies lends credence to each other’s efficacy claims. The results from dozens of additional vaccine efforts have not been shared and their success could further support this early progress.
  • Unfortunately, the vaccines are not available immediately. At this point in their development, both the Moderna and Pfizer solutions require extreme refrigeration and two separate doses to be safe and effective. The logistics surrounding the production, shipping, delivery, storage and administration of the vaccine is daunting. https://www.theglobeandmail.com/investing/markets/inside-the-market/market-news/article-premarket-global-stocks-head-for-record-high-on-recovery-vaccine/
    https://www.nytimes.com/2020/11/18/health/pfizer-covid-vaccine.html
    https://www.theglobeandmail.com/investing/markets/inside-the-market/market-news/article-premarket-world-stocks-catch-breath-after-vaccine-euphoria/

What’s ahead for December and beyond?

On Monday, November 30th Finance Minister, Chrystia Freeland, provided an economic update.  Additional stimulus of $70-100 Billion has been planned once the pandemic is under control and is expected to continue for the next three Federal fiscal years. Details will be released in the 2021 Federal Budget in late February or March. The projected budget deficit for this year has been updated to $381 Billion, $121 Billion for 2021/22 and $50 Billion for 2022/23. The stimulus package, when presented inside the next Federal budget, will make it a confidence vote, which could end the current Liberal minority government’s rule and cause a spring election. Video of the announcement from CBC is found at: https://www.cbc.ca/player/play/1825866819963

The public health success against Covid-19 domestically and internationally will continue to affect financial markets as we conclude 2020. In the next several weeks expect updates and confirmations to key tax filing dates, government payment amounts and RRIF withdrawals for 2021.

 

Last Week in the Markets November 23 – 27, 2020

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

Despite elements of turmoil elsewhere, especially the political and legal kinds, it was a relatively lighter week as the American Thanksgiving holiday was observed on Thursday. U.S. markets were closed on Thursday and operated with limited hours on Friday. Two competing forces affected market values last week: the expanding spread of the coronavirus and optimism regarding the progress of vaccine development. Infections, hospitalizations and deaths continue to rise globally, particularly in the United States where daily rates are approached and surpassed the peaks of late spring and summer. AstraZeneca provided positive vaccine development news to counter disease spread, adding to earlier announcements by Moderna and Pfizer that a viable vaccine has been proven effective and relatively safe.

At the moment the positive news is besting the negative effects of the pandemic’s spread as the major indices in North America made solid gains of more than 2% last week. The Canadian dollar strengthened in tandem with the price of oil, which are both signs of international confidence in Canada.

Canadians are facing similarly dire Covid-19 news across the country. In addition to the public health measures new federal financial support for individuals and commercial tenants has been announced. The latest details of Canada’s Covid-19 Economic Response Plan: https://www.canada.ca/en/department-finance/economic-response-plan.html#industry

What’s ahead for this week?

In Canada, the Federal Finance Minister, Chrystia Freeland, will deliver an economic update. The overall health of the government and the spending to-date on coronavirus release will be outlined, but the detail is expected to be more focused on the next few months and year, than the last 8 months when Bill Morneau ran this portfolio. https://www.theglobeandmail.com/business/article-heres-what-to-look-for-in-ottawas-coming-fiscal-update/

The schedule for releases for the next few weeks includes September’s Gross Domestic Product, October’s building permits and raw materials price index and November’s employment report. Collectively the statistics will provide additional insight into Canada’s economic health.

In the U.S., pending home sales, durable goods orders, construction spending and the trade balance, all for October, will be released along with November’s employment report.

 

Last Week in the Markets November 16 – 20, 2020

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

For the second consecutive Monday positive vaccine news drove North American and global equities upward initially, and then delivered mixed results by week’s end. The TSX, oil and the Canadian dollar gained last week, which is welcome news for most Canadian investors as the promise of re-opening and recovering economies will depend on coronavirus vaccines in the long run.

Moderna announced that their coronavirus vaccine, which utilizes a similar RNA-based process as Pfizer, was nearly 95% effective. Pfizer provided another update lasty week on its vaccine that equaled the efficacy of Moderna’s. The success of the first two companies that are using similar technologies lends credence to their efficacy claims. We have not heard results from dozens of additional vaccine efforts, which could also support this early progress.

Unfortunately, the vaccines are not available immediately. At this point in their development, both the Moderna and Pfizer solutions require extreme refrigeration and two separate doses to be safe and effective. The logistics surrounding the production, shipping, delivery, storage and administration of the vaccine is daunting. If the good news continues it will likely be late 2021 before significant numbers of people have been vaccinated to allow daily life and economic activity to resemble “normal”.
https://www.theglobeandmail.com/investing/markets/inside-the-market/market-news/article-premarket-global-stocks-head-for-record-high-on-recovery-vaccine/
https://www.nytimes.com/2020/11/18/health/pfizer-covid-vaccine.html
https://www.theglobeandmail.com/investing/markets/inside-the-market/market-news/article-premarket-world-stocks-catch-breath-after-vaccine-euphoria/

Measures have been renewed, and in some provinces and cities they have been strengthened. It is necessary to remain informed and current for your province, region and city, and in your destination for domestic travel.  A summary of the latest measures can be found at https://www.theglobeandmail.com/canada/article-coronavirus-rules-by-province-physical-distancing-open-closed/

What’s ahead for this week?

In Canada, no important economic data is scheduled for release. Coronavirus news will dominate as the Federal Government will release details of new and refreshed programs to counteract the reintroduction of measures to slow the spread of the coronavirus.

In the U.S., expect the news on the pandemic to continue its current trajectory as October information is released on personal income and spending, new home sales, and durable goods orders.

 

Last Week in the Markets November 9 – 13, 2020

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

North American equities benefited from more certainty regarding the outcome of the U.S. elections and progress toward a vaccine. Monday benefited from Pfizer’s positive news from its vaccine trial. The headline “90% effective” pushed markets ahead all week long. Some of the vaccine optimism waned once distribution challenges were examined and discussed. Jerome Powell, Federal Reserve Chair agreed that the news regarding a vaccine was positive in the medium and long term and reminded everyone that the short term would remain challenging. Equity markets responded positively in the very short term with gains last week. The NASDAQ, heavy in technology stocks, was the only equities index in our grid that lost ground. Earnings expectations have been high for technology stocks, and when revenue and earnings disappoint downward movement usually ensues.  https://www.theglobeandmail.com/investing/markets/inside-the-market/article-before-the-bell-what-every-canadian-investor-needs-to-know-today-496/    https://www.nytimes.com/live/2020/11/13/world/covid-19-coronavirus-updates

The Bank of Canada (BoC) changed its direction on monetary policy, federally and provincially, last week.  It will end purchases of provincial money-market securities and reduce purchases of federal treasury bills.  Both programs involved short-term debt (>12 months) that governments rely upon to fund day-to-day operations. The BoC indicated that these decisions were enabled by “improvements in the functioning of short-term funding markets and financial markets more generally”, which is good news. https://www.theglobeandmail.com/business/article-bank-of-canada-further-reduces-money-market-operations-as-market/

Unfortunately, the news surrounding Covid-19 in Canada has been negative lately as new cases, hospitalizations and deaths are rising. Provincial governments and local health authorities are responding to pandemic failings with renewed restrictions which will slow, if not reverse economic progress that had been achieved.  https://www.theglobeandmail.com/canada/article-coronavirus-rules-by-province-physical-distancing-open-closed/

What’s ahead for this week?

In Canada, October inflation through the Consumer Price Index (CPI) will be released along with housing starts for the same period. Retail sales for September will provide some insight into our recovery.

In the U.S., more presidential election angst is anticipated as a broad array of October data is scheduled for release; industrial production and capacity utilization, existing home sales, housing starts and building permits, and import and export price indices.

 

Last Week in the Markets November 2 – 6, 2020

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

It was an “all green” week for the grid (above) as the election results gathered momentum in favour of Joe Biden, eventually declared the winner by news outlets over the weekend. The Electoral College vote remains, as well as lawsuits that will challenge the vote in many U.S. states. For equities it was the first “all green” week since the end of August, and the best 5-day session since the first full week of April.

It appears that the markets are rewarding the prediction that gridlock will return to Washington, and not cause major changes. A Democrat president and a Republican Senate will stalemate one another, and this lack of mandate and power will cause the trajectory to continue for equities. An alternate reason could be that “things haven’t gotten much worse”, but in the short-term markets have performed well. Expect volatility to continue as legal action succeeds and fails over the next weeks. election source

The pace of recovery around the world and in North America is slowing. The gains in employment have been the low-hanging-fruit during the reopening. The next layers of jobs will be harder to achieve and could be reversed with the number of Covid-19 cases rising.

  • In Canada, 83,600 new jobs were added last month which moved the unemployment rate down slightly by 0.1% to 8.9%. Jobs growth has slowed significantly from August and September when 246,000 and 378,000 were added, respectively. Despite recovering nearly 80% of the lost jobs, about 635,000 fewer people are employed now than before the pandemic began. Cda jobs source
  • The U.S. employment report released on Friday by the Bureau of Labor Statistics showed that 638,000 jobs had been added in October and unemployment fell to 11.1 million or 6.9%. Both of the last two numbers are roughly double their February levels of 5.8 million unemployed and a rate of 3.5%. US jobs source

What’s ahead for this week?

In Canada, it will be a quiet week for economic releases, but will likely include some limited acts of diplomacy as election results in the U.S. are analyzed, contested and confirmed, or delayed and denied.

In the U.S., October’s inflation numbers are scheduled for release through the Consumer Price Index (CPI) and the Producer Price Index (PPI).

 

Last Month in the Markets October 1 – 31, 2020

(source: ARG analysis, Bloomberg and MSCI)

What happened in October?

Last month was particularly unkind to North American equity investors. A minor peak before mid-month started a week-long slide in equity values. The five trading days ending October 30th was the worst week for the major indices in North America since March 20th. October’s second-half and overall drop was driven largely by the pandemic’s resurgence. After declining numbers of new cases through September, the U.S. reported higher new cases during the last week of October than the peaks of 74,000+ per day in July. Canadian cases began to rise earlier, at the start of September, and continued throughout October reviving the need for business and social restrictions across our country. covid source 1  covid source 2  covid source 3

In March, more than six months ago, we faced a great deal of unknowns regarding the virus, the disease, and measures to treat it, as well as slow its spread. Governments around the world, and in Canada, are struggling with the appropriate balance of public health measures and economic recovery actions.

(source: Bloomberg https://www.bloomberg.com/markets and ARG Inc. analysis)                                                         

Seemingly a long time ago, sensational coronavirus news arrived at the beginning of October when President Trump contracted the coronavirus. The lack of credible information regarding his condition fueled uncertainty in markets on October 2nd. After gains on Wednesday and Thursday of that week, Trump’s announcement in the early hours of Friday contributed to losses on the last day of that week when the NASDAQ dropped 2.2% of its value during a single trading session.  Trump covid source

Negative U.S. employment news also intensified the drop on October 2nd.  Only 661,000 American jobs were added during the month of September. This left 12.6 million Americans still unemployed and the unemployment rate at 7.9%. For comparison, in February before the pandemic, 6.8 million Americans were unemployed and the unemployment rate was just 4.4%, a historically low level. US employment source

Canada’s recovery has also slowed. Gross Domestic Product (GDP) grew 6.5% in June and only 3% in July. June’s strong rebound was slowed in July. Again, for comparison, July’s Canadian GDP was 5.8% below the output measured in February. July GDP source

On Tuesday, October 13th the International Monetary Fund (IMF) revised its prediction for global economic recovery, predicting 2020 economic activity as a 4.4% contraction compared with 2019. The IMF predicted that the Canadian economy would shrink 7.1% in 2020 and then grow 5.2% in 2021. The IMF placed our performance below global numbers and for other developed economies. IMF source

October 18th was Nancy Pelosi’s self-imposed deadline to agree on a new stimulus package to support Americans. As the Democrat’s House leader, she and Steve Mnuchin, Secretary of Treasury negotiated past the deadline until the end of the week. No compromise was reached. Nancy Pelosi was portrayed as inflexible and the White House was viewed as focused on political games. Both positions were and continue to be unhelpful for struggling Americans, the economy and capital markets. Stimulus deal source

On an individual level, highly punitive taxes on the recently introduced Canada Recovery Benefit for self-employed individuals were enacted. It could provide a disincentive to taking on additional work. A conversation with your licensed tax practitioner is recommended to better understand this development for those working for themselves. CRB source

What’s ahead for November and beyond?

Canadian investors will face two major issues for the balance of the year and into 2021:

  • The Canadian, North American and global progress against the coronavirus will be a guiding influence for markets, especially equities. Until economies return to production and employment levels that approach pre-Covid days, companies will have their revenue, earnings and, ultimately, share values trimmed. The triangle defined by the cities of Buffalo, Pensacola and Fargo is seeing the highest levels of new infections as the pandemic moves to less populated areas and smaller cities across the United States. In 2016 Donald Trump received high enough levels of support from these geographically large, yet sparsely populated areas to win electoral votes and the presidency while losing the popular vote. Covid source
  • On November 3rd, the outcome of elections for Congressional Senators and Representatives, as well as for President, will determine the nature of any economic stimulus response and public health measures against the coronavirus. During the early days of November, and perhaps for weeks to follow, the results of the election may be unclear and contested. Uncertainty provides fuel for market volatility. election source

The next few weeks and months will likely be a bumpy ride, unless one side wins a landslide victory, and the pandemic is controlled effectively and quickly.

 

Last Week in the Markets October 26 – 30, 2020

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

After reviewing months of Weekly Market Updates, North American equities had their worst week since March. A major contributor to the downturn is the resurgence of the coronavirus pandemic in the United States as daily cases reached all-time high levels.

On Wednesday the Bank of Canada (BoC) provided an update on its monetary policy. The “overnight rate” is unchanged and remains at the effective lower boundary of 0.25%. The BoC has predicted that the rate will stay at low levels until 2023 when inflation has regained its target level of 1-3%. Also, bond purchases will be trimmed to $4 Billion per week from $5 Billion and be focused on maturities of 3 to 15 years. Canadian Gross Domestic Product rose by 1.2% in August and is projected at 0.7% for September.  The predicted slowdown in recovery accounts for sectors, like tourism, that will require significant time to regain their former performance. BoC source 1 BoC source 2  BoC source 3

In another forward-looking speech last week, Finance Minister Chrystia Freeland provided clues regarding the governing Liberals’ direction for federal finances. She is positioning her party as moving away from spending until rising inflation generates pressure on the economy. However, Minister Freeland did not indicate that spending would slow, either. Middle ground is being staked-out prior to the next budget cycle. Spending will be greatly influenced by the low interest rate environment which has reduced the debt servicing costs to about 7% of government revenues. This is far below 30% debt service to revenue ratios of the late 1970s and 1980s when high interest rates made government borrowing very expensive.  Expect stimulus spending to continue, while it is needed, and interest rates remain low.  Freeland source

What’s ahead for this week?

In Canada, October’s employment report is an important economic announcement scheduled for release. Also, each day’s domestic and international coronavirus trends will play an important role.

In the U.S., Election Day is Tuesday, November 3rd.  The results are typically known (and conceded) around midnight Eastern time, but the 2020 Presidential Election could have us waiting for days or weeks. There are pros and cons for Canadian investors regarding each candidate. This is especially true if you ask them to discuss their own strengths and their opponent’s weaknesses.

 

Last Week in the Markets October 19 – 23, 2020

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

StatsCan announced that September inflation has risen to 0.5% from July and August levels that both measured 0.1% rises in consumer prices. All are far below the target level of inflation, 2% per year, which allows and accounts for economic expansion. Inflation is essential for an economy to grow, and this small increase to a still very low level is an encouraging sign for the Canadian economy.   September inflation source

Tuesday was Nancy Pelosi’s self-imposed deadline to arrange a new stimulus package to support Americans during the pandemic. As the Democrat’s leader in the U.S. House of Representatives, she has been negotiation with Steve Mnuchin, Secretary of Treasury. By the end of the week, no compromise had been reached, and nearly all the time available for a deal before the election has expired. Nancy Pelosi is being portrayed as being unable to compromise and the White House is said to be focused on political games, not helping working Americans. Both positions are unhelpful. Stimulus deal link

The second and final Presidential Debate occurred between incumbent President Trump and former Vice-President, Joe Biden. This debate was, perhaps, less entertaining than their first exchange. Ultimately, the performance of each candidate will be judged on November 3rd, which is one week away.

It was also an action-packed week for other reasons in the U.S. with the World Series beginning on Tuesday night. The Tampa Bay Lightning and Los Angeles Lakers have already won the Stanley Cup and the NBA Championship, respectively, so either the Tampa Bay Rays and the LA Dodgers will make their city a two-sport winner in this year’s pandemic-shortened pro sports season.

What’s ahead for this week?

In Canada, on Wednesday the Bank of Canada will announce its latest interest rate decision and update on monetary policy. August Gross Domestic Product will also be announced, which will provide some guidance on how well the economy was rebounding before our latest pandemic setbacks.

In the U.S., a number of important indicators for September will be released in the next week or so; new home sales, pending home sales, personal income, personal spending, and durable goods orders. The U.S. announces economic news about one month sooner than Canada providing more current guidance for fiscal and monetary decisions.

 

Last Week in the Markets October 12 – 16, 2020

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

On Tuesday the International Monetary Fund (IMF) revised its prediction for global economic recovery, predicting 2020 economic activity as a 4.4% contraction compared with 2019. This is a less pessimistic stance than June when the loss in economic output was pegged at a 5.2% reduction. The IMF predicts that the Canadian economy will shrink 7.1% in 2020 and then grow 5.2% in 2021. Like the global numbers, the predictions for Canada have been upgraded since June, but our outlook is well below the global numbers and for developed economies.     https://www.theglobeandmail.com/business/economy/article-imf-sees-global-economy-contracting-44-in-2020-the-worst-plunge/

The coronavirus continues to wreak havoc on the U.S. economy, directly and indirectly:

New, highly punitive taxes on the Canada Recovery Benefit for the self-employed have been enacted. It could provide a disincentive to taking on additional work according to economists. A short conversation with your licensed tax practitioner is recommended to better understand this development. https://www.theglobeandmail.com/business/article-the-hidden-cost-of-ottawas-new-benefit-for-the-self-employed/

What’s ahead for this week?

In Canada, we will get a better understanding of our rebound this summer with the release of Canadian retail sales figures for August. Inflation for September through the Consumer Price Index will also be announced.

In the U.S., housing data will dominate the upcoming releases with housing starts, building permits and existing home sales for September scheduled.

 

Last Week in the Markets October 5 – 9, 2020

(source: ARG analysis, Bloomberg and MSCI)

What happened last week? 

In a speech to the Global Risk Institute, Bank of Canada Chair, Tiff Macklem, said, “A full recovery from the pandemic will take a long time, and many risks remain.”  The rate of recovery in Canada and globally is slowing, and levels of infection are rising, which will slow recovery furtherThe Bank of Canada and all central banks have little room to manoeuvre with interest rates without going into negative territoryHis expectation is that interest rates will remain low for several years to contribute to economic recovery.
https://www.bankofcanada.ca/2020/10/covid-19-and-the-financial-system/
https://www.theglobeandmail.com/business/economy/article-bocs-macklem-warns-coming-months-crucial-in-gauging-how-canadian/

Covid-19 case counts are rising again across CanadaWith more than 70% of Canadians living in major metropolitan areas, and less than 2% of residents of the five largest cities living in low-risk neighbourhoods, Canada is not escaping the second wave of the pandemicSchool boards are contemplating closures, again, to protect students, staff and vulnerable family membersExpect closures to negatively affect our economic recovery in the short term, but with a shortening and flattening of the curve and effects in the longer term.
https://www.theglobeandmail.com/canada/article-surge-of-cases-in-coronavirus-hot-spots-threatens-closure-of-major/
https://www150.statcan.gc.ca/n1/daily-quotidien/190328/dq190328b-eng.htm

With some surprising results, new research suggests that home ownership is not necessarily the best way to increase your net worth based on long term returnsThe analysis measured buying and holding a home for 30 years against investing the original down payment and surplus between renting and owningSince 2003, it has been more financially advantageous to rent than own your homeMany assumptions were needed to reach this conclusion, but it should be noted that deep financial analysis should underly important financial decisions.
https://www.theglobeandmail.com/investing/personal-finance/retirement/article-since-2003-canadians-would-have-been-better-off-renting-than-buying/  

What’s ahead for this week? 

In Canada, existing home sale data for September is scheduled for release, which will likely show that Canadians were continuing to bid up the price of homes during the pandemic. 

In the U.S., inflation numbers for September will be released with the Consumer Price and Producer Price indicesIndustrial production and capacity utilization, which show “made-in-America” output and whether businesses are running close to their maximum levels, will show how U.S. enterprises have been affected and how they are recovering from the pandemic. 

Last Week in the Markets September 28 – October 2, 2020

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

The most sensational news was President Trump revealing early Friday that he had contracted the coronavirusThe lack of additional substantial information regarding his condition, fueled uncertainty in markets to end the weekAfter gains on Wednesday and Thursday, Trump’s announcement contributed to losses on the last day of the week when the NASDAQ dropped 2.2% on Friday.
https://www.theglobeandmail.com/investing/markets/inside-the-market/article-trumps-covid-19-adds-another-big-twist-for-markets-ahead-of-uncertain/

Negative U.S. employment news for September also intensified to Friday’s equities’ drop661,000 jobs were added during the monthleaving 12.6 million Americans unemployed and unemployment fell to 7.9%Each of these indicators have had their improvement slow compared with AugustFor further comparison, in February 6.8 million were unemployed and the unemployment rate was 4.4%.
https://www.bls.gov/news.release/pdf/empsit.pdf

Despite the negative news and an 8% drop in the price of oil the TSX performed well last week rising nearly 1%, which included a gain on Friday as other indices droppedCanada’s Gross Domestic Product grew 3% in July, down from a 6.5% gain in June, which shows both a strong rebound, and that our recovery is slowingCanadian GDP is 5.8% below the output measured in February before the onset of the pandemicConcerns regarding our ability recover are rising along with the case counts.
https://www.theglobeandmail.com/business/economy/article-canadian-economy-posts-july-gain-but-second-wave-of-covid-19-puts-fall/

What’s ahead for this week?

In Canada, we will receive our employment report for September that will show how many individuals are still suffering the economic effects of the pandemicAt the other end of the spectrum (for confident families who have not had their income and wealth diminished) the statistics for housing starts will be announced. 

In the U.S., confidence in economic recovery will be expressed by ISM’s Purchasing Managers Indices for SeptemberIn this comprehensive report the opinions of those who buy on behalf of companies declare whether they are optimistic or pessimistic about their firm’s business outlookIt is a leading indicator for future economic performance. 

Last Month in the Markets – September 1 – 30, 2020

(source: ARG analysis, Bloomberg and MSCI)

What happened in September? 

Equities reversed five consecutive monthly gains with losses in SeptemberThe last time the major North American indices lost value for an entire month was back in MarchCanada’s TSX lost value for five weeks in late February and into March before its five-month winning streakWith the turmoil that has occurred since mid-March it is difficult to believe that each month from April to August had delivered month-to-month gains.

(source: ARG analysis and Bloomberg)

Despite the losses for the month, it ended positivelyEach of the North American equity indices, above, hit their lowest values in September on the 23rd. Thankfully, by September 30th relief was delivered as the TSX, S&P 500, Dow and NASDAQ gained 1.9%, 3.9%, 3.8%, 5.0%, respectively.

The most recent Throne Speech was delivered on September 22nd in the House of Commons and presented an opportunity for the governing Liberals and other parties to demonstrate their willingness to work together while still representing their core beliefs. If compromises were not reached to allow a temporary coalition, the Liberal minority government would fall if a non-confidence vote passed. The leader of the NDP, Jagmeet Singh and Prime Minister, Justin Trudeau, negotiated a compromise centred on sick leave allowing the Liberals to stay in power.
https://www.theglobeandmail.com/politics/article-liberals-avert-fall-election-strike-deal-with-ndp-on-paid-sick-leave/
https://www.theglobeandmail.com/politics/article-federal-throne-speech-sept-23-explainer/ 
 

What’s ahead for October and beyond?

Most of us had hoped that we would be enjoying a greater return to normalcy by autumnThanksgiving will be celebrated in less than two weeks, occurring just a month after many students at all levels have returned to in-person classesThe amount of indoor activity and inability to physically distance has risen dramatically recentlyUnfortunately, case counts across Canada and around the world began rising in September.

The most recent example of the virus’ invasiveness is from the White HouseOn October 2nd at about 1 am Eastern President Trump and First Lady, Melania, announced that they had both tested positive for the coronavirusWhite House aide, Hope Hicks, had also tested positive one day earlierIt is not clear how or when they were infected, or who else has been exposed at the highest levels of the U.S. government.

Election Day in the U.S. is only one month away, on November 3rdand it is expected that the campaign will intensify greatly over the next monthHowever, Trump’s health will certainly affect his ability to attend campaign events, and it will be necessary for him to quarantine to protect members of the ExecutiveJudicial and Legislative branches from infection.

Since the Canadian economy is tightly linked to American interests, it is necessary to follow economic and political developments in the U.S. Uncertainty regarding the U.S. political situation wacontributing to the market volatility before the Trumps tested positiveTheir positive tests caused European markets to drop sharply immediately after the news was announcedMarkets prefer predictability, to allow both good and bad news can be “priced in” to the value of securitiesSeveral situations were already causing markets to react:

  • the shape and speed of the economic recovery, especially unemployment, which stands at 7.9% for Septemberhttps://www.bls.gov/news.release/pdf/empsit.pdf
  • the House of Representatives, Senate and White House have failed to provide a new round of relief to individuals and companies or a comprehensive stimulus package
  • the predicted legal battles over election resultsregardless of the margin of victory
  • election related civil disobedience, which will be viewed alongside and as a continuation of the racially motivated protests and riots that occurred during the summer

The hope is that the heightened level of uncertainty (and volatility) will end with 2020, but we will first need to understand the effects of Trump’s illness.
https://www.theglobeandmail.com/investing/investment-ideas/article-as-the-us-election-looms-investors-see-uncertainty-they-dont-like/
https://www.nytimes.com/live/2020/10/02/world/covid-19-coronavirus#news-that-the-president-contracted-the-virus-leaves-the-world-shaken

In the short-term avoiding an election here seems to be in the best interests of most, but not necessarily all, CanadiansAvoiding the distractions of a campaign promotes focus on Covid-19 recoveryThe latest details from the Canadian Federal government on stimulus are available at https://www.canada.ca/en/department-finance/economic-response-plan.html

Last Week in the Markets September 21 – 25, 2020

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

Citizens in democracies often complain about their government’s actions and effectiveness, and Canadians are no exceptionOur system is far from ideal, but much better than some, especially when cooperation among legislators is neededThe most recent Throne Speech was delivered on Wednesday in the House of Commons and presented an opportunity for the governing Liberals and other parties to demonstrate their willingness to work together while representing their core beliefsIf compromises were not reached, the Liberal minority government would fall if a non-confidence vote passedThe leader of the NDP, Jagmeet Singh and Prime Minister Trudeau reached a negotiated solution centred on sick leave to allow the Liberals to remain in powerMore details will emerge as the Throne Speech is debated in the House of Commons this week.
https://www.theglobeandmail.com/politics/article-liberals-avert-fall-election-strike-deal-with-ndp-on-paid-sick-leave/
https://www.theglobeandmail.com/politics/article-federal-throne-speech-sept-23-explainer/

The lack of cooperation between the Republicans and Democrats is on full display as a replacement on the Supreme Court is named by TrumpBased on the comments by several senators, confirmation seemed certain even before the nominee is named.
https://www.nytimes.com/2020/09/22/us/politics/ruth-bader-ginsburg-republicans.html

Covid-19 will dominate economic and business news as colder weather and indoor activities arrive in the Northern Hemisphere9 of the 10 of largest economies (Canada is 10th largest) that collectively comprise 65.5% of global Gross Domestic Product lie north of the EquatorSeven of the ten economies have daily case counts far exceeding their July 1st levels as restrictions are reimposed.
https://coronavirus.jhu.edu/map.html
https://www.investopedia.com/insights/worlds-top-economies/

What’s ahead for this week?

In Canada, we will better understand the effects of our shut-down and early reopening efforts as July’s Gross Domestic Product data will be releasedPrices and inflation for industrial products and raw materials for August we will also be announced. 

In the U.S., a number of important indicators are planned for the upcoming week with the release with August’s personal income and spending, construction spending and durable goods ordersSeptember’s employment reports will provide further insight into the recovery in the U.S. 

Last Week in the Markets: September 14 – 18, 2020

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

Economic recovery, within each country and globally, will rely heavily on monetary policy of central banks and each government’s fiscal stimulus actionsWith interest rates at the bottom end of their effective range, which limits monetary policy actions, fiscal measures are increasingly importantPrime Minister Trudeau and the leaders of the opposition parties (Singh, O’Toole, Blanchet and May) have begun consultations for the upcoming Throne Speech to build a renewed Canadian stimulus solutionOur leaders are actively negotiating, with the governing Liberal minority clinging to their mandate and their allies simultaneouslyUnfortunately, in the U.S. Congress has not yet reached an agreement on new stimulus measures as each party has had their plans rejectedA bi-partisan proposal put forth by centrist members from both parties was quickly rejected by leadership on both sides of the aisle.
https://globalnews.ca/news/7340592/justin-trudeau-opposition-leaders-throne-speech/
https://www.nytimes.com/2020/09/15/us/politics/bipartisan-stimulus-bill.html

Like the Bank of Canada did on September 9ththe U.S. Federal Reserve held its benchmark interest rate unchangedThe federal funds rate remains at the range of 0 to ¼%In the announcement from Federal Reserve Chair, Jerome Powell, included The path of the economy will depend significantly on the course of the virus. The ongoing public health crisis will continue to weigh on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term.”  During the press conference that followed the announcement Powell mentioned the need for fiscal action several times.
https://www.federalreserve.gov/newsevents/pressreleases/monetary20200916a.htm
https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20200916.pdf

When our government’s $3.6 Billion in retaliation for tariffs placed on imports of Canadian aluminum the Americans relentedThe President’s national-security rationale evaporated when faced with a multi-billion price tag from Canada.
https://www.theglobeandmail.com/politics/article-us-backs-down-on-aluminum-tariffs-directed-at-canada/

What’s ahead for this week?

In Canada, the Throne Speech will be delivered in Parliament and will generate a Confidence voteThe Prime Minister has stated that he does not want an election, which bodes well for constructive negotiations among the governing Liberals and the other parties.
https://globalnews.ca/video/rd/6970f5c8-f850-11ea-8aff-0242ac110004/?jwsource=cl

In the U.S., the Federal election date is now less than 50 days awayThe significance of this deadline will be cannot be understated for interpretation of economic releases and motivation for legislative action. 

Last Week in the Markets: September 7 – 11, 2020

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

As expected, the interest rate announcement by the Bank of Canada (BoC) held its overnight interest rate unchanged at ¼% on WednesdayIt is necessary to keep interest rates at low levels to support Canadian Gross Domestic Product (GDP) growth, which has fallen 13% in the first half of 2020The BoC will continue its interest rate and quantitative easing measures by buying at least $5 Billion in Government of Canada bonds until our “economy moves from reopening to recuperation”Tiff Macklem, BoC Chair, warned in a speech on Thursday that the greatest threat to our full economic recovery is the rising inequality of jobs and incomeThe workers most at-risk are women, youth and low-wage earners who may opt of the labour force if they stay unemployed, become discouraged and lose skills over time.
https://www.theglobeandmail.com/business/article-bocs-macklem-warns-rising-inequality-in-jobs-income-poses-the/
https://www.bankofcanada.ca/2020/09/fad-press-release-2020-09-09/  

In addition to the massive drop in GDP during the first half of 2020, Canadians added $127 Billion to savings and chequing accounts and term deposits over the same periodThis is four times the amount added during the first halves of 2017, 2018 and 2019This level of liquidity and the promise of future spending from savings, not credit, could provide additional economic activity during any delays in our recoveryShould these funds be released from savings and converted to spending, in effect a deferral, could help us regain our pre-Covid GDP levels.
https://www.theglobeandmail.com/investing/personal-finance/household-finances/article-savers-stashed-127-billion-in-2020-it-may-just-rescue-the-economy/  

What’s ahead for this week? 

In Canada, August inflation via the Consumer Price Index along with July’s manufacturing sales, wholesale sales and retail sales will be released. 

In the U.S., it will the Federal Reserve’s turn to make an interest rate decision on WednesdayImport and Export Price indices, retail sales and housing starts for August are scheduled.

Last Week in the Markets August 31 – September 4, 2020  

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?  

It was another volatile week for equities with North American indicesThe peak for the week occurred on Wednesday and then Thursday and Friday showed losses across all four indicesThe TSX lost ground widely as all of its sectors showed losses for the week by dropping 3% during the last two days of the weekThe fall in the price of oil, 7.5% for the week, was especially damaging for the Energy sector, the second largest sector in the TSX. 

The S&P 500 dropped 4% during Thursday and Friday’s trading sessionsThe top five constituents of the S&P 500 comprise 23% of the indexLast week, Apple, Facebook, Google, Amazon and Microsoft, led the index downward just as they have driven it upward recentlyThese five firms lost 8-10% at the end of the week and helped drive the overall value of the S&P 500 downward through these narrow lossesWith a similar heavy concentration of technology stocks as the S&P 500 the NASDAQ also had a difficult week losing over 3¼% for the week.
https://www.slickcharts.com/sp500  

Our success against Covid-19 will continue to be reflected in markets as schools, colleges and universities reopen across North AmericaThe U.S. education calendar is several weeks ahead of Canada’s scheduleDisturbing trends are emerging from American schools and campuses that may foreshadow public health performance here, and market performance everywhere.
https://www.nytimes.com/interactive/2020/us/covid-college-cases-tracker.html
https://www.theglobeandmail.com/canada/article-the-curve-isnt-flattening-its-creeping-upward/  

What’s ahead for this week? 

In Canada, we will see the Bank of Canada’s latest interest rate announcement on WednesdayWith the benchmark rate at a historically low level, there is little room to navigate, but there may be some indications of future moves revealed in the announcement. 

In the U.S., August inflation will be released through the Consumer Price IndexThis is an important economic indicator, since Federal Reserve has recently announced that inflation may now float above 2% as long as the average inflation does not exceed 2%. 

Last Month in the Markets – August 3 – 31, 2020

(source: ARG analysis, Bloomberg and MSCI)

What happened in August? 

Equities continued their positive momentum during the month of August by achieving the fourth consecutive month that all four North American indices made gains.  The NASDAQ and the S&P 500 have bested their February peaks, regaining all of their Covid-related losses.  The Dow is within 3% of its February peak, while the TSX is 6½% below its value in mid-February. 

The TSX is fulfilling its traditional moderate behaviour relative to the U.S. indices by rebounding more slowly and with less enthusiasm than its American peers.  However, it should be noted that the Canadian dollar has been strengthening against the U.S dollar, especially in July and August.  These foreign exchange gains indicate that Canadian investments are worth more against American investments than their Canadian-dollar prices indicate. 

Globally the All Country World Index (ACWI) in our grid reached a 52-week high during August, which demonstrates that equity markets have surpassed the difficulties of the last six months.

(source: ARG analysis and Bloomberg)

The most recent positive influence for American equity markets was the announcement by the Federal Reserve that it will be suppressing interest rates by viewing employment levels and inflation differently.  At its annual Jackson Hole Symposium, Jerome Powell announced that the Fed will now encourage greater levels of employment, which formerly served as a signal that inflation could occur.  Previously, the threat of inflation based on high employment has caused the Fed to increase interest rates in the past.  Additionally, Inflation will now be a calculated average (not a monthly figure), that will allow periods of inflation over 2% to be offset by periods below 2%. This policy change will cause interest rates to remain low for longer periods of time as higher levels of employment will be encouraged and inflation will be allowed to float over 2%.  The Fed is emphasizing the need for employment and lessening its concern over high inflation during periods of economic growth.
https://www.nytimes.com/2020/08/27/business/economy/federal-reserve-inflation-jerome-powell.html
https://www.nytimes.com/reuters/2020/08/27/business/27reuters-usa-fed-jacksonhole-framework-explainer.html 

What’s ahead for September and beyond? 

The rhetoric and analysis of the economic effects of the upcoming U.S. elections will increase dramatically over the next two months.  The traditional views that’s Republicans are pro-business and Democrats are pro-spending will continue to be spoken.  Within the U.S., the effects of the coronavirus will also be included in this discussion since the current Republican controlled Senate and President continue to delay stimulus and minimize the healthcare and economic crisis. 

Across Canada, schools will be opening with new safety protocols instituted to prevent the spread of Covid-19.  The success of these measures will be a test of whether typical activities that cut across the entire society and across demographics can resume safely.  The U.S. is ahead of us in re-opening activities and provide insight to the potential results of our actions.  Jerome Powell, Chair of the Federal Reserve said, “the thing that matters more than anything else is the medical metrics, frankly.  It’s the spread of the virus”.  Since our economy is closely tied to the U.S., we will be influenced by the U.S. election results and success against the virus.  Also, our government officials and public health officers will continue to monitor our metrics closely as schools reopen this fall.
https://www.cbsnews.com/news/full-transcript-fed-chair-jerome-powell-60-minutes-interview-economic-recovery-from-coronavirus-pandemic/  

The latest details from the Canadian Federal government on stimulus and economic assistance for individuals, businesses, sectors and organizations helping Canadians are available at https://www.canada.ca/en/department-finance/economic-response-plan.html 

 

Last Week in the Markets August 24 – 28, 2020

(source: ARG analysis, Bloomberg and MSCI)

What happened last week? 

At its annual Jackson Hole Symposium, the U.S. Federal Reserve announced a significant change in its monetary policy guidelines on Thursday. The Fed will now encourage greater levels of employment, which formerly served as a signal that inflation could occur. This threat of inflation based on high employment has caused rate increases in the past.  Also, inflation will be a calculated average, that will allow periods of inflation over 2% to be offset by periods below 2%. 

It will cause interest rates to remain low for longer periods of time as higher levels of employment will be encouraged and target inflation level will be a calculated average. The Fed is emphasizing the need for employment and lessening its concern over high inflation during periods of economic growth.  https://www.nytimes.com/2020/08/27/business/economy/federal-reserve-inflation-jerome-powell.html  https://www.nytimes.com/reuters/2020/08/27/business/27reuters-usa-fed-jacksonhole-framework-explainer.html 

At the same Federal Reserve conference, Tiff Macklem, Bank of Canada Chair, spoke on the need for central banks to engage directly with citizens, not just to provide transparency to markets. This precedes the scheduled renewal of its 5-year inflation mandate, where it is seeking public input for the first time.Expect independence, but with some influence from the Fed’s change. https://www.theglobeandmail.com/business/economy/article-macklem-urges-central-banks-to-better-engage-with-average-citizens/ 

The latest details from the Canadian Federal government on stimulus and economic assistance for individuals, businesses, sectors and organizations helping Canadians are available at: https://www.canada.ca/en/department-finance/economic-response-plan.html 

What’s ahead for this week? 

In Canada and the U.S., over the next few weeks we will see how well these two economies are recovering from the effects of pandemic-induced closures.  After seeing each economy shrink by about one-third in the second quarter, (based on annualized rates from Statscan and U.S Federal Reserve estimates) Gross Domestic Product is rising again.  Also, employment, inflation and manufacturing will show whether the reopening of economies have been successful. https://www.theglobeandmail.com/investing/markets/inside-the-market/article-before-the-bell-what-every-canadian-investor-needs-to-know-today-443/  

 

Last Week in the Markets August 17 – 21, 2020

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?   

In somewhat surprising news Bill Morneau resigned as Finance Minister and as an MP.  Either the fallout from the WE scandal, or his stated reasons, drove this decision.  He will be replaced by Chrystia Freeland, who will become Canada’s first female Finance Minister.  Despite rumours of a growing rift between Morneau and the Prime Minister, Trudeau supports Morneau as the next secretary-general of the Organization for Economic Co-Operation and Development. https://www.cbc.ca/news/politics/bill-morneau-justin-trudeau-decision-1.5689890 

Canada’s inflation for July was announced at 0.1% on Wednesday through the Consumer Price Index (CPI).  One year ago July inflation was 0.7% for the month.  This drop and low figure represents the extreme price pressure many industries have been facing, namely gasoline and airline travel.  The Bank of Canada has no intention to change interest rates until inflation rises to their target rates. https://www.theglobeandmail.com/business/economy/article-canadas-annual-inflation-rate-falls-to-01-in-july/ 

More details are emerging for upgraded Employment Insurance benefits as the window to receive “the CERB” is closing.  In the U.S. no national agreement for additional support and stimulus has been negotiated in Washington as each party has their quadrennial convention. 

The latest details from the Canadian Federal government on stimulus and economic assistance for individuals, businesses, sectors and organizations helping Canadians are available at https://www.canada.ca/en/department-finance/economic-response-plan.html 

What’s ahead for this week? 

In Canada, the most important announcement will be June’s Gross Domestic Product (GDP), which represents our economy’s output.  It will indicate how severely Covid-19 damaged our overall economic health. 

In the U.S., it will be a cloudier picture with new home sales and pending home sales for July, along with durable goods orders for the same period.  Personal income and spending (which contributes a great deal to GDP) will provide insight into consumer confidence. 

 

Last Week in the Markets:  August 10 – 14, 2020

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

Again, Canada’s TSX was the laggard among equities indices in North America, and in some measure, also globally.  It struggled to overcome the losses in its Materials sector as the gold’s lustre as a safe haven lost its sheen.  Investors moved away from gold and back to equities as encouraging economic and pandemic news was announced in the U.S. last week.

  • Unemployment insurance claims, new Covid-19 cases and hospitalizations fell.
  • Retail sales rose for the third consecutive month and are at the level of February. The rate of increase is slowing and may be a sign that the resilience of consumers is waning.  It appears that the stimulus checks accomplished their short-term goal by keeping individuals and families afloat, and spending.
    https://www.nytimes.com/2020/08/14/business/retail-sales-coronavirus.html

The TSX had some stiff competition from American equities, even as the Canadian dollar has been on a 5-week winning streak gaining nearly 2 cents against the U.S. dollar.  The S&P 500 ended the week within one-half of 1% of its best closing value from February.   About 80% S&P 500 firms have completed their seasonal earnings reports and more than half have beaten expectations.  https://www.theglobeandmail.com/business/article-canadian-corporate-profits-on-the-mend-after-pandemic-hits-earnings/

The latest details from the Canadian Federal government on stimulus and economic assistance for individuals, businesses, sectors and organizations helping Canadians are available at: https://www.canada.ca/en/department-finance/economic-response-plan.html

What’s ahead for this week?

In Canada, two important indicators will be released; June’s retail sales and July’s Consumer Price Index (CPI).  Retail sales will provide insight into the negative effects of Covid-19 and the CPI will help us understand how our cost-of-living has been impacted.

In the U.S., housing and construction information will dominate with July’s housing starts, building permits and existing home sales begin announced.

 

Last Week in the Markets: August 3 – 7, 2020

ARG Market Update Chart August 3-7, 2020

(source: ARG analysis, Bloomberg and MSCI)

What happened last week?

Despite a week filled with mixed and contradictory news, it was a strong week for equity investors.  The TSX was led by the Energy sector as the price of oil continued to advance as the U.S. equity indices gained 2½ to nearly 4% on the following news:

  • In both Canada and the U.S. the jobs market shows some signs that economic growth is occurring. We are still far behind our trajectory of February, but jobs are being added.
  • Congress continued to negotiate a new stimulus package while Trump continues to sign Executive Orders to promote a rebound. President Trump’s actions rely on individual states approving his actions, which will not provide consistent support across the country as states face their own budget crises while they await Federal aid from Washington. https://www.nytimes.com/2020/08/09/us/politics/trump-stimulus-bill-coronavirus.html
  • The trade rhetoric between the U.S. and Canada has begun again. Trump has announced a 10% tariff on the $7.7 Billion of aluminum that we export to the U.S. each year.  The tariffs are to start on August 16th and are being billed as necessary for “national security”.  Canada has promised “countermeasures that will include dollar-for-dollar retaliatory measures” according to Prime Minister Trudeau https://www.theglobeandmail.com/canada/article-president-trump-announces-10-per-cent-tariff-on-canadian-aluminum/

The latest details from the Canadian Federal government on stimulus and economic assistance for individuals, businesses, sectors and organizations helping Canadians are available at https://www.canada.ca/en/department-finance/economic-response-plan.html

What’s ahead for this week?

In Canada, as summer drags along it will be a light week for economic announcements with June’s manufacturing sales and July’s housing starts as the main data points.

In the U.S., July figures for retails sales, industrial production and capacity utilization will accompany the inflation indicators of the Consumer Price Index and the Import and Export Price indices.

 

Last Month in the Markets: July 1 – 31, 2020

(source: ARG analysis and Bloomberg)

What happened in July?

In Canada much of the press’s focus on the federal government has been aimed at the Liberals’ approval of “the WE deal” to manage its student volunteer/aid program. Both Prime Minister Trudeau and Finance Minister Morneau did not recuse themselves from the discussion and decision despite existing beneficial arrangements for them individually and their immediate family members. It could have been somewhat reassuring to return to more normal issues; unfortunately, the time and energy wasted on this scandal should have been directed at the pandemic. Quickly the contract was cancelled, money paid ($30 million) is being returned, major corporate sponsors have ended their relationships with the WE charity, the charity’s leaders and their leadership are under intense scrutiny, and politicians have been chastised publicly during Question Period in the House of Commons. All of this occurred while the coronavirus pandemic continues to ravage lives, families and economies.

In a financial snapshot released by Minister Morneau last month, the federal deficit has been projected to be $343 Billion for fiscal 2020-21 (a ten-fold increase since the last projection made in December 2019), the overall debt has been projected to be $1.2 Trillion, and 2020 GDP is expected to fall by 6.8%. https://www.canada.ca/content/dam/fin/publications/efs-peb/homepage/EFS2020-eng.pdf

Our elected officials have had to make major decisions based on incomplete information. With their leadership, Canadians have fared well from a public health perspective, despite 120,000 Covid-19 cases and 9,000 deaths. Creating a scandal that could have been easily avoided in the middle of a pandemic will be remembered, especially during the next federal election campaign.

Despite the WE distraction and rising case counts and deaths in the United States, it was an all-green month for our grid above. Not only did equities finish July ahead of its start, but our dollar, gold and oil also gained. During the month, equities suffered some choppiness. Generally, indices peaked in the middle of the month, and then struggled to regain those levels over the last two weeks.

The TSX regained 4% more of its March losses in July but has still lost 5% year-to-date. The S&P 500 rose 5½% last month and moved above its year end levels. The NASDAQ has gained more than 19% this year after posting a gain of almost 7% last month. It has also surpassed its February peak, and reached new all-time highs. The Dow is currently the laggard among major indices in North America, falling behind our TSX in July gains, year-to-date performance and 1-year returns. The Dow is comprised of 30 large corporations that trade on American stock exchanges. It is not difficult to imagine that large firms that are less agile have suffered more than technology or smaller companies. https://finance.yahoo.com/quote/%5EDJI/components/

All of this occurred as the price of gold reached a new high at over $2,000 USD. Even as equities rose, the demand for a safe-haven investment like gold drove its price

(source: ARG analysis and Bloomberg)

What’s ahead for August and beyond?

The course of the pandemic will ultimately guide our economic and investment performance. To start August there appears to be some optimism despite the most recent news in the U.S.  Ongoing political debate has ended weekly support payments for individuals as a new program is contested. Daily case counts may be falling slightly, but they are well above April peaks.  Community-spread has reached smaller cities and rural areas. In 2016 Trump won “the counties” outside major urban areas by wide margins to win the Presidency. A direct threat on his base of support could cause a change in political tactics that may also benefit public health. https://www.nytimes.com/2020/08/04/opinion/covid-rural-hospitals.html

The dependence of the Canadian economy on the United States cannot be overstated. The U.S. is Canada’s largest trading partner. A faltering American economy cannot be replaced by Canada in the short term, and perhaps never in the long term. We need the U.S. to recover so that we can, too. The border between the U.S. and Canada closed on March 21st and will be closed until at least August 21st, when reopening beyond essential travel could occur.

In response to all of the negative news for individuals, families and businesses, the latest details from the Canadian Federal government on stimulus and economic assistance are available at https://www.canada.ca/en/department-finance/economic-response-plan.html

 

Last Week in the Markets: July 27 – 31, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week?  

If a single indicator was needed to represent the uncertainty of Covid-19, the price of gold could be it. Gold is often used as a safe-haven investment when other investments seem too volatile, unstable or risky. The price of gold driven by the need for safety reached its all-time record high last week, besting the previous record of nine years ago. This uncertainty is based on:

The latest details from the Canadian Federal government on stimulus and economic assistance for individuals, businesses, sectors and organizations helping Canadians are available at https://www.canada.ca/en/department-finance/economic-response-plan.html

What’s ahead for this week?

In Canada, the employment report for July will be released. It will show the effect of Covid-19 on workers and employers and the net effectiveness of our stimulus to-date.

In the U.S., July employment numbers will be announced along with construction spending, durable goods orders and trade balance for June.

 

Last Week in the Markets: July 20 – 24, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week? 

A renewal in the ongoing animosity between the U.S. and China occurred last week as the Chinese Consulate in Houston, TX was ordered closed. China retaliated by demanding the same action for the American consulate in Chengdu.

These actions more than trumped the optimism surrounding vaccine development around the world. Governments, including ours, are purchasing supplies (disinfectant swabs, band-aids, syringes) to increase readiness for the eventual release of a vaccine. Unfortunately, it is evident that many U.S. states have re-started their economies unsafely. Over the weekend hospitalizations reached nearly 60,000, within 300 of the peak reached in April. The number of new cases per day has averaged about 65,000 for the past week; an increase of 50% since June. https://www.nytimes.com/interactive/2020/us/coronavirus-us-cases.html

At home, May retail sales in Canada rebounded well, but still lag pre-Covid levels. Standard&Poor’s announced that the Canadian government was retaining its AAA credit rating, making it easier for some major institutional investors to continue to invest in Canada.

The latest details from the Canadian Federal government on stimulus and economic assistance for individuals, businesses, sectors and organizations helping Canadians are available at: https://www.canada.ca/en/department-finance/economic-response-plan.html

What’s ahead for this week?

In Canada, we will see the latest measurement of our economy with the release of May’s Gross Domestic Product numbers. Price changes will also be announced through the industrial and raw materials price indices for June.

In the U.S., the Federal Reserve will release its interest rate decision on Wednesday. There is little room to maneuver on interest rates, but the comments may provide some insights into the central bank’s optimism for economic recovery. June’s personal income and spending, an important bellwether that shows consumer confidence, will also be announced.

 

Last Week in the Markets: July 13 – 17, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week?  

The Bank of Canada held its benchmark lending rate steady on Wednesday. Bank Chair, Tiff Macklem, announced that the Canadian economy is expected to shrink by nearly 8% in 2020, and grow by 5% and 4% over the subsequent two years. He expects the pandemic to “have largely run its course by the middle of 2022”, which is two years away based on the development of an effective vaccine.. https://www.bankofcanada.ca/2020/07/opening-statement-150720/

The case numbers, hospitalizations and deaths are on the rise across the U.S. Cases are up about 40% over the past 2 weeks and have averaged nearly 70,000 new cases per day recently.  However, the promise of a vaccine has created enough optimism to power a recovery on equity markets. It is unclear whether vaccine optimism will counteract the resurgence of the virus.  https://www.nytimes.com/2020/07/15/business/economy/economic-recovery-coronavirus-resurgence.html

One surprise was the drop of the NASDAQ, while the other three major North American indices gained. This last occurred in October of 2018. Apple moved ahead after winning a $15 Billion tax case, but Facebook, Amazon, Netflix and Google pulled the NASDAQ down on their losses.

The latest details from the Canadian Federal government on stimulus and economic assistance for individuals, businesses, sectors and organizations helping Canadians are available at: https://www.canada.ca/en/department-finance/economic-response-plan.html

What’s ahead for this week?

In Canada, the effects of Covid-19 will be represented in two economic releases this week; May retail sales will show consumer spending has changed and June’s Consumer Price Index (CPI) will show how prices have moved.

In the U.S., it will be a lighter week for announcements with new and existing home sales for June and Markit’s Purchasing Managers’ index for July scheduled. For the last indicator, purchasing managers are canvassed and ask if they expect to be buying more raw materials, goods and services for their companies, which is a leading indicator of future, actual purchases.

 

Last Week in the Markets: July 6 – 10, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week?  

It was another positive week for North American and global equities despite the distressing news that the U.S. is setting records for new Covid-19 cases nationally and in several states. More than 68,000 people tested positive on July 10th in the world’s largest economy. It’s gotten so bad that President Trump wore a mask during a visit to a military hospital.

In Canada our cautious approach to reopening was reinforced after Quebec saw a small surge related to patrons congregating closely in restaurants and bars in that province.

Finance Minister, Bill Morneau, released a Fiscal Snapshot outlining the spending to-date on the Federal government’s response to Covid-19, and its effect on the 2020/21 deficit and debt. The response is expected to generate $343 Billion deficit related to additional spending and lowered government revenue during the current fiscal year that ends March 31, 2021. This is a tenfold increase in the deficit since the last update in December 2019, and the debt is predicted to be $1.2 Trillion.

Unemployment that peaked at 14% in April and is expected to hover around 10% for the remainder of 2020 and settle around 8% for 2021. Canadian Gross Domestic Product (GDP) is predicted to contract by 6.8% this year and regain 5.5% next year.
https://www.theglobeandmail.com/politics/article-morneau-expected-to-reveal-federal-deficit-in-excess-of-300-billion/

https://www.cbc.ca/news/politics/bill-morneau-fiscal-update-budget-deficit-1.5641864

What’s ahead for this week?

In Canada, the Bank of Canada will announce its latest interest rate decision on Wednesday.  There is little room to manoeuvre downward, so the news may focus on liquidity linked to access to credit. Also, May figures for manufacturing and wholesale trade will be released.

In the U.S., a robust week for economic data is planned with the Consumer Price Index, Import and Export Price Indices representing June’s inflation to be announced.  Also for June retail sales, industrial production, capacity utilization, housing starts and building permits are scheduled.

 

Last Week in the Markets: June 29 – July 3, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week?

In a shortened trading week on both sides of the border, due to our Canada Day and Independence Day in the U.S. we had an all-green week for our grid. Equities, the Canadian dollar, gold and oil moved upward despite conflicting news:

What’s ahead for this week?

In Canada, housing starts and our employment report for June will be released.

In the U.S., a similarly light week for economic announcements follows their national holiday with wholesale inventories for May and the Producer Price Index for June scheduled for release.

 

Last Month in the Markets: June 1 – 30, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened in June?

Almost everyone has grown weary of Covid-19. The economic uncertainty it has created, the necessary health precautions, the personal isolation, and most of all the deaths that have devastated families. It is as important as ever to practice safety measures and to continue to withstand all of the pressures that everyone has faced to-date, and will continue to face.

It is apparent, based on the U.S. example, that the virus has not tired, but we have. We must limit our exposure to others and to places, we must physically distance and wear masks and wash our hands fastidiously. Confusing and contradictory advice is plentiful, please use trusted sources for information, like Health Canada who has released the following guidelines: https://www.canada.ca/en/public-health/services/diseases/2019-novel-coronavirus-infection/prevention-risks/measures-reduce-community.html#fi

June 2020 started typically enough with the Bank of Canada holding its overnight rate steady at 0.25%, and the markets rose with the beginning of economic reopening in many American states. One month ago, predictions of a rapid economic recovery were almost universal. For example, the Markit Purchasing Managers’ Index (PMI) for Canada, the U.S., Eurozone and globally have regained their pre-Covid levels. The PMI measures the optimism of purchasing managers, and whether they believe their businesses are expanding or contracting. https://www.markiteconomics.com/public

The dependence of the Canadian economy on the United States cannot be overstated. The U.S. is Canada’s largest trading partner. A faltering American economy cannot be replaced in the short term, and perhaps never in the long term. We need the U.S. to recover so that we can too.  Unfortunately, by the end of June any progress against the virus had been lost. Many U.S. states, and internationally, daily records for new cases were set. As July begins 50,000 new cases each day are diagnosed, 40 out of 50 U.S. states have new cases increasing and the hospitalization rates are rising to overwhelm capacity.
https://www.nytimes.com/2020/07/02/world/coronavirus-updates.html https://www.nytimes.com/aponline/2020/07/02/business/bc-eu-virus-outbreak-global-1st-ld-writethru.html  https://www.nytimes.com/2020/06/26/us/coronavirus-florida-texas-bars-closing.html

(source: Bloomberg and ARG Inc. analysis)

The progress equities made during June was uneven, yet they ultimately finished ahead of the end of May. The NASDAQ has surpassed the highs of February and gained 12% in the first half of the year.  The TSX and Dow are down 9% in 2020 and the S&P 500 has lost 4% this year.

The lowest valuations were achieved during the second half of March. Much progress has been made since then for all four major indices; especially the NASDAQ. Continued progress will rely on the success of measures and health outcomes on both sides of our southern border.

What’s ahead for July and beyond?

The most relevant economic information will be medical metrics of Covid-19 according to Jerome Powell, U.S. Federal Reserve Chair. Most economists and analysts are closely following the same virus data.  https://www.cbsnews.com/news/coronavirus-economy-jerome-powell-federal-reserve-chairman-60-minutes/

There are many different indicators and several interpretations of each. Excellent information on numbers of new cases and hospitalizations, the two most important indicators, can be found on the New York Times website, and on Johns-Hopkins Covid summary. https://www.nytimes.com/  https://coronavirus.jhu.edu/map.html

In response to the negative news for individuals, families and businesses, the latest details from the Canadian Federal government on stimulus and economic assistance are available at https://www.canada.ca/en/department-finance/economic-response-plan.html

 

Last Week in the Markets: June 22 – 26, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week?

The major North American equity indices all followed the same pattern; up on Monday and Tuesday, down on Wednesday, back up on Thursday and down on Friday to finish the week.  There is plenty of news swirling around, and there are many people available to view and read it.  The most important news affecting capital markets is the progress, or lack thereof, to contain and reduce the spread of Covid-19. Several U.S. states and the entire country saw new records for new cases in a day recorded. Most importantly and most unequivocally the number of hospitalizations is rising dramatically again after restrictions and public health measures have been relaxed; Texas and Florida have reversed their reopening plans.  https://www.nytimes.com/2020/06/28/world/coronavirus-updates.html

The Canadian economy is as tightly linked to the American economy as any country in the world is linked to its neighbour. Our economy needs the U.S. to recover and provide demand for our goods and services. As a result of this most recent failing in the U.S. the International Monetary Fund (IMF) has lengthened the depth of Covid-19’s recession and has predicted a slow recovery in 2021. https://www.nytimes.com/video/world/100000007208635/global-economy-down-imf-coronavirus.html

The latest details from the Canadian Federal government on stimulus and economic assistance to domestically fuel our recovery are available at https://www.canada.ca/en/department-finance/economic-response-plan.html

What’s ahead for this week?

In Canada, after no major economic announcements last week, we will see the state of the economy with April’s Gross Domestic Product data being released. It will be the first full month of Covid-19’s lockdown and provide a strong prediction for May and June.

In the U.S., May figures for durable goods orders, construction spending and pending home sales will be announced along with June’s employment report.

 

Last Week in the Markets: June 15 – 19, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week? 

It was another positive week for equities locally and globally. The optimism for a sustained and uninterrupted recovery along with the promise of additional stimulus outweighed the negative Covid-19 trends that have recently emerged in the U.S. Case counts are growing at an increasing rate in more than 20 states. Other negative news has failed to tamp-down the equities’ recovery. New trade trouble could appear as the U.S. threatens new tariffs on Canadian aluminum and Chinese purchases of U.S. farm products required by their trade agreement are lagging. North Korea destroyed an office used for intra-Korea cooperation. Chinese and Indian troops were killed in a Himalayan border dispute. Despite this negative news, North American and Western European indices all gained last week.

The Bank of Canada is expecting a two-phased approach to our economy’s recovery. Initially, a “reopening” phase will occur as consumers access goods and services that are available again and companies rehire staff. This will be followed by a “recuperation” phase that will be longer, more unpredictable and will rely upon domestic and global success against the virus.
https://www.theglobeandmail.com/business/article-bank-of-canada-sees-two-phase-recovery-for-canadian-economy-deputy/

The latest details from the Canadian Federal government on stimulus and economic assistance are available at https://www.canada.ca/en/department-finance/economic-response-plan.html

What’s ahead for this week?

In Canada, no major economic releases are planned. On July 8th, the minority Federal Liberals will present an economic ‘snapshot’ which will provide a short-term description of our economy.  Projections and predictions will be extremely limited.
https://globalnews.ca/news/7075388/coronavirus-liberals-economic-snapshot-july/

In the U.S., it will be a typical week for economic news with May figures for new and existing home sales, durable goods and personal income and spending scheduled for release.

 

Last Week in the Markets: June 8 – 12, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week?

The performance of major equity indices mirrored the growing concern of a rebound or ‘second wave’ of the pandemic in the United States. Generally, the U.S. is reopening earlier, more quickly and more aggressively state by state than Canadian provinces. For example, Ontario has just entered its Phase 2, but not in areas of concern along the border and in Toronto. In the U.S. many states are two weeks ahead of this schedule and nearly half the states are beginning to see an increase in cases and hospitalizations. The sharp decline in New York and New Jersey are masking the overall rise in cases nationwide. Expect financial markets to follow total tests, cases counts, hospitalizations and deaths very closely.
https://www.nytimes.com/2020/06/14/us/coronavirus-united-states.html        https://www.nytimes.com/interactive/2020/us/coronavirus-us-cases.html

It is imperative that we continue physical distancing and precautions like wearing masks, washing hands and keeping a tight social circle or we will be following in the U.S. footsteps.

U.S. Federal Reserve left its benchmark interest rate unchanged on Wednesday. The control of inflation and maintaining high employment levels are the Fed’s two fundamental objectives. Fed Chair, Jerome Powell, stated during the announcement that “We went from the lowest level of unemployment in 50 years to the highest level in close to 90 years, and we did it in two months.”
https://www.nytimes.com/2020/06/10/business/economy/federal-reserve-rates-unemployment.html

The latest details from the Canadian Federal government on stimulus and economic assistance are available at https://www.canada.ca/en/department-finance/economic-response-plan.html

What’s ahead for this week?

In Canada, inflation numbers for May will be released through the Consumer Price Index (CPI).  Coupled with April’s retail sales, a key component of consumer spending and also overall economic activity, a clearer picture of Covid-19’s effects will continue to emerge.

In the U.S., May’s retail sales will be announced along with industrial production and capacity utilization. They will give a more updated view of the U.S. economy’s performance.

 

Last Week in the Markets: June 1 – 5, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week?

The last two weeks have followed the same pattern; equities have risen across all indices in our grid (above) along with the Canadian dollar and the price of oil with gold suffering the sole weekly loss. The more things change, the more they stay the same:

  • The Bank of Canada has a new Chairperson, Tiff Macklem, taking over from Stephen Poloz, and was merely an observer of the deliberations that kept the overnight rate, deposit and Bank Rate unchanged.
  • The TSX has risen 10 of the last 11 weeks, yet still lags American indices most weeks and in its recovery of year-to-date and year-over-year performance.
  • The Canadian dollar moved higher against its American counterpart. The upward movement is related to the rise in the price of oil.
  • The Canadian and American economies have added back jobs, which surprised economists, not the first or last time that professional analysts have erred.

The markets will follow the facts and optimism for post-Covid economic recovery:

https://www.bankofcanada.ca/2020/06/fad-press-release-2020-06-03/    https://www.theglobeandmail.com/investing/markets/inside-the-market/market-news/article-canadian-dollar-adds-to-weekly-gain-after-shock-jobs-rebound/

Reopening plans vary across the country, the most recent plans are summarized at https://www.cbc.ca/news/canada/here-s-what-different-provinces-territories-are-planning-for-covid-19-reopenings-1.5601572

The latest details from the Canadian Federal government on stimulus and economic assistance are available at https://www.canada.ca/en/department-finance/economic-response-plan.html

What’s ahead for this week?

In Canada, the two major indicators to be released are May’s housing starts and Q1’s capacity utilization. The latter will demonstrate the very early effects of Covid-19 on output.

In the U.S., the Federal Reserve will announce its latest monetary movements through its Federal Open Market Committee. Inflation figures for May will also be released with the Consumer, Import and Export price indices.

 

Last Month in the Markets: May 1 – 31, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened in May?

May 2020 will be remembered for a long time, and for devastating reasons:

  • The Covid-19 pandemic continued to take its toll in Canada and around the world.
    • Our vaunted public healthcare system had many of its shortcomings exposed with devastating consequences, especially for long-term care home residents and the most vulnerable.
    • At midday on June 1st, according to Johns Hopkins University, Covid-19 cases and deaths in Canada had reached 92,688 and 7,396, respectively. The U.S. had 1.8 million cases and 104,484 deaths, while the global cases reached 6.2 million and 373,032 deaths. Comprehensive global and country statistics are found at https://coronavirus.jhu.edu/map.html
  • The economic effects of the pandemic grew in size and its negative effects on employment, consumer and business spending, gross domestic product, government debt and deficit and monetary policy.
  • In many U.S. cities and elsewhere, including Canada, the death of George Floyd while in police custody was the ignition spark for protests and demonstrations promoting racial equality. The beginning of a work week typically lowers the number of participants, but in an era of extreme unemployment the demonstrations will likely continue at their current fury.

The next few weeks will be critical in determining both the short and long-term economic trajectories for countries and individuals. The most critical element will be the recovery from Covid-19. There are concerns from public health officials in Canada and the United States that the recent Victoria Day and Memorial Day celebrations could start a resurgence of new cases. This sentiment was held before the demonstrations of the last week of May.

People tend to seek medical assistance about one to two weeks after exposure, therefore the first two weeks of June will indicate if the large gatherings have stalled the containment and recovery of the coronavirus.

(source:  ARG analysis and Bloomberg  https://www.bloomberg.com/markets)

The progress of equity indices in May is displayed in the figure (above) and its context year-to-date (YTD) in 2020. The tech-heavy NASDAQ (shown in red) has gained more than 5% this year. The companies that are benefiting from the Covid-19 lockdown, like Amazon, are leading its upward movement. The broad-based TSX and major U.S. firms of the Dow have each index down about 11%.

Canadian Gross Domestic Product (GDP) fell by 7.2% in March and is estimated by Statscan to have fallen a further 11% in April, which was the first month fully under Covid-19 restrictions.  April could represent the deepest low as sectors begin to reopen across the country and allow May to be an improvement. The quarantine in Canada was more severe than the U.S. and consequently caused more economic damage. Recovery will be linked to the resumption of consumer spending and whether a second wave forces new or prolonged restrictions. https://www.theglobeandmail.com/business/economy/article-canadas-economy-saw-record-decline-in-march-worse-numbers-forecast/

The latest details from the Canadian Federal government on stimulus and economic assistance are available at https://www.canada.ca/en/department-finance/economic-response-plan.html

What’s ahead for June and beyond?

Outgoing Bank of Canada Chair, Stephen Poloz, is optimistic regarding Canada’s economic prospects for the second half of 2020 and beyond. As equity markets seem to, he predicts that a more rapid recovery will occur than the prevailing negative predictions.  https://www.theglobeandmail.com/business/article-canadian-economy-on-track-for-healthy-post-pandemic-recovery-poloz/

On the May 17th edition of CBS’ 60 Minutes, Jerome Powell, Federal Reserve Chair was asked what economic metrics he follows, “The thing that matters more than anything else is the medical metrics frankly, the spread of the virus. The real-time economic data that we’re seeing is just a function of how successful the social distancing measures are.” The early results of a vaccine trial, and countries beginning to reopen their economies has spurred the equities rally that we have seen during May, and will continue to do so. The full interview can be found at: https://www.cbsnews.com/news/coronavirus-economy-jerome-powell-federal-reserve-chairman-60-minutes/

 

Last Week in the Markets: May 25 – 29, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week?

Monday was a banking holiday in the U.S. and the shortened week along with some encouraging news pushed North American and global equities higher. The TSX finished nearly 2% ahead on its full trading week, despite gains being given back at the end of the week.

More economies and jurisdictions are reopening their economies, which is not without risk, and has caused some of the upward trajectory of last week. Americans who received stimulus cheques placed much of the money into savings since spending options were mostly limited to online purchases.  It is expected that the reopening of retail will spur consumer spending, which has driven the U.S. economy lately. Optimism for re-opening is driving stock markets. https://www.nytimes.com/2020/05/29/business/economy/coronavirus-consumer-spending.html

Canadian Gross Domestic Product (GDP) fell by 7.2% in March and is estimated by Statscan to have fallen a further 11% in April, which was the first month fully under Covid-19 restrictions.  April could represent the deepest low and as sectors begin to reopen across the country and allow May to be an improvement. The quarantine in Canada was more severe than the U.S. and consequently caused more economic damage. Recovery will be linked to the resumption of consumer spending and whether a second wave forces new or prolonged restrictions. https://www.theglobeandmail.com/business/economy/article-canadas-economy-saw-record-decline-in-march-worse-numbers-forecast/

The latest details from the Canadian Federal government on stimulus and economic assistance are available at https://www.canada.ca/en/department-finance/economic-response-plan.html

What’s ahead for this week?

In Canada, the next Bank of Canada interest rate decision will be announced on Wednesday.  Also, May’s employment report will be released. The effectiveness of government’s pay subsidies will be on display.

In the U.S., May’s employment report will also be released, which will dovetail with April’s construction spending and durable goods orders to show the effects of Covid-19.

 

Last Week in the Markets: May 18 – 22, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week?

Monday, Victoria Day, when our markets were closed American equities jumped 2-4% and oil jumped up 6%. This positive momentum continued on Tuesday for the TSX and on Wednesday morning with North American equity indices up another 1-2% and oil added another 5% to its price in early trading. By week’s end, equities indices had moved ahead steadily and maintained their gains.

On the May 17th edition of CBS’ 60 Minutes, Jerome Powell, Federal Reserve Chair was asked what metrics he follows, “The thing that matters more than anything else is the medical metrics frankly, the spread of the virus. The real-time economic data that we’re seeing is just a function of how successful the social distancing measures are.” The early results of a vaccine trial, and countries beginning to reopen their economies spurred the equities rally. The full interview: https://www.cbsnews.com/news/coronavirus-economy-jerome-powell-federal-reserve-chairman-60-minutes/

Outgoing Bank of Canada Chair, Stephen Poloz, sounded optimistic when discussing Canada’s economic prospects for the second half of 2020 and beyond. He believes that the prevailing negative predictions do not reflect the more rapid recovery that he predicts.  https://www.theglobeandmail.com/business/article-canadian-economy-on-track-for-healthy-post-pandemic-recovery-poloz/

The latest details from the Canadian Federal government on stimulus and economic assistance are available at https://www.canada.ca/en/department-finance/economic-response-plan.html

What’s ahead for this week?

In Canada, March’s Gross Domestic Product will be released, which will show the early effects of Covid-19. Also, the latest re-opening plans, province-by-province, are summarized here https://www.theglobeandmail.com/canada/article-coronavirus-rules-by-province-physical-distancing-open-closed/

In the U.S., Memorial Day will close American markets on Monday, May 25th. Consequently, a shortened week will limit important economic announcements to new and pending home sales, durable goods orders, and consumer income and spending, all for April.

 

Last Week in the Markets: May 11 – 15, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week?

All of the North American equity indices suffered losses which approximated their gains of the previous week. The reasons were many, and all are related to the pandemic;

  • several countries that had Covid-19 case counts lowering reversed their improvements
  • American epidemiologist, Dr Anthony Fauci, warned that reopening too soon could endanger lives
  • Federal Reserve Chair, Jerome Powell predicted long-term permanent harm to the economy without additional stimulus spending as the House of Representatives passed a $3 Trillion bill that Trump has promised to veto
  • tension between the U.S. president and China’s leaders is on the rise again as accusations continue that the outbreak in Wuhan was mishandled
  • Canadian government debt has reached its highest level since WWII
  • 2 million Canadians lost their job in April and the unemployment rate is 13%

Thankfully, positive progress on Covid-19 vaccine development has occurred and buoyed U.S. equity markets approximately 2-4% on Victoria Day while oil jumped nearly 6%. https://www.nytimes.com/2020/05/15/us/coronavirus-updates.html                                  https://www.theglobeandmail.com/business/article-two-million-canadian-jobs-lost-in-april-as-unemployment-rate-reaches/
https://www.theglobeandmail.com/world/article-who-chief-promises-review-of-coronavirus-response-china-defends-its/

The latest details from the Canadian Federal government on stimulus and economic assistance are available at: https://www.canada.ca/en/department-finance/economic-response-plan.html

What’s ahead for this week?

In Canada, it will be a short trading week with a national holiday on May 18th.  On the 19th, Ontario, the largest province in population and economic activity, begins Phase I of its reopening. Inflation data for April will be released through the Consumer Price Index.

In the U.S., housing starts, building permits and existing home sales will be announced. Also, Memorial Day will close American markets on May 25th.

 

Last Week in the Markets: May 4 – 8, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week?

It was another strong week for the TSX, and the U.S. indices, too. The TSX has achieved a weekly gain for seven consecutive weeks, the S&P 500 is ahead of its position of 1 year ago, the NASDAQ has gained nearly 2% this year and nearly 15% since May 2019. The Dow, which is focused on the largest American firms continues to languish. The Canadian dollar strengthened along with gold and oil. However, the trouble for oil will continue, and will continue to weigh down the TSX, as long as its price hovers 60% lower than a year ago and the end of last year.

The coronavirus has entered the White House with one of the president’s valets and the VP Pence’s press secretary testing positive. The leaders of the Centers for Disease Control (CDC), the Food and Drug Administration (FDA), and Dr. Anthony Fauci are all self-quarantining as a precaution. More staff members of the Executive branch or the Coronavirus Task Force being diagnosed could threaten the confidence in containment and consequently economic recovery.  https://www.nytimes.com/2020/05/10/us/politics/white-house-coronavirus-trump.html

https://www.theglobeandmail.com/world/article-two-members-of-white-house-virus-task-force-in-quarantine/

The latest details from the Canadian Federal government on stimulus and economic assistance are available at https://www.canada.ca/en/department-finance/economic-response-plan.html

What’s ahead for this week?

In Canada, provinces will begin to enact their re-opening plans in earnest. Manufacturing Sales figures for March will be announced, which will indicate the early effects of Covid for that sector.  Among other things, parks, campgrounds, day-care centres, garden centres, retailers with curb-side pickup are beginning to re-open. As of May 9th, the latest plans by each province can be found at https://globalnews.ca/news/6920122/coronavirus-heres-how-provinces-plan-to-emerge-from-covid-19-lockdown/

In the U.S., similarly states will continue their plans for economic recovery while attempting to balance public health.  Some important economic indicators are scheduled for release; Consumer Price Index, Import and Export Price indices and Retail Sales, all for April.

 

Last Month in the Markets: April 1 – 30, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened in April?

Despite a one-day drop at its conclusion, April 2020 was one of the most successful on record for equity indices in North America. Each of the local major indices rose more than 10%, as did the All Country World Index (ACWI) representing both developed and developing markets around the world.

Unfortunately, April followed its polar opposite of March. Technology stocks that power the NASDAQ index have regained their losses and have put nearly 10% on to their value in the past year. The more balanced S&P 500, TSX and Dow indices will require much more of the April-like performance to reach the enviable position of the NASDAQ.

(source:  ARG analysis and Bloomberg  https://www.bloomberg.com/markets)

The price of oil remains an issue for investors in Canada. Demand has fallen significantly, while supply has not matched demand’s decline. The oversupply and resultant worries regarding storage capacity had May oil futures for West Texas Intermediate (WTI) drop well into negative territory. The Energy sector is the second largest component of the TSX, behind Financials, and the sinking price of oil and hovering at or below $20/barrel causes significant damage to the industry. Investment in discovery, development and distribution become dubious, and company profitability, a major driver of share price, becomes increasingly difficult as revenues drop.   https://www.nytimes.com/2020/04/21/upshot/negative-oil-price.html

Improving statistics for the coronavirus pandemic provided an undercurrent for equities as companies and governments announce and enact plans to re-start their economies. Several U.S. states have plans to re-open their economies, and several more have experienced protests by those who feel the timetable and breadth of the plans are not aggressive enough. https://www.theglobeandmail.com/world/article-italy-reveals-cautious-reopening-schedule-as-deaths-and-new/

What’s ahead for May and beyond?

The coronavirus will continue to dominate the news, financial markets and people’s lives for the foreseeable future. The single most important accomplishment leading to an economic recovery is ending the pandemic.

The virus can be contracted from a person displaying no symptoms. As the weeks of physical distancing continue, it is increasingly important to stay vigilant, maintain physical distancing and avoid potentially dangerous situations.

Restrictions on Canadians are beginning to be lifted. It will be a slow process that will attempt to deliver economic benefits while mitigating personal and public health threats.  https://www.cbc.ca/news/canada/coronavirus-covid19-canada-world-may4-1.5554249

Canada’s Covid-19 Economic Recovery Plan (CERP) with descriptions and details and applications can be found at https://www.canada.ca/en/department-finance/economic-response-plan.html

In central banking news, the successor to Bank of Canada Governor, Stephen Poloz, has been announced. Tiff Macklem, former Deputy Governor and current Dean of the Rotman School of Management, will officially assume the responsibility for Canadian monetary policy on June 3rdhttps://www.theglobeandmail.com/business/article-who-is-tiff-macklem-the-new-bank-of-canada-governor/

As November and the U.S. election approaches, expect the White House to make multiple attempts to shift blame for the domestic spread of the coronavirus. The U.S. has blamed the World Health Organization (WHO) of being too close and forgiving of China, and has stopped funding pending an investigation.  Most recently, Secretary of State, Mike Pompeo, has stated that the virus originated in a Wuhan lab, and has refused to release any evidence to support this accusation.  Investors should take notice because this escalating rhetoric will pit the leadership of these two economies against one another. The trade treaties that were agreed in late 2019 could be put at-risk if the animosity escalates. Open trade between the U.S. and China will contribute significantly to any post-Covid recovery. https://www.theglobeandmail.com/world/article-mike-pompeo-links-coronavirus-to-wuhan-lab-despite-intelligence/

 

Last Week in the Markets: April 27 – May 1, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week?

Despite a pull-back on Thursday and Friday for North American equities, it was another strong week for the TSX. It was its sixth consecutive weekly gain, and over the last two weeks the TSX has gained while the major American indices lost more ground. However, the TSX is still down 14% this year, and 18% from its peak in late February.

By week’s end oil prices had stabilized somewhat after beginning the week with storage capacity worries causing a 25% price drop on Monday morning. Energy and Financials, the two sectors with the heaviest weighting on the TSX led the overall gain for the index.

Improving statistics for the coronavirus pandemic provided an undercurrent for equities as companies and governments announce and enact plans to re-start their economies. Several U.S. states have plans to re-open their economies, and several more have experienced protests by those who feel the timetable and breadth of the plans are not aggressive enough.

https://www.theglobeandmail.com/world/article-italy-reveals-cautious-reopening-schedule-as-deaths-and-new/

In central banking news, the successor to Bank of Canada Governor, Stephen Poloz, was announced. Tiff Macklem, former Deputy Governor and current Dean of the Rotman School of Management, will officially assume responsibility on June 3rdhttps://www.theglobeandmail.com/business/article-who-is-tiff-macklem-the-new-bank-of-canada-governor/

The latest details from the Canadian Federal government on stimulus and economic assistance are available at https://www.canada.ca/en/department-finance/economic-response-plan.html

What’s ahead for this week?

In Canada, we will see March building permits and April housing starts. The employment report will be released, which will show the early effects of Covid-19 on household income.

In the U.S., their employment report for April will also be released, along with March numbers for durable goods order, wholesale inventories and the trade balance.

 

Last Week in the Markets: April 20 – 24, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week?

The TSX was one of few equity indices that did not lose any more value last week. Gold rose as a safe haven as most equities fell. The Canadian dollar fell against the U.S.; it now takes about $1.41 CDN to buy $1 USD.

Unprecedented pricing occurred for oil early last week. Demand has fallen drastically while production continues above current needs. As the delivery of May oil contracts approached, concerns about oil storage capacity reached extreme heights. Capacity to accept more is limited and predicted to be fully consumed this summer if the current over-supply continues.

On Monday, the price of a barrel of oil fell below zero! American West Texas Intermediate (WTI), was MINUS $37 USD per barrel. Physically storing oil could become a problem and the negative price indicated that holders of oil were willing to pay someone to take it off their hands! https://www.nytimes.com/2020/04/21/upshot/negative-oil-price.html  https://www.theglobeandmail.com/business/article-a-global-wave-of-money-printing-awakens-fears-of-inflation/

The typical relationship between the price of oil and the TSX did not occur last week, which in this case is good news. The Energy sector has the second highest weighting in the TSX, behind Financial Services, so oil’s performance will always be important for investors in Canada.

What’s ahead for this week?

Canadian Gross Domestic Product numbers for February will be released. It will show the trajectory of our economic growth before the full-force arrival of the pandemic arrived in March.

On Wednesday, the U.S. Federal Reserve will announce an interest rate decision with little, if any, room to operate. Personal income and spending for March will be released that will be partially affected. Full effects for most economic indicators will arrive in May.

The latest details from the Canadian Federal government on stimulus and economic assistance are available at: https://www.canada.ca/en/department-finance/economic-response-plan.html

 

Last Week in the Markets: April 13 – 17, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week?

Last week had some semblance of regular, pre-Covid performance. North American equity indices gained 1-3%, with the NASDAQ jumping by 6%, while the Canadian dollar and gold falling as stocks rose. Oil continued to flounder despite announcements from OPEC+ that production will slow to support the price of oil.

Tension is rising in Canada among First Ministers and the Prime Minister, and the opposition. Fortunately, Canadian Covid efforts have been rooted in science over politics. New rules to govern the House of Commons during Covid-19 are under discussion as the minority Liberals forge ahead with actions supported in varying degrees by the opposing parties.  https://www.theglobeandmail.com/politics/article-deadline-looms-for-agreement-on-reopening-house-of-commons/

The Bank of Canada’s announcement last week gave a concise summary of the economic conditions and rapid response for Covid-19. Inflation, economic growth, spending, and liquidity continue their importance, while the Bank will continue to support Canadians even as Governor Poloz’ term approaches its conclusion.  https://www.bankofcanada.ca/2020/04/opening-statement-150420/

Discussions regarding the re-opening of the U.S. economy provided positive momentum for North American and global equity indices. The growing animosity between Governors and the White House will certainly cause additional friction; especially regarding the availability of testing and surveillance testing. https://www.cnn.com/2020/04/19/politics/trump-governors-coronavirus-testing/index.html

What’s ahead for this week?

Any progress will be measured by the number of new cases, hospitalizations, deaths, and their timing. In Canada, the Consumer Price Index for March will recognize the most recent period of inflation. In the U.S., new and existing home sales, along with durable goods orders will indicate how close consumers are to business-as-usual during these highly unusual times.

The latest details from the Federal government on stimulus and economic assistance are available at https://www.canada.ca/en/department-finance/economic-response-plan.html

 

Last Week in the Markets: April 6 – 10, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week?

It was a shortened trading week that included Passover and Easter. Markets were closed on Good Friday. Thankfully, the week began well, continued in that direction and finished the week positively. North American indices rose 5-7% on Monday, held steady on Tuesday, then gained on both Wednesday and Thursday. Gold generally followed equities’ daily performance, albeit with smaller percentage gains. Our dollar turned in steady gains, while oil followed its own path finishing in negative territory again last week.

Early in the week, values were buoyed by optimistic news from Europe (Italy, France, Spain) and the U.S. (particularly New York City and state) that Covid-19 death and infection rates were beginning to slow. Tuesday began well as China reported no deaths and South Korea had fewer than 50 new cases for the second consecutive day.

Prior to Thursday’s opening, the Federal Reserve announced a $2.3 Trillion plan to support businesses, states, counties and cities by providing 4-year loans through banks, and bond purchases to spur economic activity.

What’s ahead for this week?

The Bank of Canada has an interest rate announcement scheduled for Wednesday. At the very least expect updates on the monetary measures previously announced. U.S. inflation numbers for March will be released; Consumer Price Index (CPI) and the Import and Export Price indices.

The most important data will be the growth rate of cases and deaths, unfortunately. In addition to the families most affected, it will drive performance in the markets.

The Federal government continues to adjust the elements of its economic assistance plan. More changes will emerge, and if and when a full Parliament will sit, on Saturday, 20 MPs (the minimum required for a quorum) meet to pass additional legislation, raising the wage subsidy to 75%. The latest approved details on all elements of the response plan can be found at https://www.canada.ca/en/department-finance/economic-response-plan.html

 

Last Week in the Markets: March 30 – April 3, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week? 

Another tempestuous week befell markets last week. The only North American equity index that managed a gain was Canada’s TSX, which moved ahead 2%, while the U.S. indices lost 2-3%.  Much of the gain in Toronto is linked to the leap in the price of oil last week. West Texas Intermediate (WTI) started the week below $20, and ended the week gaining over 30%, which translated into better prices for Canadian oil. The second largest sector on the TSX is Energy, behind Financial Services, so gains in the price of oil contribute heavily to the overall index value.

Although the deadline for 2020 income taxes is more than one year away, and we all have many challenges ahead, there are advantages of working from home. Bearing in mind that the existing rules may change, or be applied differently because of the current situation. The first step is to keep track of any work-at-home expenses or those that could be attributed like office supplies and equipment and utilities. More guidance will emerge from CRA to be interpreted by tax accountants.
https://www.theglobeandmail.com/investing/globe-advisor/advisor-news/article-pandemic-led-flight-to-home-offices-brings-tax-perks/

What’s ahead for this week?

Fiscal measures by governments, along with the deep losses already taken, appear to have stabilized equity markets somewhat.

There are almost 15,000 cases and over 250 deaths in Canada. Early information in B.C. indicates that the spread of Covid-19 could be slowing in that province, providing hope that the measures taken there will prove effective across the country. Globally, the case count is nearing 1.3 million with ¼ of the cases in the United States. President Trump has extended physical distancing and isolation guidelines until the end of April.             https://www.theglobeandmail.com/canada/article-bcs-health-officer-says-decrease-in-covid-cases-heartening-2/   https://coronavirus.jhu.edu/map.html

The Federal government’s economic assistance plan, CERP, provides benefits to individuals and businesses. https://www.canada.ca/en/department-finance/economic-response-plan.html

 

Last Month in the Markets: March 2 – 31, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened over the past 5 years, in 2020 and in March?

For most of 2015, equity markets made little or no headway, losing ground until a trough was reached in February of 2016.  North American equities then grew in value for the next four years, until their peak last month. The last week of February and most of March have brought us to the point where we began the Bull Market in early 2016.

(source:  ARG analysis and Bloomberg  https://www.bloomberg.com/markets)

This has, arguably, been the most difficult time for investors individually, as families, as retirees, as workers, as Canadians. This will not change in the near future even as “unprecedented actions”, according to Prime Minister Trudeau, are undertaken nationally, provincially and around the globe.

As difficult as the past six months have been financially, it is the next six weeks and six months that will determine the trajectory of our collective health and wealth.

What’s ahead for April and beyond?

There isn’t any doubt that the coronavirus will continue to dominate the news, financial markets and people’s lives for the foreseeable future. The single most important accomplishment leading to an economic recovery is ending the pandemic. Once Covid-19 has little or no influence over health outcomes international trade companies will recover, industries will rebuild, and values can return.

There are contributions that each of us at home and at work can make to limit the spread of the disease with physical distancing, conducting only essential trips, supporting each other emotionally, and reducing the opportunity for medically vulnerable people from infection.

As of 6 pm EDT on March 31st, 241,138 Canadians had been tested for Covid-19 with 8,536 confirmed cases and 96 deaths.  Many of those who have contracted the disease display few, if any, symptoms.  However, when someone becomes seriously ill, extreme lifesaving measures are required and in 96 cases the measures were unsuccessful.

Equity markets, where Canadians have traditionally invested most of their retirement savings opened the month with a dramatic drop of 3-4% on the morning of April 1st.  Expect more volatility and uncertainty in markets that will mirror the coronavirus uncertainty.

The latest, and continuously updated, information on Covid-19 from the Federal government can be found at https://www.canada.ca/en/public-health/services/diseases/coronavirus-disease-covid-19.html

Canada’s Covid-19 Economic Recovery Plan (CERP) with descriptions and details and applications can be found at https://www.canada.ca/en/department-finance/economic-response-plan.html

Parliament is being recalled, albeit with a minimum of MPs, to pass additional legislation to allow the economic response as announced to be supported by the necessary laws.

 

Last Week in the Markets: March 23 – 27, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week? 

Overall North American equities fared better last week. Certainly not on Monday or Friday, and not relative to their positions a year ago, at year-end or from the recent highs of mid-February.  The volatility has also been extremely high, and nerve-wracking. When an index is +/- 10%, many of its component companies have gained or lost significantly more than 10%.

Despite the political intrigues of the U.S., which we have largely avoided, they were able to pass a $2 Trillion economic plan through the legislative and executive branches of their government.

Early Wednesday morning the House of Commons passed legislation to provide economic relief for Canadians. Full details for individuals and businesses can be found on our Federal government’s website at https://www.canada.ca/en/department-finance/economic-response-plan.html

Part of the legislation allows the governing Liberals to introduce new ‘money’ measures to counteract the effects of Covid-19 without requiring more sessions and votes in Parliament.

It is anticipated that the government will keep the most current information stored at this web location; please refer to it, not interpretation or third-party sources of information. Updates have already been made, so this web location should be the best location for the most accurate information. Links are available within to applications and detailed information for program eligibility and timing.

What’s ahead for this week?

Volatility is not expected to change until the uncertainty regarding the pandemic stabilizes. On Sunday evening, the global number of confirmed cases was about 720,000 with 34,000 deaths.  At the same hour Canada had 6,250 cases with 64 deaths, while the U.S. case count was above 137,000 and 2,400 deaths.  https://coronavirus.jhu.edu/map.html

There are a myriad of statistics and sources to follow, especially as many are self-isolating at home in-front of the tv or computer. A more manageable number of items to follow is six, as suggested by the Globe & Mail at https://www.theglobeandmail.com/investing/markets/inside-the-market/article-as-coronavirus-crisis-progresses-here-are-six-key-areas-to-monitor/

 

Last Week in the Markets: March 16 – 20, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week?

The negative momentum in the markets has not slowed. Government and central bank actions have not effectively injected confidence back into equities, credit or economies. The uncertainty of the coronavirus is overwhelming the reaction. As long as the economic effects remain unquantified, it will be difficult to stem further losses in the markets. Once infection rates begin to slow, and the overall economic damage can be reasonably estimated, and a recovery is envisioned, the markets will begin their recovery.

As of Tuesday, over $20 Trillion in losses had been achieved as the overall market capitalization fell dramatically in response to the uncertainty of the coronavirus. And the losses have continued to grow as the week progressed.

https://www.theglobeandmail.com/investing/markets/inside-the-market/article-global-markets-hit-with-us20-trillion-in-losses-during-coronavirus/

On Wednesday in a joint press conference with Minister of Finance, Bill Morneau, and Bank of Canada Chair, Stephen Poloz, announced fiscal measures and explained monetary manoeuvres.  The government of Canada has totalled $93 Billion in measures, representing more than 3% of our Gross Domestic Product, to create liquidity, and defer expenses and taxes.  https://www.theglobeandmail.com/business/article-canadian-policy-makers-move-to-shore-up-financial-system-cushion/

https://www.theglobeandmail.com/politics/article-trudeau-unveils-82-billion-in-aid-tax-deferrals-for-coronavirus/

By Sunday evening, Johns-Hopkins University tallied the global number of covid-19 infections at 329,935, with deaths at 14,379. The U.S. is experiencing the greatest growth rate in cases at the moment, with over 32,000 cases and 409 deaths. https://coronavirus.jhu.edu/map.html

What’s ahead for this week?

On Sunday morning, in his daily press briefing, Prime Minister Trudeau indicated that the $93 Billion in fiscal stimulus and tax deferments are the first waves of assistance. Parliament is being recalled on Tuesday to pass emergency legislation. In the United States, legislators are negotiating a recovery package with a total cost and benefit of approximately $1 Trillion. Markets will respond to these actions once they have been passed.

 

Last Week in the Markets: March 9 – 13, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week?      

It was a second consecutive week with extremely high volatility and losses.

  • On Monday, North American commodity markets took a major beating. The TSX lost 10.3%, S&P 500 shed 7.6%, the Dow dropped 7.8%, its largest single day point-drop, and the NASDAQ gave back 7.3%. Oil lost 25% or $10.37 USD/barrel and the Canadian dollar lost nearly 1 ½ cents or 1.8%. The lone gainer was gold, which managed only a $4.80 USD increase worth 0.3%. The losses were so severe that U.S. exchanges halted trading, as their rules require, for 15 minutes after a loss of 7% had been experienced.
  • On Tuesday after a rally in Europe, the TSX regained 3% of Monday’s losses and the American indices each gained back nearly 5%.
  • On Wednesday, the World Health Organization declared the coronavirus a pandemic. At that time the virus had infected 118,000 people in 114 countries and killed 4,291. https://www.who.int/dg/speeches/detail/who-director-general-s-opening-remarks-at-the-media-briefing-on-covid-19—11-march-2020
    • The reaction from markets was swift, with North American indices losing 5-6%.
  • On Thursday, the Bull Market became a Bear Market. Everyone who has had investments, especially since 2008 or before, understands the feeling this inflection point causes. https://www.theglobeandmail.com/investing/markets/inside-the-market/article-rosenberg-a-significant-bear-market-is-just-starting/
  • To finish the week, on Friday, the TSX gained 9.7%, S&P 500 and NASDAQ rose 9.3%, the Dow clawed back 9.4%; largely in response to Trump declaring a national emergency and freeing about $50 Billion in aid.

What’s ahead for this week?

  • Markets will respond to the actions taken by domestic and foreign governments as well as central banks. Sunday, the U.S. Federal Reserve set the federal funds rate to 0 to ¼%; a cut of 50 basis points. It also announced new quantitative easing and bond measures to support the U.S. economy. Other countries are following the same course of action. https://www.federalreserve.gov/newsevents/pressreleases/monetary20200315a.htm

 

Last Week in the Markets: March 2 – 6, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week?

It was a volatile week for equity markets as the COVID-19 spread and governments reacted. As of this writing, more than 100,000 people are infected, and nearly 4,000 have died.

Based on the headlines, one might have expected our grid (above) to be all-red and for the drops to be very large. Aside from the TSX, which lost ½% of its value equities gained this week, and most importantly, stopped the precipitous drop that happened during the last week of February.

On any given day, or week, there can be significant volatility, which should promote a long-term investment strategy of buying vehicles with the appropriate amount of anticipated gain balanced with the risk necessary to earn the gain.

Last week demonstrated significant volatility. The highlights included:

  • On Friday, the U.S. Bureau of Labor Statistics released the jobs report for February. 273,000 new non-farm jobs were created, and the unemployment rate stayed at 3.5%. The coronavirus had yet to impact job creation. Despite the strong labour numbers, the S&P 500, the Dow and NASDAQ lost 1.71%, 0.98%, and 1.87%, respectively, while the TSX dropped 2.29%. https://www.bls.gov/news.releasne/pdf/empsit.pdf
  • Oil also saw significant volatility during the week as OPEC nations led by Saudi Arabia met to bolster prices by limiting supply to match decreased demand, but still lost another 8%, and has lost a third of its value in year-to-date after ending 2019 over $61 USD/barrel.
  • During the first week of March, gold has risen $105.70 and 6.75% as it fulfilled its safe-haven investment role.

What’s ahead for this week?

  • In Canada, January’s building permits and February’s housing starts and house sales will be announced, as most watch global coronavirus coverage.
  • In the U.S., inflation news will dominate scheduled economic releases with February’s Consumer and Producer Price Indices (CPI and PPI, respectively) and Import Price Index on the calendar.

 

Last Month in the Markets: February 3 – 28, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened in February?   

During the first three weeks, February had been acting like most months over the last four years.  Then equity investors suffered a major reversal during the last week. By the end of February year-to-date gains for equities had moved into negative territory around the world. Despite a reasonable start to February with gains realized over the first three weeks, the month’s decline was between 6% and 10% for Canada’s TSX and the three major U.S. indices.

The losses at the end of February were large enough to significantly reduce the gains made during the bull market that has been running since early 2016. The technical term for a drop of more than 10% is “correction,” and from their high points on February 18th and 19th, between 10 and 12% of equity value was lost across major North American indices.

(source:  ARG analysis and Bloomberg  https://www.bloomberg.com/markets)

Most, if not all, of the market correction, is attributed to the coronavirus that has spread to 6 of 7 continents. The number of new cases and deaths spiked across western Europe, especially in Italy. Its infection and mortality continue to increase, although there is some disagreement about those rates, especially when Washington is discussing the domestic situation. The U.S. had its first two coronavirus deaths by March 1st. After some promising news midmonth, the number of infections has exceeded 83,000 cases and killed about 3,000 people, globally.   https://www.theglobeandmail.com/investing/markets/inside-the-market/article-before-the-bell-what-every-canadian-investor-needs-to-know-today-320/

The effects of the virus were felt in Canada when the TMX halted trading on February 27th due to a technical problem related to capacity during one of the busiest days of 2020. Traders were not able to enter, modify or cancel open orders. At day’s end, the TSX was down 2% at its early closing time, while the S&P 500, Dow and NASDAQ each lost 4½% on a full day of trading.  https://www.theglobeandmail.com/investing/markets/inside-the-market/article-frenzied-trading-sends-sp-500-into-correction-territory-and-halts/

The market news was unchanged on Friday, the last day of trading for February. The TSX opened by dropping over 500 points, and the U.S. markets were down similar proportions.

What’s ahead for March and beyond?

The coronavirus will continue to dominate the news and financial markets. The Organization for Economic Development and Cooperation (OECD) has reduced the global Gross Domestic Product (GDP) projections for 2020. Based on the assumption that the outbreak will peak this quarter and be relatively mild and contained, the annual GDP growth rate has been lowered from 2.9% to 2.5%. If the disease runs rampant, economic growth will fall to just 1.5%.

In response, expect governments to introduce economic stimulus packages and central bankers to lower interest rates. Unfortunately, lowering interest rates to spur economic growth is difficult since the rates are already very low. The U.S. Federal Reserve lowered rates three times in 2019 to protect their economy from the effects of the trade dispute with China. Lower interest rates reduce the cost of borrowing, and lower borrowing costs are meant to increase purchases. Unfortunately, lower prices are not the only consideration at this point with personal safety reducing business travel, for example.

At the beginning of March, the Federal Reserve is taking a wait-and-see approach as they monitor economic indicators closely, the Bank of Japan has promised to take the necessary steps to “stabilize markets jolted by the coronavirus outbreak”, G7 finance ministers are discussing a coordinated approach. The Bank of Canada has its latest interest rate announcement scheduled for Wednesday, March 4th.

https://www.theglobeandmail.com/business/international-business/article-oecd-warns-coronavirus-outbreak-could-cut-global-growth-by-half/

https://www.nytimes.com/reuters/2020/02/28/business/28reuters-china-health-centralbanks-analysis.html

https://www.nytimes.com/reuters/2020/03/02/world/asia/02reuters-health-coronavirus-japan.html

This downward economic shock will not be reversed until the underlying health crisis has ended.  Currently, Health Canada, Centers for Disease Control (CDC) and the World Health Organization (WHO) have yet to officially classify the coronavirus as a “pandemic”. However, the U.S. is seeking $2.5 Billion to fight its spread, even while some experts suggest that $15 Billion is a more appropriate number to fight the disease’s spread. https://www.nytimes.com/2020/02/29/opinion/sunday/corona-virus-usa.html?action=click&module=Opinion&pgtype=Homepage

 

Last Week in the Markets: February 24 – 28, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week?  

What’s ahead for this week?

  • In Canada, coronavirus news and reaction will be the dominate influence for markets until it is contained. The Bank of Canada will announce its latest interest rate decision on Wednesday. The decision and announcement will include the influence of the virus.
  • In the U.S., the recent death and growing number of infections will undoubtedly have an effect as the virus increases its strength. February’s employment report and job creation will likely reflect the virus’ impact in the short-term.

 

Last Week in the Markets: February 17 – 21, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week? 

  • Family Day in Ontario closed the Toronto equities exchange on Monday, February 17th. In the U.S., it was Washington’s Birthday (also known as President’s Day) that closed their markets on the same day. During the short trading week in Canada and the U.S., several local and global events influenced markets:
    • Our earnings season is underway. It is an important time for the widely held Canadian big banks, both inside funds, and as an individual holding. Royal Bank announced that Q1 profit was 11% ahead of last year’s first quarter and raised their dividend by 3% to $1.08 per share. This strong performance bodes well for the other major banks who report results next week. Source.
    • The number of new coronavirus cases dropped midweek and then rose again, causing an up-and-down reaction. There are over 76,000 cases in China and the death toll there is approaching 2,500. Italy, which has relatively low levels of Chinese contact compared to some countries has confirmed 152 cases so far. The potential for significant outbreaks elsewhere based on higher levels of tourism, transit, and trade is a real concern that is moving markets downward. Source. 
    • The increase in coronavirus cases around the world has moved gold to a 7-year high as safe-haven investment ended the week on a positive note. The price of oil also rebounded allowing the Energy and Materials sectors of the TSX to finish the week virtually “flat”, while the U.S. indices each lost over 1% of their value.

What’s ahead for this week?

  • In Canada, December’s Gross Domestic Product (GDP) numbers will be the most important release of domestic economic data this week.
  • In the U.S., fourth quarter GDP and January’s Durable Goods orders, January’s new and pending home sales, and personal income and spending are scheduled for release.

 

Last Week in the Markets: February 10 – 14, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week?

  • The equity markets around the world began a recovery over the past week. A recent trough occurred on January 31st, and again on February 7th. Since then the dire news regarding coronavirus, its death toll and the infection rate has been overcome by the Chinese government’s stimulus package, measures to contain the spread of the virus and the remarks from Jerome Powell, U.S. Federal Reserve Chair, declaring the strength of the American economy.
  • The performance of the Canadian economy is a more significant concern for most Canadian investors. The sectors that will take most of the economic shock in the short term will be travel and tourism, and energy. The manufacturing sector had planned for the annual Lunar New Year celebration, which causes a pause in economic activity, and will therefore be affected less than had it occurred at any other time of the year. Overall the effect on our economy is expected to be small and temporary, slowing our growth only slightly during the first quarter of 2020. In China the effect won’t be as short-lived, but the stimulus has been designed to counteract, if not overcome, negative performance of their manufacturing sector. https://www.theglobeandmail.com/canada/alberta/article-bill-morneau-warns-coronavirus-will-have-significant-impact-on/

What’s ahead for this week?

  • In Canada, manufacturing and retail sales figures for December will be released. The retail numbers along with the Consumer Price Index for January will provide insight into the buying behavior and purchasing power for Canadian households.

 

Last Week in the Markets: February 3 – 7, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week?  

  • Equity markets have begun a recovery despite the somber news that the death toll in China from the coronavirus exceeds the number killed there by SARS in 2002/2003.
  • The Chinese government announced an economic stimulus package to counteract the losses due to the outbreak of this disease. Their monetary and fiscal actions have calmed markets in North America and around the world.

What’s ahead for this week?

  • In Canada, the economic data will be dominated by construction with December’s building permits and January’s housing starts on the schedule.
    • The RRSP contribution deadline to reduce your 2019 taxable income is approaching soon on March 2nd. Setting up a Pre-Authorized Credit (PAC) that can make contributions throughout the year will avoid the last-minute rush.
  • In the U.S., inflation will be the focus for economic news with the Consumer Price Index, the Export Price and Import Price Indices, all for January, scheduled for release. Also, retail sales, capacity utilization and industrial production for the same period will be announced.

 

Last Month in the Markets: January 1 – 31, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened in January?

The first month of a new year and a new decade did not disappoint those who wanted more surprises, unpredictability and change. The variety and depth of news and developments that affect economies, markets and societies seemed to reach a new pinnacle as 2019 became 2020.

January was only the third month of the last 18 months that delivered such volatile and negative results in the equity markets, caused mostly by the emerging and strengthening effects of the coronavirus. The steep decline occurred during the last week, when indices began their reversal by close of markets on January 24th, regaining some lost ground by the 30th, before tumbling further on the last day of the week and month.

(source:  ARG analysis and Bloomberg)

The results in North America are severely muted compared to the equity indices in China. On the first day of trading in February on Monday the 3rd, losses on the Shanghai Composite Index totalled nearly 8%, a loss equivalent to about $400 Billion in market capitalization. The Chinese stock markets had been closed since January 24th for the Lunar New Year celebration and in response to the coronavirus outbreak. This steep loss, in only one day, reflects a week’s worth of sentiment that the health crisis will severely affect the Chinese economy.

The death toll in China is approaching 400, with nearly 40,000 cases confirmed or suspected.  Over the next weeks and months, the effect of measures to contain the virus will be felt, and likely reflected in the global economy and equity values worldwide. https://www.theglobeandmail.com/world/article-as-china-markets-plunge-and-virus-continues-to-spread-beijing-praises/

In much more positive news regarding China, a Phase I trade deal was signed with the United States on January 15th in Washington, D.C. Understanding the details of the agreement will grow as it is implemented, and the reaction from trade experts has been mixed. It appears that the long-term gain could be experienced by China, not the U.S. Nonetheless, an agreement that promotes and requires trade between these two nations, versus restricting it, is good news for each country’s economy and the global economy.

Negotiations have begun on the second phase of the agreement, which is intended to expand trade between the two countries further. The coronavirus will likely delay an already uncertain schedule for negotiations set to address state-sponsored industrial espionage and economic advantage by China and the removal of U.S. tariffs on Chinese imports. https://www.bloomberg.com/news/articles/2020-01-15/u-s-china-sign-phase-one-of-trade-deal-trump-calls-remarkable

Brexit is finally a reality. The European Parliament voted last Wednesday to approve the exit of Britain from the EU two days later on January 31st. Although separation has now occurred and the U.K. is no longer an EU member, there is a transition period that will end on December 31, 2020. Negotiations on agreements between Britain and EU nations, separately and collectively, will proceed earnestly as that deadline approaches.

What’s ahead for February and beyond?

By late evening of January 31st, it appeared that the Impeachment trial of Donald Trump would conclude with no action or penalty against Trump. Several Republican senators concluded that the misdeeds committed by Trump were not severe enough to require his removal. The matter will likely be decided on Election Day in November against the Democrats presidential nominee.

More substantially for financial markets, the coronavirus will dominate the business news for months. For example, in Nova Scotia the annual $500 Million lobster trade with China abruptly ended with cancelled shipments. Layoffs have begun for fishers. Expect more in other industries. https://www.theglobeandmail.com/canada/article-nova-scotias-lobster-industry-fears-prolonged-effects-of-coronavirus/

The effect globally will be much greater than the losses on the locally important Atlantic fishery.  “International companies that rely on Chinese factories to make their products and depend on Chinese consumers for sales are already warning of costly problems”, according to a New York Times article. https://www.nytimes.com/2020/02/03/business/economy/SARS-coronavirus-economic-impact-china.html

 

Last Week in the Markets: January 27 – 31, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week?   

  • The effect of the coronavirus gained momentum in both human and financial terms. The death toll in China, and infection rate there and around the world jumped significantly. Equity values, which rely on corporate performance, are suffering from the nascent threat of a global health crisis. The overall effects on the movement of goods, services, labour and money are still not certain, but appear to be negative in the very short term. The duration and severity of the health crisis will guide its influence on financial markets.
    • With the uncertainty of the health crisis growing the price of gold, a safe haven, has increased over the past two weeks. The price of oil, which relies on the demand for it, has declined over 12% over the same period.
  • Monetary policy decisions are also providing their own influences.

What’s ahead for this week?

  • In Canada, the most important indicator released will be the Employment Report for January. It will likely provide some insight into the most recent interest rate announcement from the Bank of Canada.
  • In the U.S., a wider expression of economic performance will arrive via December’s Construction Spending, Durable Goods Orders, Trade Balance and Wholesale Inventories. Also, January’s Employment Report and the Ism Purchasing Managers Index will provide significant evidence of the U.S. economy’s strength.

 

Last Week in the Markets: January 20 – 24, 2020

(source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week?   

What’s ahead for this week?

  • In Canada, Gross Domestic Product (GDP) for November, which informed last Wednesday’s BoC rate announcement, and Industrial Products and Raw Materials Price Indices for last month are scheduled for release.
  • In the U.S., it will be the U.S. Federal Reserve’s turn to announce their latest interest rate on Wednesday. Additionally, December’s Durable Goods Orders, New Home Sales and Personal Income and Spending along with 4th quarter GDP will be announced.  The signing of the Phase I trade agreement between the U.S. and China is scheduled for Washington on Wednesday. The earnings season continues and the fortunes of the NASDAQ will be heavily influenced this week as Facebook, Apple and Amazon report their results this week.

 

Last Week in the Markets: January 13 – 17, 2020

Source: Bloomberg, MSCI and ARG Inc. analysis)

What happened last week?    

  • Last week left little doubt that free and open trade tends to lead to rises in stock markets as the major Canadian and American indices rose to new records again.
    • The Phase I China/U.S. trade deal was signed in Washington on Wednesday. The U.S. also removed its “currency manipulator” designation from China further lessening trade tensions. The removal of trade uncertainty is an extremely positive accomplishment, although more disagreements could arise as negotiations proceed. To prevent difficulties during negotiations a tighter, more frequent schedule of meetings for Phase II has been announced. Despite all this good news, there is growing criticism that China will be the long-term beneficiary of the agreement. https://www.nytimes.com/2020/01/15/opinion/china-trade-deal-trump.html?action=click&module=Opinion&pgtype=Homepage
  • Even more positive trade news occurred last week for North America. On the same day that the House of Representatives formally delivered the Articles of Impeachment, the U.S. Senate approved the United States/Mexico/Canada (USMCA) treaty. Canada is the only signatory to the agreement that has not ratified this agreement at the legislative level. Prime Minister Trudeau’s minority government will be negotiating over the next few weeks to pass it through our Parliament.

What’s ahead for this week?

  • In Canada, the Bank of Canada will announce its latest interest rate decision on Wednesday. November’s wholesale trade, manufacturing and retail sales along with December’s new housing price index and the Consumer Price Index are scheduled to be released in the next few days. Also, the fourth quarter earnings season begins where corporate profitability and projections will influence short term equity prices and provide a bellwether for 2020. https://www.theglobeandmail.com/investing/markets/inside-the-market/article-solid-q4-earnings-reports-expected-to-justify-canadian-stock-markets/
  • In the U.S., it will be a relatively light week for economic announcements due to the Martin Luther King, Jr Day, which also closes U.S. markets on Monday. The schedule includes December’s existing home sales and January’s Purchasing Manager Index.

 

Last Week in the Markets: January 6 – 10, 2020

(source: Bloomberg)

What happened last week?      

  • It was a very difficult week for Canadians last week as the U.S./Iran tensions spiked to a new height which created the environment for a passenger airliner filled with our citizens, residents and students being shot down by an Iranian surface-to-air missile. Everyone aboard died, including 57 Canadians and about another 100 more with Canadian ties who were connecting through Kiev from Tehran to towns and cities across the country. More than 30 of those killed had Edmonton as their destination.
    • The Iranians shot down the Ukrainian Airways plane during the confusion and tense hours immediately following the firing of Iranian ballistic missiles toward two American occupied air bases in Iraq. The missiles were retaliation for the assassination of Gen. Suleimani, the second most powerful person in the country.
      • Both the Iranians and Americans “stood down” following the ballistic missiles and plane crash. Further escalation was avoided, at least temporarily, and easing tensions buoyed stock markets worldwide and caused the price of oil to drop dramatically by the end of the week.
      • During all of this turmoil it was also confirmed that the Phase I portion of a new U.S./China trade agreement would be completed next week in Washington, further lifting stock markets. It appears that the effect on equities by the tragedy in Iran has concluded, at least for now.

What’s ahead for this week?

  • In Canada, it will be a light week for economic announcements with the Bank of Canada’s Business Outlook for Q4 2019 and December’s existing home sales on the schedule.
  • In the U.S., inflation numbers will be released via the Consumer, Producer, Import and Export Price Indices all for December. Retail sales, housing starts, building permits, industrial production and capacity utilization will also be released for December.

 

Last Month in the Markets: December 1 – 31, 2020

(source: Bloomberg)

What happened in December?

International trade agreements, tensions, tariffs, threats and optimism were the major influences for equity values in December and for most of 2019. Typically, the profitability prospects of individual firms along with their economy’s overall outlook for expansion provide the impetus for changes to its share price and overall value. Last year corporates’ profits and accompanying share price was tied to progress or tension on the trade negotiations between the United States and China.

(source:  ARG analysis and Bloomberg)

  1. On Monday, May 13th China announced retaliatory measures on the importation of U.S. goods in response to Trump’s announcement during the previous week to increase tariffs from 10% to 25%.
  • For the next two days, as equity markets tumbled negotiators and leaders from both countries hinted at more negotiations and progress toward reaching a new agreement.
  • The American rhetoric also included a threat to subject Chinese telecommunications manufacturer, Huawei, to U.S. tariffs drove markets down since any disruption to its $11 Billion of trade would be notable.
  • The week concluded with the U.S. ending the steel and aluminum tariffs and Canada and Mexico cancelling their retaliatory actions. All legal actions by the three countries at the World Trade Organization (WTO) have also ended.
  1. In early August, President Trump issued more threats to impose additional tariffs on Chinese imports.
  1. Finally, some good news. On Friday, October 11th, President Trump announced that a Phase 1 deal had been reached. The fine details would be written over the next few weeks and signing planned for the following month. Increased sales of American agricultural products and protections of intellectual property have been granted by the Chinese in exchange for a delay/elimination of tariffs on Chinese imports that were planned for October 15th.
  2. The momentum continued to the end of the year as Trump indicated in December that he was planning to travel to China to support the successful negotiation of Phase II agreement between the two countries.

What’s ahead for January and beyond?

Trade issues will likely continue to dominate economic and market influences. After the re-election and strong mandate received by British PM Boris Johnson and his Tories, expect Brexit to finally conclude. Until the final phases of negotiations between the U.S. and China are agreed and implemented, news in this area could provide upward and/or downward momentum.

Closer to home the US/Mexico/Canada trade agreement is expected to be ratified by all three governments early in 2020 and provide renewed free trade across North America boosting the overall economy and the prospects of growth here.

 

Last Week in the Markets: December 30 – January 3, 2020

(source: Bloomberg)

What happened last week?  

  • The New Year’s holiday closed markets in the middle of the week, creating a 4-day trading session. During the Monday to Thursday period, and prior to Friday, North American indices advanced on 2 of the 3 of the trading days. Then the strength of political influence on financial markets was well demonstrated at week’s end.
    • The U.S. used a drone-strike to assassinate Iran’s second most powerful person, General Suleimani. This action drew the natural and expected Iranian reaction, and has brought a new heightened level of instability to the complicated Middle East political situation. Iran could escalate this to a full-scale war, since the attack was not aimed at a recognized terrorist, but at a leader of a sovereign nation’s military. Also, the Iraqi legislature has voted to expel U.S. troops from their country. https://www.nytimes.com/2020/01/04/opinion/trump-suleimani-iran.html?action=click&module=Opinion&pgtype=Homepage
    • North American equity indices responded on Friday by all suffering losses of about 1% (the TSX lost the least on Friday) after the U.S. airstrikes accomplished their deadly goal of eliminating an Iranian leader in retaliation for his prior actions.
  • On a more positive note the U.S./China “Phase I” trade agreement remains on schedule for a mid-January signing by President Trump. He indicated his intention to travel to China to encourage and support negotiations for the next phase.
    • A potential problem could be looming with Iranian oil exports to their largest customer, China. The Iranians may attempt to influence negotiations in “Phase II”.

What’s ahead for this week?

  • In Canada, now that the holiday season has fully concluded we will receive November’s international merchandise trace, industrial product and raw materials indices and building permits. Also, December’s housing starts and employment report are scheduled.
  • In the U.S., November’s trade balance, durable goods orders and wholesale inventories will be released along with December’s employment report.

 

Last Week in the Markets: December 9 – 13, 2019

(source: Bloomberg)

What happened last week?  

  • As the end of 2019 approaches our grid had an all-green week and all positive returns for year-to-date and year-over-year for the first time in 2019. Trade talk dominated the news.
  • The U.S. Federal Reserve held its benchmark rate steady at 1½ – 1¾% based on their economy’s performance and prospects. https://www.federalreserve.gov/monetarypolicy/fomcpresconf20191211.htm

What’s ahead for this week?

  • In Canada, October’s manufacturing, wholesale and retail sales and November’s Consumer Price Index (inflation) are scheduled for release.
  • In the U.S., November’s existing home sales, housing starts and building permits will be released along with industrial production and capacity utilization for the same period.

 

Last Week in the Markets: December 2 – 6, 2019

(source: Bloomberg)

What happened?     

What’s ahead for this week?

  • In Canada, it will be a light week for economic announcements as October’s building permits and November’s housing starts are the two most important indicators scheduled for release.
  • In the U.S., the Federal Reserve will announce its latest interest rate decision on Wednesday. Rationale for the decision by the Federal Open Market Committee will be posted here https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm.  Also, November’s Consumer and Producer Price indices and Import and Export Price indices which will also be announced.

 

Last Month in the Markets: November 1 – 29, 2019

(source: Bloomberg)

What happened in November?

The last week of the month could not have been much better for equities. The TSX, S&P 500, Dow, NASDAQ and the ACWI each set new all-time highs. The monthly gain for the four North American indices in our grid surged between 3½ and 4½% in November.

Much of the gains can be attributed to improving trade relations between the U.S. and China.  Unfortunately, no new deal has been agreed on and the road to achieve a near-deal has been rough. Even during the last week of November, when record highs were set, the back and forth and positive and negative commentary continued. In particular, President Trump signed into law new legislation that supports the autonomy of Hong Kong, and China accused the U.S. of meddling in its domestic affairs and promised retaliation.

For the month the North American indices rose to new heights despite the rhetoric.

(source: ARG analysis and Bloomberg  https://www.bloomberg.com/markets)                           

Domestically, the month was set up on Wednesday, October 30th when the Bank of Canada kept its benchmark interest rate at 1.75%. Although our Gross Domestic Product (GDP) growth is below expectations, it is improving with employment data trending positively and inflation being at the target rate of 2%. A one-minute video explaining the central bank’s rationale can be found at.  https://www.bankofcanada.ca/2019/10/mpr-2019-10-30/

On the same day, the U.S. Federal Reserve lowered its Federal Funds rate by ¼ of a percentage point; this is the third rate cut this year. This action was taken to “keep the U.S. economy strong in the face of global developments and provide some insurance from ongoing risks” as Chairman Powell outlined in his remarks at the FOMC press conference. https://www.federalreserve.gov/monetarypolicy/files/monetary20191030a1.pdf

The Bank of Canada and the Federal Reserve vaguely signaled in their announcements (linked above) that new or additional rate cuts could be coming. The most meaningful threat that could cause further rate cuts would be a breakdown in U.S./China trade talks. Global economic growth continues to be threatened by U.S./China trade tensions, and each passing week seems to provide new opportunities for both sides to flex their muscles while negotiations linger without resolution. The trade uncertainty that continues to swirl around Brexit, and now BrElection in the U.K. may also contribute to economic slowing in Western Europe. As a point of reference, the combined population of Canada, U.S. and Mexico is 492 million and 517 million for the European Union.

By mid-month, positive corporate results also boosted equity values. The TSX made a run as it approached its all-time high from late last summer, climbing nearly 2% in one week, and outpacing the results of the major U.S. indices. As long as comparisons to the tech-heavy NASDAQ are avoided, the TSX has delivered respectable results relative to the S&P 500 and the Dow. As of the end of November, the year-to-date return is nearly 20%.

Some of the positive results in Canada can also be attributed to strong results in the Energy sector as the price of oil has risen 20% year-to-date. Strong corporate earnings and the positive influence of rising retail interest rates on the financial services laden TSX pushed values upward.

At home the resolution of the Teamsters strike against CN Rail has prevented a disruption to the shipment of finished goods and raw materials across Canada, which will affect the ability of several industries to make deliveries and will affect Q4 revenues if a resolution is delayed.  https://www.theglobeandmail.com/opinion/article-the-cn-strike-and-our-ensuing-winter-of-discontent/

What’s ahead for December and beyond?

The first week of December will include a Throne Speech from Prime Minister Justin Trudeau.  Although foreign economies and trade difficulties elsewhere often heavily influence domestic debt and equity markets and commodity prices, the minority Liberals must form political and geographic alliances to succeed. The next few months, and perhaps years, could provide conditions to coalesce or divide Canadians, while the USMCA moves through Congress, Brexit concludes (hopefully!) and U.S./China negotiations progress.

 

Last Week in the Markets: November 25 – 29, 2019

(source: Bloomberg)

What happened?     

  • It would be difficult to imagine a more positive week for equity investors. All five of the indices in our grid (above) hit new all-time highs! Much of the credit can be attributed to positive sentiment that a trade deal between China and U.S. is immanent.
    • Despite the overall results, it was not an all-positive week between the two feuding nations. For example, President Trump indicated that a deal was nearly completed, and then signed legislation supporting Hong Kong autonomy from China.  Chinese leaders then threatened retaliation for U.S. interference in domestic affairs in China.
    • Equity trading was lighter than usual with the U.S. markets closed on Thursday and early on Friday for their Thanksgiving, perhaps helping equities to hold their values.
  • CN rail strike ends after one week averting major damage to the Canadian economy especially in the energy, agriculture, materials and manufacturing sectors. This appears to be an example where both sides in the dispute appreciated allowing a negotiated settlement to be reached. https://www.theglobeandmail.com/canada/article-cn-rail-strike-ends-tentative-deal-explainer/
  • Deputy Prime Minister Chrystia Freeland in Washington to press the USMCA forward with Democrats in the House of Representatives by improving environmental and labour conditions for Mexican factories. Positive progress on the USMCA would facilitate international trade among all three North American nations and increase GDP in total, which is ‘good news’ for equity investors as firms access broader markets.

What’s ahead for this week?

  • In Canada, three important information points are scheduled. The Bank of Canada will announce its latest interest rate decision and October’s international merchandise trade data and November’s employment report will be announced. On Thursday Prime Minister Trudeau will deliver his latest Throne Speech for his minority government.
  • In the U.S., a larger number of economic data released will occur; October’s wholesale inventories, construction spending and trade balance and November’s employment report.

 

Last Week in the Markets: November 18 – 22, 2019

(source: Bloomberg)

What happened?      

  • North American and global equities suffered from the latest round of U.S./China trade difficulties. The U.S. Senate passed legislation supporting the independence/autonomy of Hong Kong. Each year the State Department is now required to certify Hong Kong’s autonomy or lose the special trading privileges that it enjoys. The Chinese leadership has naturally concluded that the U.S. is interfering in their domestic politics and has threatened retaliation that could delay or prevent progress on trade negotiations.
    • Conflicting and contradictory comments (disappointment, optimism, retaliation, delay of tariffs, . . . ) were given by leadership from both countries of this dispute, which provided enough uncertainty to cause equities to fall.
    • Also, the U.S. House of Representatives was not able to move the USMCA (NAFTA replacement) forward and a vote in 2019 is in jeopardy.
  • At home . . .
    • CN Rail has had labour troubles resulting in a strike preventing the shipment of finished goods and raw materials across Canada, which will affect the ability of several industries to make deliveries and will affect Q4 revenues if a resolution is delayed. The minority governing Liberals announced their new Cabinet in a much more subdued manner than 5 years ago.  The first practical test for the Liberals may be this strike.  Only time, hard work and difficult decisions will resolve our domestic political issues. https://www.theglobeandmail.com/opinion/article-the-cn-strike-and-our-ensuing-winter-of-discontent/

What’s ahead for this week?

  • In Canada, two data sets will be released this week for September; wholesale trade sales (corporate revenues) and gross domestic product (overall economic performance).
  • In the U.S., it is anticipated to be a slower week for market activity with Thanksgiving on Thursday. Despite the day-off and the shopping frenzy October wholesale inventories, new home sales and durable goods orders and Q3 gross domestic product will be released.

 

Last Week in the Markets: November 11 – 15, 2019

(source: Bloomberg)

What happened?   

  • It was another “all green” week for Canadian and American equities; the fourth in a row. Last week our other indicators; the Canadian dollar, gold, oil and global equities (expressed by MSCI’s All Country World Index), also followed along, as all indicators gained. The lone “red” indicator on our grid is our dollar’s year-over-year performance, and only barely negative.
    • Perhaps it was the political distractions as Trudeau met with other leaders prior to his Throne Speech or the public and televised impeachment hearing in Washington, but it seemed to be a relatively boring week for equities and investing.
      • The TSX gained each day and the U.S. indices achieved most of the gains for the week on Friday, after a few days of treading water.
        • The most exciting news last week for Canadian investors were the results for cannabis producers who suffered major losses on low sales results; particularly in Ontario where retail outlets lag other provinces.
      • Quarterly corporate results wrapped up the most recent reporting season with mildly positive results in general.
      • Trade talks between the U.S. and China had mildly negative news as the phase I agreement proceeds and the deadline for planned U.S. tariffs on European automobiles passed without any announcement.
      • Brexit is awaiting the results of the British election and has, therefore, gone into early hibernation or hiding.

What’s ahead for this week?

  • In Canada, it will be a mixture of indicators being released; September’s manufacturing sales and retail sales will provide insight into commercial and consumer confidence in the economy, and the Consumer Price Index (CPI) will quantify October’s inflation.
  • In the U.S., housing data will dominate the release with housing starts, building permits and existing home sales for October scheduled for release.

 

Last Week in the Markets: November 4 – 8, 2019

(source: Bloomberg)

What happened?  

  • Last week several positive factors emerged for equities.
    • The easing of trade tensions between the American and Chinese governments created positive momentum for equities around the world.
      • The feared global slowdown in economic growth would be less likely if these two economies were able to trade freely, without the restrictions and tariffs that have already been put in place, and without another round of tit-for-tat retaliation. It appears that the first phase of an agreement could be reached in November according to the U.S. Commerce Secretary Wilbur Ross.
    • Positive corporate results also boosted equity values. The TSX approached its all-time high from late summer as it climbed nearly 2% last week, outpacing the results of the major U.S. indices.
      • The positive results in Canada can be attributed to strong results in the Energy sector as the price of oil rose by nearly 2%. Strong corporate earnings and the positive influence of rising interest rates on the financial services laden TSX pushed values upward.
      • The increase of the All Country World Index (ACWI) showed that positive equity results were not confined solely to North America.
    • Last week the lone declining indicator on our grid was gold. As trade tensions eased, the safe haven of gold lost its luster, declining over 3%.

What’s ahead for this week?

  • In Canada, the week ahead, that begins with Remembrance Day, focuses on housing data with September’s housing price index and October’s existing home sales.
  • In the U.S., Veteran’s Day starts the week that includes the release of October’s inflation with Consumer and Producer Price indices, import and export price indices, industrial production and capacity utilization and retail sales.

 

Last Month in the Markets: October 1 – 31, 2019

(source: Bloomberg)

What happened in October?

Time frames for analysis are important. The grid above is based on market activity for the calendar month of October, while the chart below shows October plus November 1st.

Each of the equity indices had extremely strong days on November 1st. The TSX erased most of its October loss and the S&P 500, the Dow and the NASDAQ each added another percentage point to their gains for the month.

(source: ARG analysis and Bloomberg  https://www.bloomberg.com/markets)

Longer time frames tend to make the equity markets appear more positive. This long-term positivity, shown by historical data over decades, is one of the reasons investors purchase company shares. It is important to manage results over the long-term to determine if the investment plan is on-track rather than focusing on the results of any single day – even if that single day is extremely positive.

One of the most important days for our parliamentary democracy occurred on October 21st when the Liberals had their majority in the House of Commons reduced to a minority. Next week, negotiations will begin with the leaders of the Bloc Quebecois and NDP to formally or informally form a coalition.

The results of the election have demonstrated the divide between the east and west in Canada, and the economic and ecological prospects for each region heavily influenced the results.  Based on the strength of a coalition, measures could be taken to drive economic growth in the west, which could spur overall growth for Canada.

What’s ahead for November and beyond?

November begins with many factors and events that could significantly affect markets:

  • The U.S./China trade negotiations which were expected to progress at the meetings for Asia-Pacific Economic Cooperation (APEC) have been stalled by the event’s cancellation. President Trump and Chairman Xi were scheduled to meet and conclude the first round of a series of agreements. The mood seems to be turning pessimistic without this face-to-face meeting of the leaders of these two countries to move matters forward.
  • Monetary policy, as always, will inform investment decisions and values, but the upcoming few months seem to be more influential than similar periods in the past.
    • The Bank of Canada, led by Stephen Poloz, has resisted pressure to lower Canadian rates that would stimulate borrowing and additional economic activity. Our economy is stubbornly clinging to economic growth, inflation and employment that is barely good enough to prevent an interest rate adjustment.
    • Jerome Powell, Federal Reserve Chairman, has signaled that additional downward adjustments could occur if the American economy continues its trajectory or conditions don’t improve. Powell is concerned by the global slowdown in GDP growth, continuing trade difficulties with China and lack of legislative progress on NAFTA’s replacement, the USMCA.
      • A significant threat to economic performance could cause either or both central banks to take swift action to lower rates.
    • In Europe, the October 31st deadline for a negotiated Brexit has been postponed again to January 31st. A general election is scheduled for December 12th and will likely be decided by the Brexit issue.  Prime Minister Boris Johnson is seeking a majority government and mandate to leave the European Union, while Labour leader Jeremy Corbyn would like to focus on economic issues and proceed with a second referendum if elected.
    • The Democrats in the House of Representatives used their majority to win a vote to proceed with impeachment investigations of Trump. The process itself will likely not affect markets, but the distraction and desire to distract could.

Each of these situations could negatively or positively affect markets in the short-term and continue to reinforce the principles of long-term investing.

 

Last Week in the Markets: October 28 – November 1, 2019

(source: Bloomberg)

What happened?    

  • On Wednesday the Bank of Canada kept its benchmark interest rate at 1.75%. Although our Gross Domestic Product (GDP) growth is below expectations, it is improving, employment remains positive and inflation is at the target rate of 2%. A one-minute video explaining the central bank’s rationale can be found at https://www.bankofcanada.ca/2019/10/mpr-2019-10-30/
  • In the U.S. on Wednesday the Federal Reserve lowered its Federal Funds rate by ¼ of a percentage point, this is the third rate cut this year. This action was taken to “keep the U.S. economy strong in the face of global developments and provide some insurance from on-going risks” as Chairman Powell outlined in his remarks at the FOMC press conference https://www.federalreserve.gov/default.htm
    • The Bank of Canada and the Fed vaguely signaled that new/additional rate cuts could be coming in their announcements (linked above). Global economic growth which prefers free and open trade continues to be threatened by U.S./China trade tensions, an overall economic slowdown and Brexit.
  • Brexit becomes Brelection! British Prime Minister Boris Johnson negotiated an extension for a negotiated departure from the European Union (EU), moving the date from October 31st to January 31st. There will also be a general election in the U.K. in mid-December to elect new parliamentarians and Prime Minister. The election will likely be an endorsement for Johnson and the Tories to leave the EU or an invitation for the Labour Party led by Jeremy Corbin to form a new government and conduct another Brexit referendum.

What’s ahead for this week?

  • In Canada, international trade numbers and building permits for September, along with housing starts and the employment report for October are scheduled for release
  • In the U.S., September’s durable goods orders, trade balance and wholesale inventories will be announced. The Institute for Supply Management (ISM) will release its non-manufacturing index, an important indicator of American services industries.

 

Last Week in the Markets: October 21 – 25, 2019

(source: Bloomberg)

What happened?   

  • Last week began with the Federal election that saw the Liberals achieve a minority government. The Liberals, Conservatives, and NDP all returned with fewer seats, while the Bloc Quebecois and Green Party increased their seat count. The meaning of the result and its effect on the economy and financial markets is being hotly debated in the press and contains significant regional themes.
    • Despite a clear mandate for any party, our grid returned its first “all green” week since June. Additionally, all of the indicators are approaching their 52-week highs, and some are approaching their all-time highs again.
  • Much of last week’s optimism for equities was based on the belief that the U.S. Federal Reserve will cut its benchmark lending rate to stimulate the economy. The Fed is attempting to address the effects of the U.S./China trade dispute and a slowing global economy. https://www.ft.com/content/ac6ede72-f765-11e9-9ef3-eca8fc8f2d65
  • The positivity at home for the TSX was muted because most believe that the Bank of Canada will hold steady. The economic indicators like GDP growth, employment and inflation are at or near targets making a change unnecessary, especially when there appears to be progress between the U.S. and China as they work to resolve their trade issues. https://www.theglobeandmail.com/business/article-bank-of-canada-expected-to-hold-line-on-interest-rates-again-but-how/

What’s ahead for this week?

  • In Canada, the Bank of Canada will announce its latest interest rate decision and publish its quarterly Monetary Policy Report. Details will be available Wednesday at 10 am EST https://www.bankofcanada.ca. The information found in the upcoming release of our Gross Domestic Product (GDP) has already influenced our central bank’s decision.
  • In the U.S., the Federal Reserve will also announce its interest rate decision on Wednesday. The Federal Open Market Committee will release its decision at 4:15 pm on October 30th. https://www.federalreserve.gov/default.htm.

 

Last Week in the Markets: October 14 – 18, 2019

(source: Bloomberg)

What happened?    

  • The week began with positive trade news in the U.S. and Europe that positioned equities for a positive move by reducing threats of a global economic slowdown and political turmoil.
    • The Americans and Chinese negotiators decided that rounds of agreements, each with a limited number of issues and areas, would be a more attainable treaty system than a single large agreement. This was announced along with the first small agreement and delays to impending restrictive moves on both sides.
    • British Prime Minister Boris Johnson successfully negotiated a Brexit deal with the European Union’s leadership in Brussels.
  • By the end of the week and weekend much had changed to reverse or dampen the positive progress these two major agreements provided:
    • Trump’s decision to remove troops from northern Syria prompted a Turkish invasion with devastating effects on the Kurdish population and to international diplomacy. Impeachment inquiry progress continued with a wider net being cast to gather information and now involves those within Trump’s inner circle.
    • Johnson was unsuccessful back at home with his own Parliament and with the Democratic Unionist Party in Northern Ireland, and it appears that he must return to the EU to ask for another extension, past the October 31st

What’s ahead for this week?

  • In Canada, it is a light week for economic releases with only retail sales and wholesale trade sales for August scheduled for release.
    • Most importantly, Monday, October 21st is election day. The results of the election and who forms the next government by majority, by minority or by coalition could guide economic and fiscal policy for the next five years.
  • In the U.S., it isn’t much busier with housing numbers (existing home sales and new home sales) and durable goods orders for September to be released.

 

Last Week in the Markets: October 7 – 11, 2019

(source: Bloomberg)

What happened last week?  

  • American equities benefited from the increasing optimism of U.S./China trade negotiations, Canada’s TSX lagged its peers south of the border by about 1% as it lost ground while they gained.
    • On Friday President Trump announced that a Phase 1 deal had been reached. The fine details will be written over the next few weeks and signing is anticipated for November.
      • Increased sales of American agricultural products and protections of intellectual property have been granted by the Chinese in exchange for a delay/elimination of tariffs on Chinese imports that were planned for October 15th.
      • This success followed conflicting news throughout the week that U.S. pension funds might invest in Chinese firms. Chinese firms were blocked from business dealings in the U.S., linking trade deals to human rights abuses by Chinese leadership, allowing Huawei to deal with American firms, China narrowing the scope of negotiations, China buying soybeans, . . . .
    • In other trade news, the Irish Prime Minister feels Brexit issues can be solved by the October 31st deadline further adding to less uncertainty and positive trade news.

What’s ahead for this week?

  • In Canada, it is a light week for economic releases with domestic markets closed for the Thanksgiving holiday. August Manufacturing sales and inflation (Consumer Price Index) for September are scheduled.
  • In the U.S., with only celebrations, not work holidays on Columbus Day in many states, the data release calendar is more robust. September information for retail sales, housing starts, building permits, capacity utilization, and industrial production are planned.

 

Last Week in the Markets: September 30 – October 4, 2019

(source: Bloomberg)

What happened?    

  • It was a difficult week for Canadian equity investors. The TSX, S&P 500 and Dow all lost ground while the tech-heavy NASDAQ was the lone index in our grid to gain last week. Unlike other weeks when political turmoil (impeachment, Brexit, trade wars) dominated the news and stock market influence, last week showed that more direct information has an effect, too.
  • Last week’s performance reflected new data emanating from the Institute for Supply Management (ISM). The ISM releases monthly reports on the forward-looking opinion of the purchasing manager in the U.S. to gauge future economic performance.
  • Global markets also felt the strain as the ACWI (MSCI’s All Country World Index) in our grid fell nearly 1% as European markets reacted to the World Trade Organization’s ruling against the European Union’s support of Airbus. The U.S. is introducing new tariffs on EU goods as an offset and will effectively raise prices that temper demand and reduce overall trade levels.

What’s ahead for this week?

  • In Canada, economic data will focus on housing and employment with building permits for August and housing starts and the employment report for September scheduled for release
  • In the U.S., wholesale inventories for August will accompany inflation data with the price indices for Consumers, Producers, Imports and Exports for September this week.

 

Last Month in the Markets: September 1 – 30, 2019

(source: Bloomberg)

What happened in September?

Over the course of the last month equity markets in North America managed to move ahead well, with the NASDAQ acting out of character as the laggard. The NASDAQ still leads the pack with a gain of nearly 21% for 2019, but trails the TSX, S&P 500 and Dow over the past year with a loss while the others have gained 2-4%.

(source: ARG analysis and Bloomberg)      

Several positive political developments that began in early September positively influenced equities throughout the month.

  • The United States and China announced plans for renewed negotiations scheduled to begin in October.
  • Hong Kong leadership withdrew the bill allowing the extradition of its citizen-residents that caused months of increasingly violent protests.
  • The U.K. Parliament passed legislation meant to prevent a no-deal Brexit that prevents an enhanced level of uncertainty across the entire continent.

Early on September 13th, the TSX achieved a new all-time high. With its heavy weighting (36% of the index), the Financial sector led the way in Toronto. The index peaked one week later before settling back down by the end of September.  https://web.tmxmoney.com/indices.php?section=tsx&index=^TSX#indexInfo

On September 18th the Federal Reserve in the U.S. cut its benchmark overnight rate by 25 basis points (¼ of one percent).  https://www.federalreserve.gov/newsevents/pressreleases/monetary20190918a.htm    https://www.federalreserve.gov/monetarypolicy/fomcpresconf20190918.htm

Political turmoil swirled in many countries important to domestic investors, including Canada.

The Federal election campaign continued in earnest and it appears that each party has different ways of spending our tax dollars, even the ones that haven’t been collected.  https://www.theglobeandmail.com/politics/article-deficit-plans-take-backseat-as-federal-parties-seek-to-spend-more/

What’s ahead for October and beyond?

Two major themes will continue to affect markets as we move into the fourth quarter of 2019; trade tensions and political instability.

  • The U.S./China trade negotiations are set to begin, again, in early October, but a resolution seems unlikely with all the tit-for-tat retaliation that has already occurred. The Vice-Premier Lui is scheduled to visit Washington to conduct high-level talks with his American counterparts, which is an extremely positive sign. It is hoped that continued political unrest in Hong Kong will not derail progress to a negotiated trade deal.
  • In Europe, the October 31st deadline for a negotiated Brexit is less than one month away and it is difficult to identify recent progress, or on what topics the next advances will occur.
  • The U.K. parliament passed a bill prohibiting a no-deal Brexit, which effectively forces Prime Minister Boris Johnson to continue negotiating with the European Union for terms of separation.
  • In the United States, Congress has opened an impeachment investigation against President Trump. The House of Representatives could order the Senate to conduct a trial, that could remove Trump from office if two-thirds of senators vote for that action.

The mounting concern is that these issues, especially the impeachment process, could further distract U.S. lawmakers from economic matters, and slow Gross Domestic Product and trade growth globally. We may see the Bank of Canada take interest rate action at its next opportunity to do so, October 30th; should our economic indicators and global conditions warrant it.

About one week prior to the Bank of Canada’s next interest rate announcement Canadians will announce their choice for their Member of Parliament and Prime Minister. The campaign has reached its midway point, and each of the major parties has announced their platforms and spending priorities to garner voter support.

Each of these matters will follow its own path and timeline as we proceed to the end of 2019 and will demand close scrutiny for investors in Canada and elsewhere.

 

Last Week in the Markets: September 23 – 27, 2019

(source: Bloomberg)

What happened last week?   

  • Political turmoil swirled in many countries important to domestic investors, including Canada.
    • The Federal election campaign continued in earnest with the leaders continuing to share their messages and plans. It appears that each party has different ways of spending our tax dollars, even the ones that haven’t been collected. https://www.theglobeandmail.com/politics/article-deficit-plans-take-backseat-as-federal-parties-seek-to-spend-more/
    • Nancy Pelosi, Speaker of the House of Representatives in the U.S. Congress, has launched an impeachment inquiry after President Trump used the withholding of aid money destined for the Ukraine to encourage an investigation of the Democrats’ front-runner, Joe Biden.
      • The political pressure that is about to be applied to the American president will not affect corporate performance in the short term but could cause changes to the legislative agenda. NAFTA’s replacement, the US-Mexico-Canada tripartite agreement is scheduled for discussion in Congress and could be delayed or discouraged.
    • Boris Johnson, U.K. Prime Minister, had his action to pirogue Parliament nullified by their Supreme Court forcing MPs back to Westminster and back to bargaining over the terms of Brexit as the deadline of October 31st
    • High level trade talks between the U.S. and China are scheduled for early October with the Chinese Vice-Premier visiting Washington, D.C.

What’s ahead for this week?

  • In Canada, a balanced week of economic indicator releases is planned with July’s Gross Domestic Product (GDP), and industrial products and raw materials price indices and international merchandise trade for August on the calendar.
  • In the U.S., August data for the trade balance, construction spending, factory and durable goods orders, and the employment reports for September are all planned for release.

 

Last Week in the Markets: September 16 – 20, 2019

(source: Bloomberg)

What happened last week?   

  • The big news last week, or as it turned out “non news”, was the Federal Reserve in the U.S. cutting its benchmark overnight rate by 25 basis points (¼ of one percent). The cut had been widely anticipated and priced into the price of shares and bonds so its arrival had already affected values in the weeks and days prior to its announcement. https://www.federalreserve.gov/newsevents/pressreleases/monetary20190918a.htm    https://www.federalreserve.gov/monetarypolicy/fomcpresconf20190918.htm
  • The TSX was the lone equity index among those on our grid (above) on the rise last week thanks to the rising price of oil and gold. Middle East tensions surrounding the attack by Iran on Saudi oil installations boosted the price of oil again and drove investments to safe haven investing. The energy and materials sectors led the way within the TSX, while the U.S. indices with less reliance on these sectors lost ground. Tempering some of the response was the Saudi announcement that production would be back to pre-attack levels within weeks and the U.S. promise to release strategic oil reserves, if necessary.
    • The TSX now leads the race in year-over-year returns of more than 4% while the rest languish at 1 or 2% ahead of last September’s levels.
  • Although it didn’t result in gains in American equity indices, last week saw a truce in the U.S./China trade war with little chatter in the press or on social media.
  • Back at home, the Canadian Federal election draws closer to its conclusion in October. The Prime Minister had his electioneering distracted by scandal as campaigns began in earnest.

What’s ahead for this week?

  • In Canada, it’s an extremely light economic reporting week with only wholesale trade sales for July scheduled to be announced.
  • In the U.S., August data for new home sales, durable goods orders, wholesale inventories and personal income and spending are anticipated along with revised Gross Domestic Product (GDP) for the second quarter of 2019.

 

Last Week in the Markets: September 9 – 13, 2019

(source: Bloomberg)

What happened last week?   

  • Late Friday morning, before retreating for the rest of the day, the TSX achieved a new all-time high. As usual and mathematically necessary with its heavy weighting (36% of the index), the Financial sector led the way in Toronto. The new record high occurred despite a drop in the price of oil, even as the Energy sector comprises nearly 17% of the index. https://web.tmxmoney.com/indices.php?section=tsx&index=^TSX#indexInfo
  • Most of the “credit” for the increase in Canadian and American equities can be attributed to the warming relationship between the U.S. and China over their seemingly endless trade disputes, tit-for-tat retaliations and public proclamations.
    • It appears that China’s strategy of penalizing agricultural products emanating from Trump strong-hold states has caused the president to become more conciliatory.
    • China and the U.S. have reduced the number of products that are subject to trade restrictions and delayed implementing new tariffs, respectively, as they look to forge a new deal. The U.S. is even contemplating an interim agreement in the short term.
  • The easing of trade tensions hurt the price of gold, as it fell by more than 1% last week when the need for safe-haven and politically neutral investments lessened.
  • Despite the new high for the TSX the Canadian dollar fell by almost the same percentage as the TSX gained (-0.87% vs +0.89%). Since most Canadians spend most of their investments and investment gains locally, the impact of the loss in dollar value is muted.

What’s ahead for this week?

  • In Canada, it will be a balanced view of our economy with just three major indicators to be released; July’s manufacturing sales and retail sales and August’s Consumer Price Index (CPI).
  • In the U.S., the most influential economic development will be the Federal Reserve’s interest rate decision. Almost as important as the decision, the comments released with the decision will influence equity and bond markets. Also, August figures for existing home sales, housing starts and building permits, and industrial production and capacity utilization will be released.

 

Last Week in the Markets: September 2 – 6, 2019

(source: Bloomberg)

What happened?    

  • A number of positive political developments contributed to a favorable week for most Canadian investors focused on North American equities.
    • The United States and China announced plans for renewed negotiations scheduled to begin in October.
    • Hong Kong leadership withdrew the bill allowing extradition of its citizen-residents that caused months of increasingly violent protests.
    • The U.K. Parliament passed legislation meant to prevent a no-deal Brexit that prevents an enhanced level of uncertainty across the entire continent.
    • The seemingly unimportant attitude toward the European Union from Italy is improving as a new coalition in government has been formed.
  • Locally, the Bank of Canada kept its benchmark with an overnight lending rate unchanged allowing our economy to perform under current conditions without a monetary policy boost.
    • The next opportunity for an interest rate change is October 30th, but it appears that the appetite to reduce rates in the future is lessening. The Bank of Canada reported that “CPI inflation in July was stronger than expected, largely because of temporary factors. These include higher prices for air travel, mobile phones, and some food items, which are offsetting the effects of lower gasoline prices; Governing Council will pay particular attention to global developments and their impact on the outlook for Canadian growth and inflation”. Temporary factors are improving, which could reduce the need for the Bank of Canada to act on interest rates. https://www.bankofcanada.ca/2019/09/fad-press-release-2019-09-04/

What’s ahead for this week?

  • In Canada, the economic data releases will focus on the housing market. The numbers for July building permits and new housing price index and August housing starts will be announced.
  • In the U.S., a more balanced release schedule is planned for the upcoming week with July’s wholesale inventories, as well as import and export price indices. For August, retail sales and Consumer and Producer Price Indices will be released.

 

Last Month in the Markets: August 1 – 31, 2019

(source: Bloomberg)

What happened in August?

Summer has ended, and for equity investors the hope is that the volatility and uncertainty that has been experienced over the last few months (and as far back as January 2017 when Donald Trump became president) will reduce in both size and frequency. However, the figure below shows that August was not the first month to demonstrate a calmer equity environment.

(source: ARG analysis and Bloomberg  https://www.bloomberg.com/markets)

The catalysts for the up-and-down roller coaster August are not new, and they will continue to influence September and beyond. Since most Canadians invest their retirement savings domestically and in the U.S. some of the issues affecting us most are:

  • The U.S./China trade war that continues to ebb and flow. The rhetoric over the last month ended on an upswing after Trump indicated that negotiations would resume. This was following tit-for-tat actions of restrictive tariffs and threats from both sides.
  • The global economic slow-down, its timing and its depth as countries like Germany experience a manufacturing slump led by lower automobile sales.
  • The Federal Reserve will respond to these two situations (above) to protect the U.S. economy’s growth, employment levels and inflation rate. Recently President Trump criticized the Fed Chair, Jerome Powell, insisting he was incompetent and causing damage to their economy. Ironically, Mr. Powell was appointed to his post by Mr. Trump.
  • The Bank of Canada’s response to our own economic performance and any actions by the Federal Reserve will influence our equity markets.
  • The approaching deadline of October 31st for a negotiated settlement of Brexit will affect the growth of European economies.

What’s ahead for September and beyond?

For many Canadians, September signals the beginning, not the end, of the year. The vacation-heavy summer, when it is often difficult to get projects accomplished at work or at home, has passed, students are returning to a fresh year of studies, and the fall leaves signal the start of a new cycle of renewal.

Autumn 2019 brings several items forward that will shape the remainder of this year and, perhaps, many years to come. The trade war between the United States and China will continue, and its ebbs and flows will cause volatility to continue. Brexit will have Europe in turmoil, mostly the U.K., until the current deadline of October 31st for a negotiated departure. China will face internal struggles with Hong Kong. Argentina and Venezuela, and now Brazil, will keep South America in the news for its political and economic instability and natural disasters. Middle East tensions, rarely quiet, will not abate. Global economic growth rates, along with inflation and employment, will guide monetary policy around the world, but most importantly in the U.S.

Lastly, after the summer recess American legislators will begin debating the merits of the U.S. – Mexico – Canada trade agreement. It is unclear whether Democratic lawmakers are willing to approve this trade in the House of Representatives and provide their rival, President Trump, with a “win” as the next election approaches in November 2020.

It will be a busy time for all, and investing in a robust, long-range plan and monitoring process is as important as it’s ever been.

 

Last Week in the Markets: August 26 – 30, 2019

(source: Bloomberg)

What happened?  

  • The most influential economic factor of late, the trade war between China and the United States, played a lead role again last week. Thankfully, it was positive news as the leaders on both sides of the disagreement toned down their rhetoric and presented a more cooperative stance.
    • The progress was not without some controversy. There are conflicting views about who called whom, and when. It appears that some of the previously announced actions by each side would be delayed so that negotiations could and would resume without additional, new animosity intruding into the process.
    • The TSX trailed the S&P 500, the Dow and the NASDAQ last week while still gaining more than 2½% after the Canadian economy posted stronger than expected second quarter Gross Domestic Product gains.
    • Each of the North American major indices have rebounded strongly in 2019, posting returns of 13 – 20% year-to-date. Unfortunately, this progress followed an almost equal decline in the second half of 2018. The year-over-year results are between minus 2% and plus 2% for the indices.
  • Gold lost ground last week due in-part to the positive trade news between China and the U.S. after gaining more than $100 USD/ounce since it had its last weekly loss back in early July.
  • More uncertainty emanated from the U.K. as Prime Minister Johnson suspended Parliament in advance of the October 31st

What’s ahead for this week?

  • In Canada, two related economic releases are scheduled for the shortened Labour Day week; the Bank of Canada will have an interest rate decision that will rely on several factors including the employment report for August.

In the U.S., the July figures for construction spending, durable goods orders and the trade balance will be announced along with the August employment report.

 

Last Week in the Markets: August 19 – 23, 2019

(source: Bloomberg)

What happened last week?   

  • Economic and political news dominated the equity markets again last week.
    • The U.S./China trade war reached a new level of antagonism with China’s intent to impose tariffs on over 5,000 American import products and President Trump instructing American companies to look for alternatives to China for their exports.
      • China plans to introduce the latest tariffs in two waves; September and December and includes a 25% tariff on U.S. automobiles.
      • All of this rhetoric and threatening announcements caused a reasonably strong week for equity investors to finish the week in negative territory. Over the course of this month, August, the TSX and the S&P 500 in the U.S. have fallen from record or near-record highs in July back to the levels of early June.
      • Also, with last week’s results, especially on Friday, all of the equity indices in our grid (above) are in negative territory compared with one-year ago.
    • Chair Jerome Powell of the Federal Reserve indicated that they would “act as appropriate” to manage the U.S. economy’s health with interest rate changes in light of the global economy and difficulties with China. For his efforts, he received biting criticism from Trump for not cutting rates already. Trump acted like he forgotten that Powell was appointed to the role by him. Source
    • The G7 meeting over the weekend provided hope for global collaboration, specifically on the Amazon rain forest fires, but true economic cooperation will wait, for now.

What’s ahead for this week?

  • In Canada, as we approach the end of summer 2019, the only significant release will be economic output for the second quarter expressed as Gross Domestic Product (GDP).
  • In the U.S., the same second quarter GDP numbers will be released along with durable goods order and consumer confidence.

 

Last Week in the Markets: August 12 – 16, 2019

(source: Bloomberg)

What happened last week?   

  • The heavy influence of political issues, threats of a global recession and yield rates on the performance of equity markets continued last week. The number of issues, the number of countries involved, and the strength and uncertainty of each issue changes daily.
  • All of the uncertainty has raised the value of traditional safe-haven investments. Gold has risen again this week and is up nearly 19% in 2019 and more than 6% in August alone.

What’s ahead for this week?

  • In Canada, we will receive the latest inflation numbers with the release of July’s Consumer Price Index (CPI), along with manufacturing and retail sales, both for June.
  • In the U.S., it is an uncharacteristic week with only existing home sales and new home sales for July planned for announcement.

 

Last Week in the Markets: August 5 – 9, 2019

(source: Bloomberg)

What happened last week?   

  • During Ontario’s Civic Holiday, which closed the TSX to trading, the U.S. indices began reacting to the latest trade rumours and threats between China and U.S.
    • The introduction of an additional tariff of 10% on $300 Billion of Chinese imports effective Sept 1st sparked an exchange rate retaliation by China. By allowing the yuan to fall in value beyond the 7 yuan per dollar level, China indicated its intention to move past tariffs and restrictions to measures that would include more than just the U.S. This would make Chinese imports cheaper and reduce effects of tariffs. The U.S. labelled China a “currency manipulator”, a charge the People’s Bank of China (PBOC) denied, and the U.S. government was not able to convincingly defend. The hope for a resolution quickly, or even in 2019, has faded dramatically by this latest action and reaction. https://www.economist.com/finance-and-economics/2019/08/06/the-trump-administration-labels-china-a-currency-manipulator
    • According to the World Bank, in the last full-year of data (2017) Chinese imports to the U.S. totalled $430 Billion and represented 19% of all Chinese exports. For comparison, China imports $154 Billion of U.S. goods. https://wits.worldbank.org/CountryProfile/en/Country/CHN/Year/LTST/TradeFlow/Export/Partner/all/
    • The effects to-date of the trade war have been shared unequally. Many elements contribute to an economy’s health, but after a year China’s economy grew by three times the U.S. rate in the second quarter (6.2% to 2.1%) and the trade surplus between the two nations is in China’s favour by $168 Billion. https://www.ft.com/content/4f5cb6de-ba91-11e9-96bd-8e884d3ea203

What’s ahead for this week?

  • In Canada, existing home sales for July is the only economic indicator of significance to be released. It will provide some insight into the consumer income and confidence.
  • In the U.S., July figures for inflation (Consumer Price Index, import and export price indices), retail sales, housing starts and building permits and industrial production and capacity utilizations will be announced.

 

Last Month in the Markets: July 1 – 31, 2019

(source: Bloomberg)

What happened in July?

The first month of the second half of 2019 started out blandly enough. Canada and the United States each celebrated the anniversary of their nationhood during the first short trading week. Soon afterward the North American indices responded positively, and then even more positively the next week, and then again during week 3. Consequently, new highs were established for the U.S. indices before falling back at the close of the month.

(source: ARG analysis and Bloomberg  https://www.bloomberg.com/markets)

The TSX had a muted response compared to American indices posting a barely positive return in July compared with 1-2% south of our border. Global returns equalled Canadian performance.

July concluded with the Federal Reserve cutting its benchmark rate by 25 basis points, the first reduction in more than a decade. Typically, a monetary policy move like this would cause an increase in equity values, however the opposite occurred. The sentiment was that the July cut was certain, and equity prices already reflected this eventuality. Any uptick from lower interest rates had occurred. The Federal Reserve hinted that future cuts later in 2019 and into 2020 might not be as certain as first thought. This negative news caused equities to fall at the end of July. Luckily, the U.S. indices had done extremely well during the first 3+ weeks of the month. https://www.federalreserve.gov/newsevents/pressreleases/monetary20190731a.htm

Timeframes are always important when considering performance. For example; consider the last week of July vs the entire month of July. Negative results for one week didn’t eliminate a generally positive month. For an even longer time frame, the indices have returned 14-23% in 2019, but much less over the last year. The range is minus 0.2% to 6½%.

The graphic below shows the year-to-date (YTD) and 1-year returns. The discrepancy is attributed to the significant drop in December 2018, which allowed 2019 to move upward from this most recent dip.

(source: ARG analysis and Bloomberg  https://www.bloomberg.com/markets)                           

As a general rule; as the time frame lengthens, the effects of short-term peaks and valleys lessens, making gains (and often losses) less extreme. Canadians who are investing their savings for retirement should monitor returns and volatility relative to their goals but should focus on long-term results by making well researched investment decision that are aligned to their needs to manage risk, volatility and returns.

What’s ahead for August and beyond?

Similar to July, two major influences will guide equity values in North American where most Canadians have their investments; monetary policy and trade tensions.

The Bank of Canada (BoC) will have a qualitative explanation to the Federal Reserve’s move to raise rates and may provide a quantitative response with its own increase. Until this occurs, Stephen Poloz, Governor BoC, will continue to shroud his actions. If the Fed delivers on further rate reductions, this may force Poloz’s hand, but, again, not until it occurs, and don’t expect clear communication from Fed Chair Powell.

Also, the trade tensions between the U.S. and China will likely continue. It appears, like many international negotiations, that this situation will ebb and flow, but not be resolved. There is too much political risk in the U.S. and too much economic loss for China to end the stalemate quickly or easily. https://www.bloomberg.com/news/articles/2019-08-01/trump-ratchets-up-trade-war-with-new-tariffs-on-chinese-imports

 

Last Week in the Markets: July 22 – 26, 2019

(source: Bloomberg)

What happened last week?

  • With our dollar as the lone exception, it was an all-green week. Since most Canadian investors have their sharpest focus on the performance on equities, last week did not disappoint, unless you were also only focused on Canadian stocks.
    • Renewed efforts to end the U.S./China trade disputes have provided optimism that economic activity between the two nations would resume its former healthy levels.
    • The corporate earnings season, particularly in the U.S., has proved to be better-than-expected. Nearly half the firms in the S&P 500 have reported, and 77% of them have beat profit expectations, and their stock prices reflect this performance. Google led the way with a 10% price increase after their earnings announcement. https://www.barrons.com/articles/earnings-season-so-far-revenue-beats-meet-low-expectations-51564196201
    • American GDP results show that their economy was performing better than thought, but not so well to change the anticipated rate cut by the Federal Reserve. A rate cut this week will make borrowing cheaper for all firms, and it is expected to lead to economic expansion, higher profits and, ultimately, greater equity values. https://www.theglobeandmail.com/business/article-us-federal-reserve-interest-rate-cut-over-rising-trade-war-risks/
    • Last week here at home, the TSX continued its slow, steady upward climb, approximating the results of the Dow, but not nearly as impressive as the S&P 500’s new record high, and the NASDAQ staying very close to its all-time high. The TSX was helped along by the price of oil, and the consumer staples and technology sectors.

What’s ahead for this week?

  • In Canada, the results of our economic health and growth will be released through May’s Gross Domestic Product (GDP), and June’s international trade, numbers.
  • In the U.S., the long-awaited Federal Reserve interest rate decision will finally occur on Wednesday at 2 pm Eastern. Also, personal income and spending, construction spending, durable goods orders, trade balance for June and the employment report for July will be released.

 

Last Week in the Markets: July 15 – 19, 2019

(source: Bloomberg)

What happened last week?

  • It was a difficult week for equities in North America. Although the three major American indices touched new all-time highs, equity indices and the Canadian dollar finished lower.
    • The price of oil suffered a one-week drop of nearly 8%, due to higher U.S. reserves and increased Russian production levels. Despite the heavy loss last week of $4.50/barrel for West Texas Intermediate, the price of oil has surged over 22% in 2019. Only the NASDAQ has performed better this year.
      • The Energy sector of the TSX dragged the overall index downward. Thankfully, the overall loss was negligible at one-hundredth of a percent, far less than the losses suffered in the U.S.
    • President Trump continued to threaten the hoped-for trade deal between the U.S. and China, and his remarks reduced the optimism for a conclusion to the dispute.
    • Two additional contributors to the U.S. stock market decline are the diminished corporate results that are beginning to be reported for the most recent quarter and some new doubt that the Federal Reserve may not cut its benchmark rate in July. https://www.wsj.com/articles/why-weak-corporate-earnings-dont-signal-a-weak-economy-11563631200
  • Recent volatility from political tensions, dubious corporate performance, monetary policy and strengthening economic growth should remind all investors to keep index performance in perspective. The value, predictability, liquidity and risk levels of an individual’s portfolio are far more important than the overall market or any index’s short-term gain or loss.

What’s ahead for this week?

  • In Canada, it will be a light week for economic releases as the quarterly earnings season builds on both sides of the border. Wholesale trade figures for May will be the sole indicator of note scheduled for release.
  • In the U.S., new and existing home sales and durable goods orders for June will be released along with quarterly results for almost 150 firms in the S&P 500 and 10 of the Dow’s 30 firms.

 

Last Week in the Markets: July 8 – 12, 2019

(source: Bloomberg)

What happened last week?

  • The TSX lost one-third of a percentage point while the three major U.S. indices all hit new all-time highs. The Dow and the S&P 500 cleared two milestones, 27,000 and 3,000 points, respectively for the first time. Although the TSX is only 1% below its own record high, the success of equities south of the border casts a shadow over the 15% gain for the TSX in 2019.
  • Most of the increase for the American indices is being attributed to monetary policy. The Federal Reserve (Fed) Chair, Jerome Powell, reiterated his position that the Fed could counteract the negative effects of trade tensions in his semi-annual testimony before Congress. The Fed “strongly supports the goals of maximum employment and price stability (inflation)”. Currently, inflation is below their target of 2%, therefore an opportunity exists to cut rates to drive economic growth and increase employment should the uncertainty in global economics and politics continue. https://www.federalreserve.gov/newsevents/testimony/powell20190710a.htm
  • Here at home, the Bank of Canada (BoC) kept its key interest rate unchanged at 1.75% in its announcement on Wednesday. Although global trade tensions have lowered predictions for Canadian economic growth, our economy has rebounded slightly, employment and wage gains are positive, and prices are aligned with our central bank’s goals. A short video presentation is available for viewing at https://www.bankofcanada.ca/2019/07/mpr-2019-07-10/
  • Three weeks ago, the Fed made the same decision to maintain their benchmark interest rate, but the allusions of a rate cut by Powell have driven their equity markets to new heights.

What’s ahead for this week?

  • In Canada, manufacturing and retail sales figures for May along with June inflation, through the Consumer Price Index (CPI) will be released.
  • In the U.S., a more robust and balanced week for economic news awaits with June’s import and export price indices, housing starts and building permits, retail sales and industrial production and capacity utilization scheduled for announcement.

 

Last Week in the Markets: July 1 – 5, 2019

(source: Bloomberg)

What happened last week?

  • Now that we’ve moved past Canada Day and Independence Day, the 1st and the 4th, respectively, some interesting and purely coincidental numbers have emerged:
    • Both the TSX and the Dow have gained exactly the same amount at 15.41% year-to-date;
    • The Canadian dollar’s gain this year when added to the TSX advance (4.24% + 15.41%) is almost equal to the S&P 500’s increase of 19.29%;
    • Last week gold lost exactly the same amount, $13.60, that it gained the preceding week;
    • Lastly, the S&P 500 and the Dow hit new highs at 2,996 and 26,966. The NASDAQ also reached a new high, peaking at 8,176.
  • The TSX delivered a solid 1% gain last week, led by technology and industrial sectors. The drop in the price of oil didn’t help as the Energy sector prefers rising prices.
  • The MSCI All Country World Index (ACWI) turned in a similarly strong performance last week by moving ahead over 1%, and over 16% for this year. The developed markets have gained more than 17% and emerging markets have gained just under 10% in 2019. Both are very strong performances despite 10% seeming lacklustre (source: https://www.msci.com/end-of-day-data-search).

What’s ahead for this week?

  • In Canada, the Bank of Canada will release its latest interest rate decision. A recent rise in Gross Domestic Product growth in Canada has reduced the need for a rate cut. It has not been typical for our central bank to adjust interest rates ahead of changes from the Fed in the U.S. Thankfully we will only have to wait until Wednesday to know our latest monetary policy moves.  (source: https://www.theguardian.pe.ca/business/panel-of-economists-believe-bank-of-canada-will-hold-its-overnight-rate-330391/)  Additionally, housing information will be announced with May’s building permits and new housing price index and June’s housing starts.
  • In the U.S., inflation numbers will dominate the economic news with both the Consumer Price Index (CPI) and the Producer Price Index (PPI) being released along with May’s wholesale inventory numbers.

 

Last Month in the Markets: June 3 – 28, 2019

(source: Bloomberg)

What happened in June and the first half of 2019?

The first half of the year (H1) was one of the best for equities since major indices were established and tracked. The YTD, Year-to-Date, numbers in the table above outlines the tremendous gains achieved so far in 2019.

The technology-heavy NASDAQ has moved ahead over 20% since the New Year, and the broad-based S&P500 and the TSX have gained more than 17% and 14%, respectively. The Dow Jones Industrial Average, which is comprised of 30 large U.S. corporations is also up over 14%. A vast majority, 26 of 30 firms, are in positive territory for 2019, which is a major accomplishment with the pressures of competition and on-going trade issues between the U.S. and China. (source: https://money.cnn.com/data/dow30/)

(source: Bloomberg  https://www.bloomberg.com/markets and ARG analysis)

Each of the major North American indices achieved their peaks after a little more than four months, by early May.

Over the past five years of first halves, 2019 is the best 6-month period to start any of those years. The height of the shaded boxes, above right, show the spike in share prices that have occurred. 2019’s gain followed a steep decline in H2 2018.

The results of the last 8 weeks are similar to the last 12 months. In both cases, the first half of the period showed a decline followed by a recovery that eliminated those losses. For the last year, and in the U.S., the recovery has added 7-10% to the value of the index. In Canada the TSX has gained less than 1% over the same period.

Thankfully, the last month showed great returns for equity owners, especially those concentrating on the U.S. where about 7% was added to the indices (S&P 500, Dow, NASDAQ).  The influences for equity gains were predictable:

  • On-going trade disputes between the U.S. and China threaten global economic growth as the two largest economies fight to “protect” themselves
    • However, the Federal Reserve in the U.S. has indicated a willingness to cut interest rates to counteract any losses from the trade war with China.
  • Low interest rates, and the potential for a reduction in July, make consumer purchases and corporate expansion less costly
  • Jobs, employment and wages gains continue to fuel economic growth in the U.S.

Canada, whose largest trading partner is the U.S., continues to benefit from their expansion, but in a muted and delayed fashion. The Canadian economy, like the Bank of Canada, continues to operate in a wait-and-see mode. Our economy is driven largely by the health of the U.S. economy. The prices of commodities (oil, minerals, materials) is driven by global demand, and, again, by our largest trading partner and global economic leader, the U.S.

In the parlance of economics there are market-makers and market-takers. Canada is very much a “taker” meaning that we’ll take what others will give us. That is, the demand generated by our economy and the size of our output does not have much influence on global prices and markets.  We will continue to rely on other economies and be subject to the domestic effects of their international actions.

What’s ahead for July and the second half of 2019?

Trade-trouble, or diplomatic progress, will drive equity markets and monetary policy in the short term.

Following the G20 Summit in Osaka, Japan, the likelihood of a rate cut in July by the U.S. Federal Reserve has not changed much. The relationship between the U.S. and China on the trade issue that drives the potential rate cut has also not changed. The U.S. is still imposing tariffs on $250 Billion in Chinese imports, and China is responding with tariffs and restrictions to match American efforts. However, there is a renewed commitment to reach a solution.

Now that the outlook with China appears to be brightening, President Trump seems to be taking aim at the European Union and threatening restrictive action. Europe will face additional trade pressure as the U.K. is getting closer to selecting a new Conservative leader, who will become Prime Minister. Either Boris Johnson or Jeremy Hunt will lead them through the final stages of Brexit to the October 31st deadline.

 

Last Week in the Markets: June 24 – 28, 2019

(source: Bloomberg)

What happened last week?

  • Compared with many recent 5-day sessions, the performance of equities last week seemed tame. The North American indices were all down, but less than 1% in all cases. The last time that these four indices moved in the same direction and all gained or lost less than 1% was during the first week of February. Many events occurred last week as we enter into a slower period when Canada and the U.S. each celebrate the anniversaries of their independence.
    • The factors contributing to this mild loss, like the mild gain in February, were competing good and bad news, and a level of uncertainty of the effect or likelihood of the news.
      • The G20 meeting in Osaka gave Presidents Trump and Xi an opportunity to discuss their continuing trade war, but it was only beginning week’s end. Markets relied on rumour and speculation regarding progress. No new tariffs were announced, but by the end of the summit existing tariffs remained in-place.
      • With the trade dispute possibly defusing between the U.S. and China, July’s anticipated rate cut by the Federal Reserve may be smaller than first predicted.
      • The U.S. imposed sanctions on Iran, raising tensions across the oil-producing Middle East causing the price of oil to rise. The increase in the price of oil allowed the Energy sectors of indices to gain, while over-all they fell.
      • The TSX, which has a heavy weighting of its Energy sector did not benefit in this way. All TSX sectors except Healthcare fell last week on less than stellar economic and corporate performance news.

What’s ahead for this week?

  • In Canada, the shortened week with Canada Day on Monday has a light release of economic data scheduled; May’s international trade and June’s employment report.
  • In the U.S., Thursday’s Independence Day celebration has our American neighbors releasing a similarly short list of indicators; May’s trade balance, durable goods orders and construction spending, along with June’s employment report.

 

Last Week in the Markets: June 17 – 21, 2019

(source: Bloomberg)

What happened last week?

  • The results were all-green last week as monetary policy, diplomacy and government actions worked together.
    • Much of the gains in value of North American equities can be attributed to the U.S. Federal Reserve, which did not cut its benchmark interest rate as some had hoped, more than hinted that near term cuts were still a strong possibility.
      • Chairman Powell has communicated the Federal Open Market Committee’s (FOMC) concern that slowing global economic growth and trade concerns could cause the U.S. economy’s growth rate to slow. If and when this occurs, the Fed will fulfill its mandate to protect Americans against inflation and unemployment through monetary actions. In the orbit of monetary policy announcements this is strong, indicative language and the markets reacted accordingly.
      • More information can be found on the Fed’s website, which includes articles, announcements and the video of last week’s press conference at: https://www.federalreserve.gov/newsevents.htm
    • On the diplomatic front it appears that President Trump and China’s Chairman Xi will meet to discuss trade at the G20 conference later this week in Osaka, Japan.
    • Locally the TSX’s Energy sector received long awaited good news as the Canadian government approved the Trans Mountain pipeline expansion. Expect more political wrangling and legal action before the project begins.

What’s ahead for this week?

  • In Canada, adding to last week’s Consumer Price Index (CPI), which tracks inflation, this week the Gross Domestic Product (GDP) for April will be released. After these two indicators we’ll know about prices and how much the economy is growing.
  • In the U.S., a number of indicators for May will be announced; new and pending home sales, wholesale inventories and durable goods orders, and personal income and spending.

 

Last Week in the Markets: June 10 – 14, 2019

(source: Bloomberg)

What happened last week?

  • From a results perspective, equities returned to normal, reasonable levels with each of the North American indices returning about one-half of one percent last week. The weeks of 2, 3 and 4% gains seem wonderful at the time, but are usually surrounded by weeks with losses of 2, 3 and 4%. Four of the last six weeks saw significant losses for the indices tracked in the grid (above), and each index is below its most recent high of May 3rd.
    • These large swings have been difficult to avoid, especially when the world’s two largest economies, China and the United States, are engaging in a trade dispute filled with threats and retaliation. Solid planning with vigilant monitoring is still the best option.
    • The growing belief that a rate-cut by the Federal Reserve has tempered the effects of the trade rhetoric, at least temporarily. “The fed fund futures market now show traders see a 72% chance of a rate cut at the Fed’s July 31 meeting, and an around 23% probability of a rate cut in the June 19 meeting.” (Source:
    • https://www.marketwatch.com/story/traders-now-see-75-chance-of-fed-rate-cut-in-july-2019-06-05)
    • The prospect of a rate-cut has equity investors maintaining a more optimistic than pessimistic view. Especially when, many indicators like slowing inflation, increasing job openings and decreasing unemployment show that the American economy is performing well. Without the spectre of a trade war it is unlikely that a rate-cut would be needed. If cooperative treaties are signed by the U.S. a decrease to the Federal Funds rate will disappear along with the trade tensions.

What’s ahead for this week?

  • In Canada, the Consumer Price Index (CPI) for May will be released indicating our most recent inflation for households, along with April’s retail sales numbers.
  • In the U.S., the Federal Reserve will announce an interest rate decision which will either confirm or deny the recent rumours of a cut. Also, May’s housing starts, building permits and existing home sales will be released.

 

Last Week in the Markets: June 3 – 7, 2019

(source: Bloomberg)

What happened?  

  • It was a volatile week for equities, but by week’s end major gains had been made that were able to eliminate or well surpass the losses from the previous week. Again, trade rhetoric dominated the news and provided the most significant influence to the financial markets
    • The Chinese government announced that they would proceed with additional tariffs on two-thirds of American imports in retaliation to President Trump’s actions.
    • The Federal Reserve indicated publicly through Chairman Jerome Powell that interest rates could and would be used to protect the U.S. economy as trade difficulties escalated with China and elsewhere. The increasing expectation that this could mean a rate-cut to generate economic growth may be a significant influence next week since it could maintain the corporate performance that drives the equity markets.
    • At the end of the week the threatened tariffs against Mexico, which could have started at 5% and risen to 25% had been cancelled. It appears the “new” agreement that prompted the cancelation of the tariffs is based on pledges already made by Mexico to slow the flow of migrants to the U.S. southern border (source: https://www.nytimes.com/2019/06/08/us/politics/trump-mexico-deal-tariffs.html). It seems that President Trump created and inflated a problem that had already been solved and put all those who have invested in the markets through a wringer unnecessarily.

What’s ahead for this week?

  • In Canada, the economic releases will be dominated by housing statistics with the latest building permits and new housing price index being released.
  • In the U.S., two major indices will be released; the Consumer Price Index (CPI) and the Consumer Confidence Index (CCI). The CPI will describe the recent inflation numbers for individuals and families, while the CCI will define their view of the economy and how it affects them personally in the short-term.

 

Last Month in the Markets: May 1 – 31, 2019

(source: Bloomberg)

What happened in May? 

Equity markets suffered badly from the restrictive trade actions, comments and threats that dominated the news again last month. President Trump was a major contributor as he used tariffs as a cure-all for American economic and personal political ailments.

The ongoing dispute between the world’s two largest economies, U.S. and China, has trade restrictions negatively affecting global stock markets. That is, the restrictive trade actions between these two countries will slow economic growth for them and for other economies that buy or sell goods and services directly or indirectly with them. This dispute makes ‘the pie smaller’ for everyone and everyone’s slice smaller, too.

As May concluded, President Trump announced a 5% tariff on all imports from Mexico as motivation to stop the flow of migrants into the U.S. This punitive measure is set to increase by 5% each month to a maximum of 25% until the flow of migrants ceases. In 2018 imports from Mexico were $346 Billion, and at the maximum 25% tariff level an additional $87 Billion in tariffs/costs would be generated. (source: https://www.census.gov/foreign-trade/balance/c2010.html)

President Trump doesn’t understand, or doesn’t want to admit, that tariffs increase costs and the price to purchasers of imported goods.  He wants to focus on the funds that are generated for the U.S. Treasury without admitting that his tariffs amount to an import tax for the buyers. https://twitter.com/realdonaldtrump/status/1069970500535902208

Ironically, Trump simultaneously stated that he wants the USMCA (U.S. Mexico Canada Agreement) trade treaty to be approved and implemented in Congress. It seems unlikely that free-trade legislation could pass while a restrictive Executive Order is in-place against one of the treaty partners. For a more in-depth understanding, John Cassidy’s recent New Yorker article provides excellent background at https://www.newyorker.com/news/our-columnists/trumps-crazy-mexico-tariff-is-stoking-a-meltdown-on-wall-street

The U.S. and China aren’t the only two countries who are contributing to the recent stock market losses through their international trade actions. The continued, unsuccessful effort to reach an agreement in Parliament caused Prime Minister Theresa May to tender her resignation. Once a new leader is chosen, she will step-down. In the short term the prospect of a no-deal Brexit continues to loom, which could cause additional trade turmoil.

(source: ARG analysis and Bloomberg  https://www.bloomberg.com/markets)

Many other economic and political events occurred last month; interest rate announcements, European Parliament elections, OPEC meetings, a Robert Mueller press conference, growing sentiment toward impeachment, and yet the capital markets honed-in on and reflected the news and events that most directly will affect the performance of individual firms and the global economy – trade. If nothing else, the efficiency of these markets has been proven again with the rapid reactions to rhetoric. Unfortunately, the negative messages also prove that disruptions to international trade damages both individual economies (like the U.S., China and the U.K.) and global economic activity.

What’s ahead for June and beyond?

After a tumultuous May, making predictions for June and the summer of 2019 seem less and less savoury. Certainly, trade tensions will continue as political leaders, especially President Trump, will attempt to sway voters to the opinion that protecting American workers and farmers with tariffs provides real benefits beyond patriotism.

Summer has traditionally seen lower trading volumes as traders and investors take well deserved vacations, which may mute some of the effects of international trade disputes.

 

Last Week in the Markets: May 27 – 31, 2019

(source: Bloomberg)

What happened last week?

  • Trade talks, threats and rhetoric featured prominently in the news last week and had a devastating effect for investors in the short term. The TSX was the leader with a drop of ‘only’ 1%, while the U.S. indices approached or exceeded a 3% fall.
    • Trump and his administration indicated that they were not ready to conclude talks and arrive at a trade treaty with China, and further threatened Chinese interests with more punitive trade actions, particularly technology firms, who were accused of spying.
    • China responded more subtly with their leader visiting rare earth mineral deposits which are necessary for the manufacture of mobile phones to make a veiled threat that these necessary factors of production would be withheld.
    • While touting the benefits of NAFTA’s replacement Trump announced a new tariff on all goods from Mexico unless the flow of migrants stops. The tariff will start at 5% and increase by 5% monthly to a maximum of 25% unless the flow of migrants ceases.
      • Trump believes, or at least states, that the collected tariffs flow to the U.S. Treasury without stating that it is U.S. companies and consumers are the ones who actually make those payments in the form of higher prices.
    • The drop in the indices was broadly delivered. All sectors in the S&P 500 lost ground last week, Canada’s TSX had major losses in the energy, healthcare, consumer discretionary, financial sectors.

What’s ahead for this week?

  • In Canada, it will be a light week for economic reporting with the employment report for May being the only data release of note.
  • In the U.S., May’s employment data will also be released along with April’s factory and durable goods orders, construction spending, wholesale inventories and, finally, the trade balance. The trade balance numbers could provide some insight into the motivation for past and future trade rhetoric from President Trump.

 

Last Week in the Markets: May 20 – 24, 2019

(source: Bloomberg)

What happened last week?

  • Seemingly, the only positive news coming out of Toronto in the past week was the Raptors’ victory over the Milwaukee Bucks. The NBA and Stanley Cup finals begin tonight and could provide a diversion for those who have been disappointed by their equity portfolios recently.
    • The TSX, like the S&P 500 and Dow, lost 1% last week, mirroring the loss globally as expressed by the MSCI All Country World Index. The NASDAQ dropped more than 2%!
    • The financial losses in Toronto are mostly attributable to the energy, materials, industrials and health care sectors. The banking sector who are reporting second quarter results performed better than the rest of the TSX by dropping one-third of a percent (0.0037%) for the week.
    • China and the U.S. continued their trade war, and any impending resolution seems much more unlikely on Friday than it has in weeks. The accusations, denials and comments escalated as last week passed, and appear to be driven by the U.S. president.
    • K. Prime Minister Theresa May tendered her resignation over the lack of progress in parliament for Brexit plans. She will remain in her role until a successor is named, but “changing horses midstream” makes the possibility of a no-deal Brexit more possible, as well as remaining in the European Union. Whichever solution ultimately occurs May’s resignation has increased the level of uncertainty.

What’s ahead for this week?

  • In Canada, the number of economic releases is small, but the they are significant. The Bank of Canada (BoC) will announce an interest rate decision, and Gross Domestic Product (GDP) for March will be released. The GDP numbers will have influenced the BoC’s rate decision.
  • In the U.S., markets will be closed Memorial Day on May 27th. First Quarter GDP, and April’s wholesale inventories and personal income and spending will be released later in the week.

 

Last Week in the Markets: May 13 – 17, 2019

(source: Bloomberg)

What happened last week?

  • It was a wild week for North American equities as the trade-war rhetoric between China and the U.S. continued with alternating positive and negative statements.
    • On Monday China announced retaliatory measures on the importation of U.S. goods to Trump’s announcement to increase tariffs from 10% to 25% late the previous week.
    • For the next two days, as equity markets tumbled negotiators and leaders from both countries hinted at more negotiations and progress toward reaching a new agreement.
    • A threat to subject Chinese telecommunications manufacturer, Huawei, to U.S. tariffs drove markets down since any disruption to the $11 Billion of trade would be notable.
    • The week concluded with the U.S. ending the steel and aluminum tariffs and Canada and Mexico cancelling their retaliatory actions. All legal actions by the three countries at the World Trade Organization (WTO) have also ended.
      • The next focus for the Trudeau government in this area will be to get the replacement for NAFTA, the “USMCA”, passed by American legislators.
    • In other encouraging news the first quarter earnings season has nearly concluded with more than half of companies reporting stronger results than the same period last year.

What’s ahead for this week?

  • In Canada, after Monday’s close for the Victoria Day holiday retail sales and wholesale sales will be released.
  • In the U.S., it will be a similarly light week for economic announcements as they prepare for their upcoming Memorial Day weekend. Existing home sales and durable goods orders will be announced along with the Federal Reserve’s Open Market Committee’s minutes.

 

Last Week in the Markets: May 6 – 10, 2019

(source: Bloomberg)

What happened?   

  • It is often difficult to attribute the performance of individual stocks or entire equity indices to specific economic influences. Each day and week many leading and lagging indicators represent conflicting and contradictory situations, often leaving investors scratching their heads. Market analysts sift through the array of information and make investment decisions; switching between equities, moving capital in and out of asset classes. Last week there was no question what the news was that drove North American and global equities downward.
    • Trump announced the tariffs on $200 Billion of Chinese imports would increase from 10% to 25%, and another $325 Billion of imports would also be subjected to the same 25% tariff. In an expected and natural reaction China promised tit-for-tat trade action by promising their own set of trade restrictions.
    • Restrictive trade measures cause the size of the pie to shrink more than any piece can get bigger.
      • As a result, the equity markets retreated significantly since the opportunity for firms to buy and sell with China became more expensive and would diminish or eliminate profits on that trade.
      • This trade action by Trump seems to fulfill only one objective; it appeals to his grass-roots political base.
    • Thankfully, the TSX where most Canadians have their retirement savings invested performed better than almost all other regions, and certainly much better than the U.S. major indices.

What’s ahead for this week?

  • In Canada, the major news will be inflation with the release of April’s Consumer Price Index (CPI) along with existing home sales for the same period and March’s manufacturing data.
  • In the U.S., a varied set of information will be announced; April’s import and export price indices, industrial production and capacity utilization and housing starts and building permits.

 

Last Week in the Markets: April 29 – May 3, 2019

(source: Bloomberg)

What happened?    

  • The news last week was a mixture of both good and bad. Consequently, the performance of North American equities was also mixed, with the TSX declining and U.S. indices flat overall.
    • The Bank of Canada (BoC) Chair Stephen Poloz suggested to a Senate committee that a rate hike could be possible if some of the impediments to economic growth are removed, like trade tensions between Canada, the U.S., and China.
    • Canadian Gross Domestic Product (GDP) shrank in February (source: https://www150.statcan.gc.ca/n1/daily-quotidien/190430/dq190430a-eng.htm).
    • The U.S. Federal Reserve has indicated that the next interest rate adjustment will not be a reduction, as some investors had hoped. This patient approach is aligned with their earlier statements and matches the desire to slowly normalize rates (move to more traditional and familiar levels), not contribute to slowing economic growth, and to keep inflation low.
    • In the U.S. 263,000 jobs were added in April and unemployment fell to its lowest level in nearly five decades (source: https://www.bbc.com/news/business-48145563). Manufacturing productivity, consumer confidence and spending are rising, as inflation holds low and steady.
    • The uptick at the week’s end in equities relied upon the continued strong profits as first quarter reporting neared its completion.
      • This short summary of last week’s mixed news and results demonstrate the varied influences and effects that can result.

What’s ahead for this week?

  • In Canada, several housing indicators will be released with new housing prices and building permits for March, and April’s housing starts. Additionally, the employment report for April will be announced, during the week following a surprisingly positive U.S. jobs report.

 

Last Week in the Markets: April 15 – 19, 2019

(source: Bloomberg)

What happened last week?

  • The TSX reached a new all-time high last week as a great Thursday preceded Good Friday. After gaining nearly 16% this year it has eclipsed its previous maximum achieved in mid-July 2018.
    • The result of the provincial election in Alberta, and the continued combative relationship between Ontario and Ottawa, should produce lots of news, but hopefully will not cause a reversal of recent success in our domestic equity market.
  • Last week’s gain in equity prices occurred as the quarterly earnings season began. Corporations in Canada and the U.S. will continue to deliver their results throughout this week, with many of the biggest corporate names announcing the latest quarter’s results. Their success against expected results will fuel gains or losses for U.S. equities.
    • Those firms reporting could see their share prices react quickly to missed or exceeded expectations. It should be an interesting week.
    • Expectations have been cautious, but after a few days the results are on the positive-side of expectations, not slowing as much as had been anticipated, and have driven up share prices accordingly.

What’s ahead for this week?

  • In Canada, on Wednesday we will receive the Bank of Canada’s latest interest rate decision on heels of last week’s inflation numbers of 1.9%, which is just below the target of 2% (source: bankofcanada.ca). Also, February’s wholesale trade sales will be announced.
  • In the U.S., housing data will dominate the news with March’s new and existing home sales, housing starts and building permits being released. First quarter Gross Domestic Product (GDP) will show the growth rate of the American economy in 2019.

 

Last Week in the Markets: April 8 – 12, 2019

(source: Bloomberg)

What happened?    

  • The International Monetary Fund (IMF) downgraded their forecast for 2019 global growth from 3.7% to 3.3%, and 2020 has been trimmed by 0.1% to 3.6%. The IMF warned that forecasts could be cut further based on trade tensions, shocks to the European economy from Brexit and effectiveness of China’s stimulus actions.
  • British PM Theresa May negotiated a new Brexit deadline of October 31st with the 27 other EU members. This extension provides more opportunity to achieve a deal, and could provide a calming influence over European stock volatility over the next few months.
  • An additional calming, and positive, influence for equities is the optimistic outlook for U.S./China trade negotiations. Of course, it has been tempered by a new EU/U.S. dispute over aircraft manufacturing subsidies and tax breaks with both sides claiming injury
  • The price of oil reached a 5-month high, but it is still $12/barrel and about 20% below last October’s peak. The upward price pressure of an OPEC production cut and political problems in Libya and Venezuela has beaten back the negative effects of the predicted economic slowdown.
  • The Ontario PCs are pursuing increased austerity in their budget to reduce the debt-to-GDP ratio. The Health and Education ministries that comprise about 60% of provincial spending and will be relied upon to achieve fiscal goals. A more comprehensive summary can be found at: https://www.theglobeandmail.com/canada/article-ontario-budget-2019-what-you-need-to-know-about-doug-fords-spending/

What’s ahead for this week?

  • In Canada, February’s retail and manufacturing sales will be released along with March’s inflation through the Consumer Price Index (CPI).
  • In the U.S., the trade balance for February will be released, and retail sales, housing starts, industrial production, capacity utilization for March.
    • Earnings season for the more recent quarter began last week, and continues this week, with corporate performance predicted to be lower than the same period last year. It will be a bumpy week for North American equities if performance is below expectations.

 

Last Week in the Markets: April 1 – 5, 2019

(source: Bloomberg)

What happened?    

  • North American indices had another stellar week – all rose by nearly 2% or more. The major indices set fresh year-to-date highs and are nearing the highs of last summer and fall.
    • The TSX relied heavily on the Financial and Energy sectors for the gain as both interest rates and oil prices continue to creep higher. These two sectors comprise a little more than half the weight of the overall benchmark, with four of the major Canadian banks, Enbridge, Suncor and TransCanada in the list of top ten constituents.
    • American economic data are indicating that recent recession fears were either ill-timed or unnecessary. The bond yield curve has regained its normal shape after a short period when short term rates are higher than long term rates. This “inverted curve” has signalled that an economic recession is about to begin.
      • Additionally, optimism is growing that the China/U.S. trade negotiations might achieve the long-promised treaty that will deliver more recession-abating economic activity between the two countries and beyond.
    • Brexit negotiations may continue even longer as British Prime Minister Theresa May seeks to extend the deadline to June 30th from its already extended end of April 12th. French President Emmanuel Macron is taking the hardest negotiating stance to prevent repeated extensions for the U.K. as they attempt to withdraw from the European Union with a negotiated exit.
      • This uncertainty did not dampen global or European markets last week, and the current Friday deadline should cause some movement as a deadline is set or not.

What’s ahead for this week?

  • In Canada, housing data will dominate this week’s economic releases with February’s new house price index and building permits and March’s housing starts on the schedule.
  • In the U.S., the major announcements will be March’s Consumer and Producer Prices Indices (CPI and PPI, respectively). Price stability in the form of low and predictable inflation, along with employment, is a major goal of the Federal Reserve and both guide monetary policy.

 

Last Month in the Markets: March 1 – 31, 2019

(source: Bloomberg)

What happened in March?

The most recent month for equities was more volatile than the entire first quarter of 2019.  Although one quarter (3 months) is still a short time horizon, the differences shown in the two charts below demonstrates the necessary focus on longer-term results for retirement savings.

(source: Bloomberg  https://www.bloomberg.com/markets and ARG analysis)

Some of the factors contributing the first quarter and March were:

  • On March 6th the Bank of Canada (BoC) continued to hold its benchmark lending rate unchanged. The rate has been at 1.75% since October 31st of last year and will be held at this level until at least late April when the next interest rate decision will be announced.
  • During the first full week of the month, a poor U.S. jobs reports that fell far below expectations indicated the continued slowing of the American economy. Only 20,000 non-farm jobs were created in February.
  • March 11th to 15th was another “all green” week, perhaps in honour of St. Patrick’s Day, or more likely based more on Jerome Powell U.S. Federal Reserve Chair, continuing to indicate that their central bank is not planning on increasing interest rates in the near future.
  • European economic production was above expectations, even in the U.K. where Brexit results remain heavily in-doubt. During debate in the House of Commons British Prime Minister, Theresa May, lost her voice and a Brexit vote by a margin of 149 MPs. It is a significant improvement from her 230-vote defeat in January, but it was still a significant shortfall. A third vote was held, and again it was closer than the previous tally, but still fell well short of the majority approval needed to achieve a negotiated Brexit. The April 12th deadline approaches!
  • On March 19th, Canada’s Minister of Finance, Bill Morneau, released his latest and last budget before the next federal election that will occur no later than October 2019. The budget, entitled “Investing in the Middle Class”, included additional investment and income opportunities through the use of annuities in retirement, and a new Minister for Seniors to “help the Government better understand the needs of Canadian seniors”, set up further implementation actions for a national “pharmacare” (prescription drug) program, among other items.
  • The next day the Federal Reserve confirmed its earlier indications by holding its benchmark lending rate, the federal funds rate, unchanged at 2¼ to 2½%. The announcement was published online at https://www.federalreserve.gov/newsevents/pressreleases/monetary20190320a.htm
  • Politically and legally a summary of the “Russia investigation” stated that no collusion occurred between the Russian government and the Trump presidential campaign. More details and debate will occur, but this development may allow the U.S. government to focus on the economy (not political infighting), which would be good news for investors.
  • The SNC-Lavalin affair continues to grind its way through the House of Commons, subcommittees, and the popular press. The Liberals and Prime Minister Trudeau have taken serious criticism from almost all quarters as the next election continues to loom.

What’s ahead for April and beyond?

The most significant financial event for Canadians will occur with the personal income tax deadline of April 30th unless you qualify for an exemption. Consult your tax specialist in all cases.

 

Last Week in the Markets: March 25 – 29, 2019

(source: Bloomberg)

What happened last week?

  • The major North American indices finished higher than they started on Monday. The TSX barely achieved this goal, while the U.S. indices had very healthy weekly total returns. The effect of domestic and international political influences on the market were continuous last week.
    • The SNC-Lavalin affair continues to grind its way through the House of Commons, subcommittees and the popular press. The Liberals and Prime Minister Trudeau have taken serious criticism from almost all quarters as the next election continues to loom.
    • Although much more is still to be discussed regarding Robert Mueller’s finding that Trump’s campaign did not collude with Russia, the report provided optimism that the U.S. government could begin to focus on boosting their economy, such as; growing the American economy through international trade by replacing NAFTA, removing steel and aluminum tariffs and negotiating a trade deal with China.
    • British Prime Minister Theresa May suffered a third defeat (344 votes to 286) on her Brexit plan as the April 12th deadline approaches. May is attempting to follow the mandate of the people, while the MPs are dissatisfied with the terms of her exit plans. It is possible that a general election may be called to overcome this impasse.
    • International and domestic bond yields continued to dance-around and confuse the likelihood of a recession in Canada and globally, which will be decided over time.

What’s ahead for this week?

  • In Canada, the most important data release for this week is March’s employment report. Watch for the number of new jobs added and the proportion which are full-time to provide insight into our economy’s health.
  • In the U.S., the same employment report for March will be released for their economy. The last report for February was disappointing, a similar report will fuel speculation that the economy is slowing further, a pleasing report will reverse the trend. Employment data will be taken in context of February’s construction spending, durable goods orders and retail sales.

 

Last Week in the Markets: March 18 – 22, 2019

(source: Bloomberg)

What happened?   

  • Bill Morneau, Minister of Finance, released the latest and last budget before the next federal election that will occur no later than October. The budget is entitled “Investing in the Middle Class”. Highlights include:
    • Additional investment and income opportunities through the use of annuities in retirement have been created, and a new Minister for Seniors has been established to “help the Government better understand the needs of Canadian seniors”.
    • Implementation of a national “pharmacare” (prescription drug) program to remove financial hardship for sick Canadians is moving closer to reality.
    • First time home buyers could achieve lower payments with a new arrangement through the Canada Mortgage and Housing Corporation (CMHC).
    • On Wednesday the Federal Reserve announced that it was holding its benchmark lending rate, the federal funds rate, unchanged at 2¼% to 2½%. The announcement was published online at https://www.federalreserve.gov/newsevents/pressreleases/monetary20190320a.htm
    • Politically and legally a summary of the “Russia investigation” stated that no collusion occurred between the Russian government and the Trump presidential campaign. More details will surely follow but this development may focus the U.S. government on the economy which could be good news in the short term for investors.

What’s ahead for this week?

  • In Canada, the strength of the economy will be released through Gross Domestic Product (GDP) data for January. The rate of GDP growth is a major indicator of economic health and delivers significant influence over our stock market.
  • In the U.S., February’s housing starts and building permits, personal income and spending, new home sales and January’s trade balance will be released. Each of these indicators’ health will eventually manifest themselves in U.S. GDP numbers.

 

Last Week in the Markets: March 11 – 15, 2019

(source: Bloomberg)

What happened?   

  • It was another “all green” week, perhaps in honour of St. Patrick’s Day, celebrated yesterday, or more likely based on the following influences:
    • Jerome Powell, U.S. Federal Reserve Chair, continued to indicate that their central bank is not planning on increasing interest rates in the near future, based on the U.S. and global economic growth slowdown.
    • The uncertainty of trade treaty negotiation and implementation (between the U.S. and China, and NAFTA’s replacement) is delaying economic benefits and the central bank is unlikely to raise rates with these downward pressures looming.
    • European economic production was above expectations, even in the U.K. where Brexit results remain heavily in-doubt. During debate in the House of Commons British Prime Minister, Theresa May, lost her voice and the most recent Brexit vote by a margin of 149 MPs. It is a significant improvement from her 230-vote defeat in January but is still a significant shortfall to receive domestic approval for the current negotiated deal.  Another vote is planned this week to request an extension with the European Union.

What’s ahead for this week?

  • In Canada, consumer confidence will be reflected in January’s retail sales numbers, and inflation for February will be released with the Consumer Price Index (CPI).
    • On March 19th Finance Minister, Bill Morneau, will deliver the sitting Liberal’s budget in the run-up to the next federal election that will occur on or before October 21, 2019.
  • In the U.S., January’s wholesale inventories and durable goods orders and February’s existing home sales will be released. The Federal Reserve will announce an interest rate decision on Wednesday, widely expected to hold interest rates at their current level. Details on the Fed’s bond strategy are also expected to be released this week.

 

Last Week in the Markets: March 4 – 8, 2019

(source: Bloomberg)

What happened?    

  • On Wednesday the Bank of Canada (BoC) continued to hold its benchmark lending rate unchanged. The rate has been at 1.75% since October 31st of last year and will be held at this level until at least late April when the next interest rate decision will be announced.
    • Future BoC action would be taken to stimulate our economy in the face of uncertainty from Canada/U.S./Mexico Agreement that replaces NAFTA and the removal of steel and aluminum tariffs by the U.S., Brexit, U.S./China trade talks.
    • Immediately the Canadian dollar dropped by more than a half-cent on Wednesday in response to this interest rate hold and the underlying conditions that made it occur.
  • Equities around the world had a very difficult week. The TSX lost almost ½% of its value, while the major American indices lost over 2% for the week. The conditions that drove the BoC’s interest rate decision (listed above) and a pessimistic report on economic growth from the Organization for Economic Cooperation and Development (OECD) also damaged stock prices.
    • More directly, a poor jobs reports that fell far below expectations indicated the continued slowing of the U.S. economy. Only 20,000 non-farm jobs were created in February. The report from the Bureau of Labor Statistics at the U.S. Department of labour can be found at: https://www.bls.gov/news.release/empsit.nr0.htm
      • The data contained in the first few paragraphs illustrate the level of analysis that is undertaken and analyzed by economists, and advisors on your behalf.

What’s ahead for this week?

  • In Canada, it will be a light week for economic data releases with January’s new housing price index and manufacturing sales announced.
  • In the U.S., a busier and broader array of data will be released than in Canada. By week’s end we will see January’s new home sales, retail sales, durable goods orders and construction spending. Inflation numbers will arrive with February’s Consumer Price Index (CPI) and the Producer Price Index (PPI), which are two important economic indicators.

 

Last Month in the Markets: February 1 – 28, 2019

(source: Bloomberg)

What happened in February?

It was an “up-and-down and up-and-down” month for North American equities over the length of February. Despite a late month dip, the major indices that matter the most to the most Canadian investors all posted strong gains during the month; between 3 and 4% for the TSX, S&P 500, the Dow and the NASDAQ.

Locally, the rise in the price of oil and the force of the Energy Sector on the TSX index was a major contributor to the overall gains. The sector with the largest contribution to the overall TSX is Financials, which is led by our major banks. Things were moving nicely until the last week of the month when disappointing results surfaced; the TSX and the banks suffered an end-of-month dip, with only Bank of Montreal (BMO) closing February well above its mid-month level.

(source: Bloomberg  https://www.bloomberg.com/markets)                          

Many Canadian investors own significant amounts of bank stocks, both directly and through mutual and exchange traded funds. The share price adjustments at the end of the month, mostly negative, may explain a flattening of your overall portfolio value compared to mid-month values.

Just before February began, the U.S. Federal Reserve decided to hold interest rates steady. Later in the month their rationale was explained when their meeting minutes were released. The appetite to raise rates is waning and a period of pause has begun.

Keeping rates unchanged enabled much of the activity and positive performance for the four indices most important for most Canadian investors; for the most of February.

(source: Bloomberg  https://www.bloomberg.com/markets)

Of course, more than U.S. monetary policy contributed to last month’s market reactions. U.S. legislators and President Trump were able to negotiate an end to the partial government shutdown and avoid another disruption by agreeing to another deal before the February 25th deadline. The government will remain open and shocks to the economy from the shut-down should cease. Politically, the President countered with an Executive Order to finance his physical barrier on the border with Mexico; which was the sticking point that caused the shut-down initially.

Additionally, the trade talks between China and the United States progressed rapidly during February with President Trump declaring on February 25th that the next meeting between Chinese and American representatives would include a “signing summit” to conclude negotiations with an agreed trade treaty.

However, diplomacy in Vietnam between the United States and North Korea came to an abrupt end as Trump and the American delegation departed prematurely. Details are not fully understood or described at this point but it appears that North Korea wanted all sanctions lifted which is not acceptable to their negotiating adversary.

The sound-bites centred around “no deal is better than a bad deal”. Hopefully, the same sentiment will prevail between the U.S. and China regarding trade, but with the opposite result.

The on-going “isn’t it over by now” Brexit process continued to unfold between the U.K. and the balance of the European Union. As February progressed, the possibility of a No-Deal Brexit became increasingly likely. A No-Deal Brexit would mean that the free and open trade between the U.K. and European countries (either individually or collectively) would end. This would end labour and capital mobility as well as the free flow of goods and services.

The U.K. has many foreign workers contributing to its economy and repatriating some of their earnings back to family members in their home countries. Allowing cheap labour into the U.K. has bolstered them, while allowing monies to flow back home has supported other economies like Poland, Belgium, and the Netherlands. Ending this arrangement without another plan in-place will surely cause damage across several countries and Europe as a whole.

Canada was not without political controversy of its own. The resignation from Cabinet by Jody Wilson-Raybould has created the largest scandal of Justin Trudeau’s government. Wilson-Raybould, the former Attorney General, felt that she had been subjected to political interference by Trudeau and veiled threats by others in his inner circle over the SNC-Lavalin case.

The event is playing out currently and will be the subject of many hearings and testimony and rulings over the next days, weeks and months. At issue is whether the Prime Minister and the Prime Minister’s Office (PMO) attempted to inappropriately influence the Ministry of Justice. It appears that the Prime Minister would prefer an out-of-court settlement rather than a trial, since a costly trial could affect SNC-Lavalin’s employees/voters.

What’s ahead for March and beyond?

As mentioned above, U.S. monetary policy will influence equity markets for Canadian investors.  The prevailing sentiment, and as stated in the Federal Reserve’s own meeting minutes, is that interest rates will increase in the short-term, and maybe not for several more months. This would continue to be good-news for corporations that require capital, which is most, especially those in capital intensive industries (e.g. utilities) or those looking to expand.

The political climate will influence markets since politics affects international trade, sourcing of raw materials, off-shore manufacturing and servicing of global customers. Expect the trade talks between the U.S. and China, in particular, to affect equity values in North America and Brexit to impact European firms.

 

Last Week in the Markets: February 25 – March 1, 2019

(source: Bloomberg)

What happened?    

  • The growth of the economies in Canada and the United States has slowed. Canadian Gross Domestic Product (GDP) grew at an annualized rate of just 0.1% in December. The U.S. GDP expanded by a significantly more robust 2.6% annualized rate but was still shrinking.
    • Both the GDP growth rate and its slowing, in both countries, will influence the Bank of Canada’s interest rate announcement this week.
    • Also contributing to the idea of an interest rate “hold”, is Canada’s low inflation rate for January of 1.4% on the coattails of lower gas and oil prices.
  • The MSCI All Country World Index (ACWI) in our grid moved ahead for the week by 0.3%; even though the emerging markets side of this developed/emerging balanced index fell by 0.7%.
    • Investors often use developed markets’ stability to take larger risks with greater volatility in emerging markets. Last week provided a prime example of this strategy where the emerging-side’s volatility undid a solid positive gain on the “developed” side.
  • The U.S. and China continued to negotiate on trade with their last formal talks on Friday. A mutually beneficial deal would be good for both of their economies and for Canada. Despite several points still to negotiate, the deal could be finalized in late March after Chinese President Xi concludes a European trip with a stop in Washington before returning home.
    • Unfortunately, the benefits from a trade deal that expands the Chinese and American economies could be muted here. The diplomatic fall-out from the arrest of a Chinese executive on behalf of the U.S. has strained relations between Bejing and Ottawa.

What’s ahead for this week?

  • In Canada, Wednesday will bring a Bank of Canada interest rate announcement and by week’s end we will receive the latest data for building permits, housing starts and employment.
  • In the U.S., employment data will also be released along with new home sales and factory orders. These numbers will likely be boring compared to the current information that will emanate out of the White House and Congress, and the courtroom.

 

Last Week in the Markets: February 18 – 22, 2019

(source: Bloomberg)

What happened last week?

  • It was a second, consecutive “all green” week for our grid despite the four-day week for North American equity markets. They were closed on Monday for various provincial holidays (Family Day in Ontario closed the TSX) and President’s Day in the United States.
    • The four major indices are over 11% ahead of where they began in 2019. All are above their levels from one year ago. The TSX has risen eight weeks in a row and led the North American indices by gaining over 1% over the short week.
    • These advances are being propelled by a few influences like:
      • The U.S. Federal Reserve revealed through their latest meeting’s minutes that they have settled on waiting/pausing before raising interest rates again.
      • The U.S./China trade talks continue to provide positive news and the likelihood of achieving a mutually beneficial agreement remains high.
        • An agreement on currency issues didn’t occur during the week but its announcement late Friday is more evidence that the optimism is justified.
      • In Asia and Europe, equities gained as well on less than positive news:
        • Trade tensions among European Union (EU) members is increasing as a “no deal Brexit” is more likely after three members of Theresa May’s party resigned.
        • Economic news from Germany and France is turning toward the negative side.
          • Despite these setbacks overseas, equity markets moved ahead generally based on the optimism that interest rate steadiness and Chinese economic stimuli caused economic growth for its economy and others.

What’s ahead for this week?

  • In Canada, important economic data will be released; January’s Consumer Price Index and Industrial Products and Raw Materials Price Index and December’s Gross Domestic Product.
  • In the U.S.; December’s wholesale inventories, housing starts, building permits, factory and durable goods orders, and January’s personal income and spending will be released.

 

Last Week in the Markets: February 11 – 15, 2019

(source: Bloomberg)

What happened?   

  • It was a strong week for North American and global equities. The TSX trailed the other equity indices in our grid above, yet still delivered a more than respectable 1.3% gain for the week.
    • The rise at the TSX was led by the Energy sector as oil advanced nearly 5½% last week and more than 22% in 2019.
    • A budget deal in the U.S. along with positive news emanating from the U.S./China trade negotiations lifted markets south of the border.
      • In response President Trump declared a National Emergency, signing an Executive Order to secure funding for his border wall. The Executive and Legislative branches of the U.S. government continue to be embroiled in this dispute and will likely involve the Judicial branch soon.
      • On the negative side, U.S. retail sales in December were lower than expected (perhaps suffering the effects of the government shut-down) and unemployment claims grew, while job openings and real wages continue to rise.
        • The economic news is gradually turning from “all-positive” to “mixed” as some indicators either slow their rise or dip into negative territory. The next few months, and the reactions of central bankers, will require additional monitoring of investment portfolios.

What’s ahead for this week?

  • Canadian and American markets closed on Monday for holidays, making it a short trading week.
  • In Canada, the progress during December of two economic indicators will be reported upon; wholesale trade sales and retail sales. Retail sales is an indicator of the amount of consumer confidence in an economy.
  • In the U.S., it is a relatively light week for economic data; December’s durable goods orders, January’s existing home sales and the release of the meeting minutes from the Federal Reserve’s Federal Open Market Committee (FOMC) held on January 30th.

 

Last Week in the Markets: February 4 – 8, 2019

(source: Bloomberg)

What happened last week?

  • The TSX led North American indices again this week and would have led all of them in YTD except for the tech-heavy NASDAQ which has returned just shy of 10% in 5½ weeks of trading.
    • The TSX earned “only” just over 9% during the same time period.
    • The year-over-year (1Yr+/-) numbers for the four major North American indices are back into positive territory. Sadly, it’s not based solely on the strong performance of 2019, but relies heavily on a steep drop that occurred one year ago in February 2018.
  • Much of the recent gains for our region are based on the Federal Reserve’s position of delaying interest rate increases, the Bank of Canada’s similar wait-and-see position, and continued strong corporate performance matched with healthy employment and wage data.
    • Global growth is slowing along with Canada and the U.S., so central bankers are reluctant to further contribute to any slow-down through higher rates.
    • Concerns over the negotiated, or perhaps no-deal, BREXIT has created additional uncertainty for the global economy that has stalled the willingness to raise interest rates until the actual effects have taken place.
      • Optimistic comments regarding a negotiated settlement of U.S./China trade relations continues to drive sentiment and markets upward.
      • Additional U.S. news centred around their budget negotiations and its entanglement with border/national security desire to build a physical barrier on the southern border with Mexico.

What’s ahead for this week?

  • In Canada, December data for manufacturing sales, international merchandise trade, new housing price index and January’s National Bank Home Price Index will be released.
  • In the U.S., December’s retail sales, always an important indicator of consumer confidence and their economy’s strength will be announced. The Consumer Price Index, Import and Export Price indices for January will provide insight on inflation.

 

Last Month in the Markets: January 1 – 31, 2018

(source: Bloomberg)

What happened in January? 

For North American, and global equities January was a wonderful month. The TSX was the laggard among the local indices, and it still delivered nearly 5% gains overall. As usual the tech-heavy NASDAQ led the pack with nearly 10% returns for the first month of 2019.

This month the MSCI All Country World Index (ACWI) has been added to our summary grid.  MSCI has been providing investment research, indices and insights since 1969. Their All Country World Index includes 23 developed markets (Canada, U.S., Western Europe, Australia, Japan, etc) and 24 emerging markets (Brazil, Middle East, China, India, Indonesia, etc). More information on this indicator can be found at https://www.msci.com/acwi.

Including this global index provides a quick snapshot of global equity performance. Most investors have holdings, directly or indirectly, outside of North America. In January, global equities, as represented by the ACWI, also performed well.

A number of interesting, not-so-interesting, new, old and contradictory factors influenced the price of equities in January:

  • The U.S. government shut-down caused the slowing U.S. economy to slow even further as 800,000 workers went without pay, some even got time away from work while not being paid. After much political positioning by Republicans, Democrats and the President government operations resumed after the longest budgetary interruption in U.S. history.
    • The shut-down occurred after President Trump attached billions in funding for a physical barrier (i.e. wall) on its southern border to the usual budget bill. Politically and in the short-term, at least, Trump did not have the backing of his party, or his base of support, to shutter the government over the issue of border security. The budget bill provides for three weeks of relief, and a shut-down may recur on February 25th.
  • Corporations continued to deliver strong earnings. The growth of earnings is slowing, but still remains strong.
  • Internationally, Brexit continues to muddle along without true resolution.

What’s ahead for February and beyond?

It was a tumultuous year for North American focused investors. A number of factors contributed to the across-the-board losses in our grid.

  • Market volatility, which had been low, continued to increase.
    • The Chicago Board of Options Exchange (CBOE) publishes a volatility index, the VIX, and after a relatively calm 2016 and 2017, the VIX spiked in February and December of 2018, with most of 2018 higher than the previous two years.
    • Should this increased level of volatility continue, the fluctuations of individual share prices and the value of market indices will rise and fall more rapidly.

 

Last Week in the Markets: January 28 – February 1, 2019

(source: Bloomberg)

What happened?   

  • The New England Patriots won SuperBowl LIII over the Los Angeles Rams. CNN called it the most boring SuperBowl ever. ‘Boring’ is bad for football games; great for investors.
  • Last week was positive with equities, the Canadian dollar, gold and oil all gaining based on the following factors:
    • Last Wednesday the Federal Reserve held its benchmark lending rate steady and indicated that patience was required until some of the uncertainty regarding China/U.S. trade negotiations, BREXIT and government budgetary legislation reduced.
      • Based on Chairman Powell’s announcement it appears that the Fed is becoming more cautious about further increases in interest rates, and the formerly anticipated increases in 2019 may be delayed.
    • The end of the partial government shut-down sending 800,000 federal employees back to work, or back to being paid until February 25th, at least.
    • Continuing strong corporate performance in the U.S.
  • A new indicator appears in the centre of our grid (above); the MSCI All Country World Index (ACWI) representing 23 developed markets and 24 emerging markets in a single index. This provides a snapshot of global equity performance since many Canadians invest overseas. MSCI has been providing investment indices and insight since 1969. Additional information on the ACWI can be found on their website at https://www.msci.com/acwi

What’s ahead for this week?

  • In Canada, the planned economic releases provide a balanced view with December’s building permits and January’s housing starts and employment report.
  • In the U.S., the releases should conform more to plan than recent weeks since the government shutdown is another week in the past. Planned announcements are November’s trade balance, December’s building permits, housing starts, new home sales and personal income and spending, and Q4 Gross Domestic Product (GDP).

 

Last Week in the Markets: January 21 – 25, 2019

(source: Bloomberg)

What happened?

  • The partial shut-down of the U.S. government that directly affected 800,000 federal workers has ended. Government employees will return to work today, and those who continued to work without pay during the shut-down will now be compensated after missing two pay checks.
    • The funding included in the bill that pays for government activities will be consumed by February 15th. Unless Congressional Republicans and Democrats, and the President, agree on border security spending and actions, the money will run out in three weeks, and another shut-down will occur.
    • Ironically and coincidentally, the loss of services and pay checks cost the U.S. economy $6 billion, almost the same amount Trump was seeking to build a wall on the Mexican border. https://www.cnn.com/2019/01/27/politics/government-effects-daily-life/index.html
  • For the week, which doesn’t reflect the temporary U.S. budget resolution, equity markets were relatively flat. The TSX had the largest change of less than ½ percentage point. Gold and oil traded directions from last week with gold gaining nicely, while oil slipped back slightly.
  • Political tensions involving oil-exporter Venezuela had little effect on spot oil prices last week. That could change as the legitimacy of their sitting government is scrutinized further.

What’s ahead for this week?

  • In Canada, the health of our economy will be announced through the release of November’s Gross Domestic Product data. It is unlikely that Canada will be spared in the global economic growth slowdown, especially when U.S. and China have been affected. Chinese Vice-Premier Lui will participate in the next round of trade negotiations with the U.S. later this week.
  • In the U.S., the end of the government shutdown may cause a torrent of information to be released in the coming days and weeks. The following releases scheduled for this week may continue to be delayed: Federal Reserve interest rate decision, employment reports for January and December’s personal income and spending, construction spending and wholesale inventories.

 

Last Week in the Markets: January 14 – 18, 2019

(source: Bloomberg)

What happened?   

  • North American equities had another strong week; gains were two-and-a-half and three per cent for the major indices. In year-to-date performance the TSX is solidly in second-place, with the Dow and S&P 500 trailing it, while the NASDAQ leads the way at nearly 8% for 2019.
    • This strong performance prevailed despite the on-going U.S. government shutdown. The shutdown has slowed the release of economic data and it appears that “no news is good news”. Investors have had less information to base decisions upon and they don’t seem bothered at this point by their ignorance.
      • American banks released strong corporate results leading the S&P 500 higher and, by extension, the largest sector of the TSX (finance) lead the TSX higher as well.
    • Another seemingly negative influence was the heavy defeat of Theresa May’s Brexit plan in the British House of Commons as twice as many MPs voted against it than voted for it. Preventing even further turmoil, May and her government survived a non-confidence vote which would have triggered an election.
    • Disappointing economic growth in China, its lowest in a decade, is being countered by tax cuts and government spending.
  • All of this international turmoil didn’t support the price of gold as a safe haven, and oil continued to regain some of its value bolstering the Energy sector of indices.

What’s ahead for this week?

  • In Canada, retail and wholesale trade sales for November will be released.
  • In the U.S., the release of economic indicators has been slowed by the government shutdown. Typically, at this time of January, new and existing home sales and durable goods orders are announced for December but may not be until federal workers are back at work. With a lack of competing government news, corporate results will dominate investor decision-making.  American markets are closed on Monday, January 21st for Martin Luther King, Jr. Day.

 

Last Week in the Markets: January 7 – 11, 2019

(source: Bloomberg)

What happened?

  • Finally, the first full week comprised of five trading days, occurred for North American markets, and the results were very strong for equities, the Canadian dollar, and gold and oil.
    • Since its Christmas Eve close at 13,780 the TSX has gained during 10 of 11 trading days, and now sits 1,159 points higher, and has gained 8.4%. Some of this gain can be attributed to the Bank of Canada holding interest rates steady, at least until its next scheduled opportunity on March 6th.
    • S. major indices performed almost as well as the TSX last week, despite the longest government shutdown in history (more than 23 days as of Monday morning).
      • The political rhetoric, positioning and grandstanding has reached new levels (or depths depending on your perspective). In the short term those directly affected as employees or recipients of services will feel the pain of missed paydays or shuttered agencies. Eventually, the economy will reflect the loss of employee wages and the reduction of government purchases.
        • Releases of economic data have been either delayed or postponed because of the government shutdown. This may recur this week.
      • A major positive influence were the positive comments from both sides of Chinese/American trade talks.

What’s ahead for this week?

  • In Canada, the largest economic release for the coming week is inflation information based on December’s Consumer Price Index (CPI).
  • In the U.S., a much larger number of indicators are scheduled to be announced; November’s trade balance, construction spending, new home sales and durable goods orders and December’s Producer Price Index (PPI), industrial production and capacity utilization, retail sales, housing starts and building permits.

 

Last Week in the Markets: December 31 – January 4, 2019

(source: Bloomberg)

What happened last week?

  • After another short week, this time for the New Year’s celebration, the result was an all-green week. North American equities began 2019 on the positive side despite mixed news.
    • Trade disputes between the U.S. and China, which were created anew in 2018, appear headed to some type of resolution as negotiations are scheduled, with non-specific, yet optimistic, comments by President Trump that a solution was being created.
    • The growth rate of China’s economy, measured in Gross Domestic Product (GDP), has slowed, but is being addressed by actions by their central bank to reinvigorate growth.
    • In the U.S. the Federal Reserve seems poised to keep interest rates unchanged for a much longer time than the brief pause that was predicted as recently as December. A slowing of increasing rates maintains lower borrowing costs for corporates and consumers.
    • On the political front the U.S. President continued to operate with a business-as-usual approach by attacking opponents, like the Fed and its leader.
    • The partial shut-down of the U.S. government continued into its third week harming the U.S. economy with the rhetoric and threats escalating on all sides and could lead to a constitutional dispute based on executive powers.
  • Despite these negative, external influences, which also included a jump in crude price to fuel gains on the Energy-rich TSX index, Canadian equities delivered a positive week along with a gain by our dollar compared to the U.S. Expect more volatility at-home and in the U.S. during the coming weeks.

What’s ahead for this week?

  • In Canada, The Bank of Canada will release an interest rate decision. Also, housing data for November (building permits and prices) and December (housing starts) will be announced.
  • In the U.S., inflation numbers for December through the Consumer Price Index and November’s new home sales, wholesale inventories and durable goods order will be released.

 

Last Month in the Markets: December 1 – 31, 2018

(source: Bloomberg)

What happened in December and the rest of 2018? 

It was a tumultuous year for North American focused investors.  Numerous factors contributed to the across-the-board losses in the above grid.

  • Market volatility, which had been low, continued to increase
    • The Chicago Board of Options Exchange (CBOE) publishes a volatility index, the VIX, and after a relatively calm 2016 and 2017, the VIX spiked in February and December of 2018, with most of 2018 higher than the previous two years.
    • Should this increased level of volatility continue, the fluctuations of individual share prices and the value of market indices will rise and fall more rapidly.
  • Central banks raised interest rates to more traditional levels as inflation and employment remained strong
    • Canada started the year with its benchmark interest rate at 1%, and it rose three times by ¼% (25 basis points) each time to 1.75%. The U.S. Federal Reserve raised its rates similarly.
    • Each of these increases provides additional cost to businesses that finance expansions, especially capital-intensive industries like utilities. The increased costs will naturally and eventually reduce corporate earnings, and their stock prices reflect this anticipated performance impact.
  • Economic growth, globally and locally, began to slow
    • Canada’s Gross Domestic Product (GDP) will have grown by about 2% in 2018 compared with about 3.5% for global GDP. This is a significant drop from 2017 when GDP growth was 3%, its highest since 2011.
  • Trade “difficulties” between the U.S. and its friends, neighbours and enemies brought uncertainty to capital markets
    • The U.S. focused much of its international activity on initiating a trade dispute with China, but also included deliberately increasing tensions with Western European allies to further the President’s America-First agenda.
  • Political uncertainty in and around the U.S. and President Trump, which affected trade among nations, and caused a Federal Government shut-down provided a negative outlook for the U.S. economy and corporate results.
  • Overall the price of oil fell 25% in 2018. The drop threatened the viability of investments in the Energy sector as delaying or cancelling capital projects were contemplated. Also, introducing production cuts in Alberta and by OPEC were discussed, especially when the price was down nearly 40% from its recent high in early October. The slight upturn at the end of 2018 and into the first week of 2019 has eased these concerns, but only slightly.

Since the Energy sector comprises a significantly larger proportion of the TSX than U.S. indices, the volatility and losses affected our Canadian index more negatively.

The compound average annual return for the TSX from 1977 to 2018 was 8.7%. (according to research provided by Morningstar). Therefore 2018 performance was about 17.6% below its average (losing 8.9% instead of gaining 8.7%). The last time the TSX delivered a more negative result was 2008 during the world financial crisis when the TSX lost more than one-third of its value.

The two graphics below show that the TSX Composite Index ended 2018 2% below where it ended 2014 (14,333 vs. 14,632).

(source: Bloomberg  https://www.bloomberg.com/markets and Advisor Research Group, Inc)                       

The graphic on the right (above), entitled “Stock Indices 2018” shows that TSX spent much of last year in negative territory. Each of the major U.S. indices gave back all more than their previous gains for the year in the last quarter of 2018.

These results provide continued proof that diversifying countries and regions, industries and sectors, along with goal-setting and results-monitoring remain as important as ever.

 

Last Week in the Markets: December 17 – 21, 2018

(source: Bloomberg)

What happened?   

  • After last week, all of the indicators in the grid, above, are in negative territory for year-to-date and one-year ago, including the NASDAQ. A number of factors and events conspired to cause equity markets to suffer again this week. A Fed rate hike and its attitude toward future hikes, the continuing decline in crude oil prices, and unresolved negotiations for a U.S. spending bill.
    • On Wednesday the Federal Reserve raised its benchmark lending rate by ¼ point (25 basis points) to a range of 2.25 – 2.50%. This was the fourth increase in 2018 and the eighth time the Fed has raised rates over the past 3 years.
    • Crude prices fell sharply again this week, and the Energy sector on major indices lead the decline. Crude has lost over $30/barrel and 40% of its value since the recent peak in early October.
    • The inability of Congress and the President to reach a budget deal as Trump remains resolute over his border wall funding caused the feared shutdown to occur over the weekend and could persist into January.

What’s ahead for this week?

  • In Canada, it will be a light week for reporting with December’s employment report being the lone release of note.
  • In the U.S., it will also be a slow week for economic releases, but slightly busier than Canada with November data for new and pending home sales, wholesale inventories and construction spending. Also, December’s employment report will also be released.

 

Last Week in the Markets: December 10 – 14, 2018

(source: Bloomberg)

What happened?   

  • Despite some very volatile and negative trading sessions recently last week as the first “all-red” week since Labour Day, where all indicators on our grid lost value. A few of the culprits are responsible for this poor performance are:
    • Political disputes in the U.S. between President Trump and Democrat house leaders were on full display during a meeting/press conference in the Oval Office. Trump declared that he would be happy to shut down the U.S. government to protect the border and funding for his wall. Previous shutdowns have caused equity markets to lose ground, and a shutdown now would produce the same result in all likelihood.
    • China/U.S. trade talks continued to meander. Thanks in part to the arrest in Canada of prominent Chinese business executive, Meng Wanzhou of Huawei and Trump’s statements that he would intervene in our sovereign nation’s legal system, while we uphold international treaties preventing firms from dealing with unjust regimes.
    • Political and legal activities in or close to the White House caused investors to worry as the Chief of Staff, John Kelly, is leaving and his replacement was not immediately apparent. Michael Cohen, Trump’s former “fixer”, was sentenced to 3 years in prison as those close to the President see their legal troubles deepen.
  •   After all this turmoil, the NASDAQ remains in positive territory, but only slightly.

What’s ahead for this week?

  • In Canada, retail sales and Gross Domestic Product (GDP) for October and November’s Consumer Price Index (CPI) will be released. The first two will show the economy’s health performing, and the CPI will show if households are facing increasing levels of inflation.
  • In the U.S., the Federal Reserve will make an interest rate decision as Chair Powell has alluded to a temporary delay in rate increases. Also, November’s personal income and spending, durable goods orders, housing starts, building permits and home sales will be released.

 

Last Week in the Markets: December 3 – 7, 2018

(source: Bloomberg)

What happened last week?

  • In what is continuing to emerge as a trend, equities had a volatile week in North America and around the world. The American major indices gave back all of last week’s gains, while the TSX gave back more than twice as last week.
    • Fueling much of the drop were some details and reality setting-in on the U.S./China trade talks. After some positive signs at the G20 meetings in Argentina, President Trump tweeted that agreements had been reached when, in fact, negotiations are on-going.
      • If the U.S. and Chinese governments can agree, it will spur additional economic growth in each country and with their major trading partners. At the moment equity volatility is reflecting the uncertainty surrounding the trade talks.
    • The Bank of Canada (BoC) left its benchmark interest rate unchanged in its Wednesday announcement. The BoC stated that a driver behind this decision was the low price of oil and the effect of lower prices on energy sector capital investment. OPEC countries, Russia and Saudi Arabia, agreed to a production cut that prompted a surge in oil prices on Friday, after Wednesday’s interest rate announcement.

What’s ahead for this week?

  • In Canada, housing data will dominate this week’s economic data releases; building permits and new housing price index (October), housing starts (November), along with capacity utilization for the third quarter.
  • In the U.S., a more balanced release of November data is scheduled, including the consumer and industrial inflation with the Consumer Price Index (CPI) and the Producer Price Index (PPI), Import Price Index, retail sales and industrial production and capacity utilization.

 

Last Month in the Markets: November 1 – 30, 2018

(source: Bloomberg)

What happened in November? 

It was a month that tested investors’ resolve and discipline.

November started well, with a gain for the TSX, the Dow, S&P500 and the NASDAQ in the first few days of the month. For the next two weeks the major indices dropped dramatically, triggering the use of “correction”, “bear market” and other pessimistic terminology. However, during the last week of the month, a rally occurred bringing all four major equity indices back into positive territory for the month. What was once dire, became positive, although doubts remain.

(Source: Advisor Research Group Inc. and data supplied by https://www.bloomberg.com/markets/stocks)

After all of the turmoil and angst in equity markets during November, each index delivered a respectable return. The NASDAQ, which had lost the most at the mid-month mark didn’t do as well as the other indices, but still managed to rally back to positive territory.

After all of this stress and anxiety it might be healthy to discuss the lessons from November:

  • Time frame matters
    • If every investor examined their portfolio’s value every minute or hourly they wouldn’t have time to do anything else. It is important to monitor the value, but it is crucial to understand that valuation only matters if it is when you intend to sell a particular security. That is, the stock you bought at $100, may be valued at $50 or $200, but it only really matters on the day that you sell it.
  • Company fundamentals matter
    • The stock (or equity fund), above, was purchased because its predicted business results would drive the value of its shares upward. If it pays a dividend, its strong performance would also permit the uninterrupted payment to shareholders. Regardless of the effect on markets of interest rates, trade treaties, or political unrest it is better to own companies that deliver strong fiscal results, than not.
  • Overall market and economics matter
    • The phrase “a rising tide lifts all boats”, which has been attributed to President Kennedy relies on the principle that favourable economic conditions will benefit everyone. Of course, the opposite is also true.
  • Planning matters
    • Setting goals and determining whether the securities in your portfolio are making a positive contribution to their attainment is crucial. Christopher Columbus may have discovered North America by accident as he tried to sail to India, but he did have a plan, and he adjusted it as time passed, and new information emerged.

Therefore, the overall message is “build a strong plan, monitor its performance based on overall market conditions, always assessing whether your securities contribute positively to your plan and decide if you should consolidate losses, realize gains or allow your plan to continue to run.”

What’s ahead for December and beyond?

The emerging consensus is that interest rate increases in the U.S. and Canada will slow as the economic expansion begins to slow.  Recent data for Gross Domestic Product, inflation and employment is suggesting that increases in 2018 and early 2019 are less likely than thought just a few months ago.

Any slowdown in rate increases could be reversed by improved trade relations between China and United States and increases to inflation if OPEC is able to successfully defend and increase the price of oil.

Lastly, the upcoming holiday shopping season will provide insight into consumer confidence, and future company performance.

 

Last Week in the Markets: November 26 – 30, 2018

(source: Bloomberg)

What happened last week?

  • The major North American equities indices all moved ahead last week, along with gold and oil. The Canadian dollar was the only negative performer in our grid driven by less than impressive GDP numbers, and the resulting demand for Canadian dollars.
    • The U.S. dollar relied on a rumoured improvement in trade relations with China, which occurred this weekend at the G20 meeting with a 90-day negotiation window.
  • The gains for equities were ‘healthy’, erasing much of the losses experienced in the last few weeks. Gold and oil, however, barely made it into positive territory, with their gains being modest in absolute or percentage terms.
    • Overnight (Sunday to Monday) oil jumped 5% on overseas markets as OPEC indicated a production cut, along with Alberta, and the U.S./China trade tension truce.
    • The feeling that the Federal Reserve (the Fed) will delay further interest rate increases is growing. The need to limit inflation has lessened due to the impact of falling oil prices, and its down-stream effect on consumer prices.
      • As a simplification, the Fed uses interest rate actions to increase employment and to lower inflation. Rates are held steady or lowered to maintain or increase employment and raised to slow the economy’s growth and inflation. At this time, it appears that neither employment or inflation needs specific attention, expect the rates to maintain their current levels in the near term.

What’s ahead for this week?

  • In Canada, it’s time again for a Bank of Canada interest rate decision. Worries of a growing global slow-down, and rumours that other countries may delay hikes will influence our Bank’s monetary actions on Wednesday. Also, November’s employment report will be released.
  • In the U.S., construction spending, trade balance, durable goods orders for October will be released along with November’s employment report.

 

Last Week in the Markets: November 19 – 23, 2018

(source: Bloomberg)

  • The difficulties for North American equities continued last week. Thankfully it was a shortened and light trading week in the U.S. for their Thanksgiving holiday. Undoubtedly, many family gatherings experienced distracted participants as U.S. indices all fell by 4% for the week.
    • Only the NASDAQ remains in positive territory for 2018 among the U.S. major indices. It had spent the summer and early autumn with YTD gains in double digits. These former gains relied heavily on the FAANG stocks (Facebook, Apple, Amazon, Netflix and Google). Facebook, Apple and Netflix have lost 26%, 24% and 37% of their value, respectively since their peaks this autumn and summer, dragging the NASDAQ down with them.
    • Oil also continued its drop, closing Friday off 34% since its recent peak of nearly $77 on October 3rd. Perhaps Alberta’s oil-patch will gain some solace from the Calgary Stampeders 27-16 win over Ottawa RedBlacks in the 106th Grey Cup.                      (https://www.cfl.ca/2018/11/25/red-redemption-stamps-race-grey-cup-victory/)
  • Some positive news is emerging from the U.S. Federal Reserve. Its plan to continue raising interest rates back to more traditional levels may be pushed into a holding pattern temporarily. The growth of the American economy may be slowing based on leading indicators, and the Fed may respond. Corporate results, which drive equity values, would benefit from lower borrowing costs, especially for capital intensive industries and those looking to expand operations.

What’s ahead for this week?

  • In Canada, economic growth will be announced through September’s Gross Domestic Product (GDP) data. As always GDP growth, along with inflation and employment numbers will determine Bank of Canada interest rate actions.
  • In the U.S., it is a slightly more robust week for announcements with wholesale inventories, new home sales and personal income and spending for October being released. American GDP will have its revised third-quarter released.

 

Last Week in the Markets: November 12 – 16, 2018

(source: Bloomberg)

What happened?   

  • Oil dropped again this week, the sixth consecutive weekly loss, and a total loss of $17.88 per barrel over this period. The Energy sectors on the TSX and S&P500 lead their respective indices’ decline. Since its 2018 high of $76.72 on October 3rd, oil has lost 26%. Late in the week, OPEC indicated that it would slow output to mirror falling global demand, providing price-support.
    • Many other negative factors have played into the overall drop in equities.
      • The political battle over Brexit, Italy’s budget deficit impasse with the European Union. Brexit is scheduled to be concluded this month, while Italy’s situation has no timetable for resolution.
      • The U.S. Mexico Canada Agreement (USMCA) had its implementation in the U.S. placed into doubt due to political battles south of our border. This could be a result of the recent mid-term elections where Democrats gained control of Congress, and USMCA may become a bargaining-chip for other legislation.
      • The on-going China/U.S. trade dispute moved back toward a more acrimonious state after U.S. Vice-President Mike Pence indicated that American tariffs would remain in-place until China changed its approach.
    • The Canadian dollar held up well against its American cousin, gaining 1/3 of a cent, which is welcome news after its own six-week wavering loss, especially as Snowbird season approaches.

What’s ahead for this week?

  • In Canada, inflation numbers will be released through the Consumer Price Index (CPI) for October, along with wholesale and retail sales for September. Increasing or stable inflation could foreshadow upcoming Bank of Canada interest rate moves.
  • In the U.S., housing starts, building permits and existing home sales for October will provide insight into both consumer confidence and upcoming construction spending. Durable goods orders for the same period will also reinforce confidence opinions based on spending patterns.

 

Last Week in the Markets: November 5 – 9, 2018

(source: Bloomberg)

What happened?   

  • Last week’s midterm elections and Federal Reserve’s (in)action provided the conditions for a lift in equities that reversed pre-election uncertainty.
    • The U.S. Congress is split between a Republican-controlled Senate and a Democratic-controlled House of Representatives. This predicted ‘split’ had brought concern that legislative gridlock would be the result. This is now being viewed as a positive influence since already instituted changes, like lower corporate taxes, will not be reversed.
    • The Federal Reserve did not raise interest rates and reaffirmed that their stated policy to increase rates over time was still in place. This intention has been priced-in to the markets and confirming it allows equity markets to avoid negative news, providing a lift.
    • Nearly all of the S&P 500 firms have reported their earnings, and nearly two-thirds have beaten sales or earnings estimates (Bloomberg News). Also, the quarter following a midterm election has traditionally seen strong gains for equities. https://www.nytimes.com/2018/11/02/business/stock-market-rises-midterm-elections.html
  • The TSX followed the American lead last week, again in a more tempered way, as our oil-heavy index suffered from a continuing trend of lower oil prices. Additionally, the strengthening U.S. dollar has provided foreign exchange losses to further exacerbate the TSX’s lagging results.

What’s ahead for this week?

  • In Canada, it will be a quiet week for economic data releases; manufacturing sales for September and October’s home price index will be announced.
  • In the U.S., it will be similarly light, as well. However, the releases are of more significance. October data will be released for the Consumer Price Index (CPI), retail sales, import and export price indices and industrial production and capacity utilization. The CPI and retail sales will provide insight into inflation and consumer confidence, respectively, two important indicators of an economy’s direction.

 

Last Month in the Markets: October 1 – 30, 2018

(source: Bloomberg)

What happened in October? 

It was a difficult month for equities in October, for some bringing forth memories of former Octobers like 1929 and 1989. However, the circumstances of loss in stock values today are much simpler, and predictable:

  • The losses from decades ago occurred almost instantly and without warning. In October 2018 the losses can be attributed to several, well understood conditions.
    • The long-term U.S. bond rate, and short-term interest rates there and in Canada are on the rise. Previously the lack of returns on interest-bearing instruments pushed many to pursue gains in equities. Now that interest rates are rising, money is leaving equities to pursue interest income and to rebalance portfolios.
    • There are several political situations that could affect markets overall. This has facilitated a flight for some to safe-haven investments like gold and U.S. dollars. Gold was the lone advancing position on the grid (above), and since our grid represents a falling Canadian dollar, it means that the U.S. dollar rose against ours.
  • The losses of 6½%, 7%, 5% and 9% for the TSX, S&P 500, Dow and NASDAQ, respectively, are the largest monthly declines in several years. In January 2016, the losses were similar, but not quite as large, and only for the U.S. indices. October 2018 was a month when equities lost significant value.
  • Notwithstanding these losses, American corporations and their reported earnings have shown growth. Although, the size of the growth may be slowing, earnings are still increasing. Additionally, the employment reports have also been favourable.
    • The losses in the equity markets appear to have been tempered by this positive news. The losses and the presence of positive news demonstrate the strength of the magnetic pull for capital toward rising interest rates and bond yields.

Below the major North American indices are graphically represented, first as the month of October and then Year-to-Date 2018.

  • The NASDAQ was the big loser for October, losing value from the beginning of the month, and ending off by 9.20%
  • The TSX fulfilled its typical role as a tempered index compared to the U.S. by finishing in the “middle of the pack”.
  • A slight uptick at the end of the month prevented an even more dire set of results from occurring.
  • Despite its October losses the NASDAQ leads North American indices with YTD returns of nearly 6%, and 1-year returns of 8½%.
  • For 2018 the TSX (black line in adjacent graph) has been middle of the pack in the middle of the year, beginning and ending YTD far behind its American cousins.

(Source: Advisor Research Group Inc. and data supplied by Bloomberg)

What’s ahead for November and beyond?

Expect three influences to affect markets over the short-term; the results of the U.S. midterm elections that could change the balance of power in Congress, interest rate and bond yield increases that would lower equities values should they occur (and all else remains static), and political intrigues particularly with the U.S. and its trade actions, dealings with Saudi Arabia and European

 

Last Week in the Markets: October 29 – November 2, 2018

(source: Bloomberg)

What happened?

  • It was another exciting week for equities, as volatility continues at a higher than normal level. Thankfully, the major North American indices moved higher for the week. October 2018 was the worst month for equities since 2011, and if stocks hadn’t rallied over the last three business days of October, it would have been the worst month since the financial crisis of 2008.
    • A number of opposing economic forces (i.e. positive and negative for equities) continue to drive volatility, as well as gains and losses:
      • The U.S. bond yields have risen recently, up from 2.8% to 3.2% since August, drawing investment to fixed income from equities, and pressuring equity values.
      • Corporate earnings, which are being reported currently, are about 25% ahead of the same period last year. Without this positive news the losses in October would have been magnified.
      • Optimistic news that U.S./China trade difficulties are headed to a positive conclusion continues to be generated by both sides.
      • The unpredictable U.S. midterm elections on November 6th have created market uncertainty in the markets. However, the period immediately following midterm elections since WWII have been very good for U.S. equities according to many sources like the NY Times. https://www.nytimes.com/2018/11/02/business/stock-market-rises-midterm-elections.html

What’s ahead for this week?

  • In Canada, housing data will dominate the economic news with building permits and new housing price index for September being released, along with October’s housing starts.
  • In the U.S., and just after an interest rate increase by the Bank of Canada the Federal Reserve has their own interest rate decision to make. Also, the producer price index for October and wholesale inventories for September are scheduled for release. On Tuesday the mid-term elections occur, which typically serves as an evaluation of the President’s performance.

 

Last Week in the Markets: October 22 – 26, 2018

(source: Bloomberg)

What happened last week?

  • It was an extremely difficult week for North American equity markets last week. Although the week’s end showed signs of promise, overall the losses were 3 – 4% for last week and there are now a lot of ‘red numbers’ in our grid (above) that weren’t there previously.
    • All four major indices have negative returns for year-to-date 2018
    • The TSX is the only index with negative 1-year returns, but the S&P 500 and the Dow are much closer to neutral than they were one month ago (17% and 20%, respectively)
    • These losses occurred while corporate earnings reports showed positive growth year-over-year. The growing geo-political tensions, based in-part on Middle East developments, created a move toward safe-haven investments like gold and U.S. dollars.
  • The Bank of Canada (BoC) raised its benchmark rate by one-quarter percent (25 basis points) to 1.75% last Wednesday indicating that the Canadian economy is strong enough to withstand some slowing through increased interest rate policy.
    • The high rate of consumer borrowing is an area of concern should rates continue to rise and be passed along to retail borrowers (credit card, lines of credit, mortgage interest rates). Increased interest payments leave less income available for other purchases, so consumer confidence and spending is closely monitored by the BoC.

What’s ahead for this week?

  • In Canada, August’s Gross Domestic Product (GDP), which measures our economy’s overall health and its ability to grow, will be released along with October’s employment report. These two indicators are very important to determining the economic situation (the other top-tier indicator would be inflation). Expect this news to have some limited effect on markets.
  • In the U.S., it will be a more balanced and plentiful release of economic data with personal income and spending, construction spending and factory and durable goods orders, all for September and October’s employment reports scheduled for announcement during the week.

 

Last Week in the Markets: October 15 – 19, 2018

(source: Bloomberg)

What happened last week?

  • On Thursday Canada became the second country in the world to legalize the recreational use of marijuana nationally. Uruguay was the first and only other country to do so.
    • Many marijuana company stocks took an immediate price hit, as the anticipation became reality.
  • Despite the growing turmoil from U.S./Saudi relations regarding the disappearance, denials, then acknowledged death, and finally admitted murder of journalist Jamal Khashoggi, it was a relatively uneventful week for North American equities indices.
    • The tension between the U.S. leadership and the Saudi royal family could ultimately affect the flow of Saudi oil to the U.S. and other developed economies, and its price.
      • Oil finished the week by dropping back below $70, after peaking in early October at $76, its highest price since November 2014.
    • Of more immediate effect, U.S. 10-year bond yields eased slightly after peaking on October 5th at 3.25%, allowing equities some breathing room as sell-offs eased.
      • All major North American indices were flat for the week plus/minus less than 1%
      • The tech-heavy NASDAQ was the only index with a loss last week.

What’s ahead for this week?

  • In Canada, it’s time for another interest rate decision from the Bank of Canada. Wednesday’s announcement will signal our central bank’s position on inflation, production and employment trends. In the U.S. the Federal Reserve’s meeting minutes show that the Governors believe their economy is robust enough to withstand additional interest rate increases. Also, wholesale trade sales for the month of August will be released.
  • In the U.S., September data new home sales, pending home sales, wholesale inventories, durable goods order will be announced. Gross Domestic Product (GDP) data will be released on the 3rd quarter of 2018.

 

Last Week in the Markets: October 8 – 12, 2018

(source: Bloomberg)

What happened last week?

  • The effect of interest rates on equity markets shouldn’t be underestimated. U.S. 10-year treasury notes rose above 3¼ %, sparking concern that rising interest rates would begin to slow corporate borrowing, corporate growth, and the U.S. economy.
    • As a result, last week the Dow suffered its third-largest single day drop in its history, and the NASDAQ had its largest single-day drop in 7 years.
    • The TSX had its worst one-day loss in 3 years, yet had the smallest percentage loss for the week among North American indices.
    • The Dow and NASDAQ’s returns remain in double-digit territory over the past year, while the S&P 500 is at 8½% over the same time period. It is only the TSX that has negative returns over the past year and year-to-date.
    • A number of encouraging events could influence Canadian and U.S. equities;
      • The new trade deal, known as USMCA, removes uncertainty for Canadian exporters and is proceeding to Congress after the November mid-term elections.
      • The upcoming legalization of marijuana has the TSX’s health care sector soaring,
      • Rising interest rates tend to help financial firms (banks and insurance), and the Financial sector is more than one-third of the TSX.,
      • S. inflation concerns lessened along with U.S./China trade tensions prompting a lift south of the border last Friday.

What’s ahead for this week?

  • In Canada, August data for manufacturing and retail sales will be released. The more important information will revolve around the Consumer Price Index (CPI), which will announce the most recent inflation rates, and could lead to Bank of Canada action.
  • In the U.S., September data for retail sales, existing home sales, housing starts and building permits, and industrial production and capacity utilization will be announced.

 

Last Week in the Markets: October 1 – 5, 2018

(source: Bloomberg)

What happened?  

  • Last Sunday the new trilateral trade deal, the US-Mexico-Canada Agreement (USMCA) was announced, and all seemed right with the world.
    • The Canadian dollar jumped to a 4-month high on the optimistic news.
    • North American equity markets reacted favourably, posting early week gains.
      • However, by the end of the week the effects on the Canadian economy didn’t deliver positive gains for equities or our dollar.
    • StatsCan announced the unemployment rate had fallen further to 5.9% based on a significant rise in part-time employment. In the U.S. the unemployment rate fell to 3.7%, its lowest level in almost 50 years.
      • The low unemployment rate is sparking inflation concerns in both countries, that could lead to further interest rate increases, to slow economic growth.
        • Rising rates will dampen corporate results as central banks attempt to slow the economy, and this fear caused the equity markets to fall for the week. The Dow ended the week where it started, down only very slightly. The other North American indices dropped close to 1%, with the NASDAQ taking a massive drop of over 3%.

What’s ahead for this week?

  • In Canada, the light, four-day trading week will be reflecting in sparse economic releases with building permits as the only significant release.
  • In the U.S., they will celebrate Columbus Day on Monday and enjoy a similarly light week with jobless claims and inflation data released.

 

Last Month in the Markets: September 1 – 30, 2018

(source: Bloomberg)

What happened in September and Q3? 

The third quarter and September ended far more optimistically than it began. In fact, the trade uncertainties surrounding NAFTA negotiations, the pessimism and angst driven by protectionist trade actions from the United States began in mid-2017.

On September 30th, close to midnight an agreement was reached among the U.S., Mexico and Canada. The new trade treaty is called, naturally, the US-Mexico-Canada Agreement and will be abbreviated as USMC, or USMCA. The ink is still wet, and many details will surface and be analyzed in the coming days and weeks, including its nickname.

The highlights of the agreement include:

  • The dispute resolution process from NAFTA has been brought forward. This was the major Canadian demand during negotiations. If a fair and open mechanism for complaints does not exist, the existence of the entire treaty could become meaningless.
  • The supply-management system for dairy products will be modified. In simple terms, the milk quota, which limits production by dairy farmers that promotes higher prices must change. U.S. dairy producers will gain access to Canadian markets, as will Canadians access the U.S. market. The Federal government has promised to compensate dairy producers for this concession; expect more details, confusion and discrepancies as this program is rolled out.
  • Automobiles and light truck production, which had been targeted (perhaps only as threats and negotiating stances), are protected from the Canadian standpoint. Threatened tariffs will not be levied.  As a sign of solidarity among the three countries, the level of North American content required to remain exempt from duties has been raised.  Additionally, to qualify for this exemption the wage rate earned on those products must be at least $15/hour.  This action is aimed at the low wage environment in Mexico, and is meant to protect Canadian and American jobs, and increase wages in Mexico.
  • As a significant open-issue; the steel and aluminum tariffs imposed by the U.S. have not been removed. President Trump has stated that they will remain in place, and that their existence was the impetus to spur negotiations and drive to a settlement.
  • The USMCA must now be passed by the U.S. Congress to be implemented. The vote is expected in late 2018 or early 2019, which are both after November’s mid-term elections.  The Republican-controlled presidency, Senate and House of Representatives are a formidable voting block (not nearly as predictable as a parliamentary democracy), but the results of the mid-term elections could cause majorities and power to shift.

Regardless of our status as a sovereign nation, membership in the G7, NATO and other organizations the Canadian population and economy is small compared to the United States.  Many individual states rely on exports to Canada, but nationally the economy of Canada to the U.S. is roughly equal to California.  We are important, at times, but not crucial to Americans.

Over the next few weeks the USMCA will be analyzed and second-guessed by many, but Canada needs access to the U.S. market for our goods and services, and USMCA preserves access, at what appears to be a reasonable cost.

The effect of the USMCA on markets will be tracked, as well.  Its finalization late-Sunday, outside trading hours and on the final day of a month and quarter will facilitate before-and-after comparisons, making them much easier to identify and calculate.

Looking back to the third quarter the TSX lost 1 ¼ percent, falling 200 points in three months.  The American indices surged ahead with the S&P 500, Dow and NASDAQ growing by 7.2%, 9.0% and 7.1%, respectively, over the same period.  Both the S&P 500 and the NASDAQ reached new, historic highs during September and during Q3.

(Source: Advisor Research Group Inc. and data supplied by Bloomberg)

Over the course of the 2018, and especially during the third quarter the American indices paralleled one another, while the TSX mirrored some gains and losses in a more tempered manner.  The TSX is the only major North American index with a negative return in 2018.  With the large gains across the board in the U.S. it often feels like the Canadian market is tremendously underperforming it American counterpart.

A few points to ponder:

  • Generally, more Canadian firms deliver dividends and the dividend yields are usually higher than those delivered by American firms. The market returns reflect capital gains and do not include any dividends.
  • The tempered losses are often quickly forgotten when the gains do not materialize. Maintaining, or losing, is not part of a long-term retirement investment strategy, nor is high volatility and risk.
    • For most investors these stated numbers feel worse than actually are. We should focus on your portfolio’s return relative to your goals and risk tolerance to determine if its performance is in-line with your expectations.

What’s ahead for October and beyond?

As stated earlier, much of October and the rest of 2018 will be concerned with the passing and implementation of the USMCA.

The U.S. Federal Reserve along with the Bank of Canada could make additional interest rate moves before the end of the year.  This could be driven by the optimism and effects of the new trade agreement, and its likelihood of passing the U.S. Congress.

In Canada the uncertainty of NAFTA’s future reduced the willingness by Stephen Poloz, Governor, Bank of Canada, to raise rates.  He did not want to slow our economy’s growth, and then have to reinvigorate it should the negotiations have failed.