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Market Updates

Market Updates Source: Advisor Research Group
The following content is offered to clients of Life Aligned Investing 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: 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.

 

Last Week in the Markets: September 24 – 28, 2018

(source: Bloomberg)

What happened last week?

  • The action by the U.S. Federal Reserve to raise interest rates negatively affected equity markets last week . . . in particular.
  • Due to its timing, late Sunday, the new trade agreement did not affect markets last week.
    • The new agreement will be called the US-Mexico-Canada Agreement abbreviated to USMC. ‘NAFTA’ seems headed toward the history books.
    • It appears that Canada relinquished supply management for dairy in exchange for a balanced dispute-resolution process and exempting vehicles from threatened tariffs.
    • Overnight the Canadian dollar and Mexican peso rose, reflecting the positive news of the trade agreement ending months of uncertainty for both countries. Stock futures in the U.S. also gained, showing that the agreement is positive for all parties to it.
  • The USMC trade agreement arrives on the first day of the fourth quarter of 2018. It should provide some positive impetus for the lagging and negative year-to-date TSX. At the very least the agreement eliminates a major negative influence. Expect more news and analysis regarding the U.S./Mexico/Canada trade agreement.

What’s ahead for this week?

  • In Canada, a five-day trading week precedes our Thanksgiving on October 8th. This week the employment report for September will be released.
  • In the U.S., it’s a slightly busier week for economic releases with vehicle sales, construction spending, trade balance, durable goods orders and employment reports scheduled.

 

Last Week in the Markets: September 17 – 21, 2018

(source: Bloomberg)

What happened last week?

  • The lack of progress on NAFTA continued again this week, but with a different result for Canadian equities than last week.
    • The overall trade climate between the U.S. and China overshadowed the poor progress at the NAFTA negotiating table. Despite the levying of increased tariffs by the U.S. on Chinese imports, the tariffs were less than originally announced, and they will be phased-in over a longer time frame, lessening their effect.
      • Also, China announced a reduction of tariffs on many countries in October, which will make Canadian goods and services cheaper to Chinese buyers.
    • Healthcare on the TSX had a wild week with its cannabis stocks. From a September 22nd Globe and Mail article, “Tilray Inc . . . with little more than $20 million in revenue in 2017 and no indication that it will be profitable any time soon . . . went public on the NASDAQ at US $17/share in July. By Tuesday, the stock was at nearly US $155.” On Wednesday it closed at US $214, and Tilray ended its week at US $123. . . not for the faint-of-heart!
  • In more traditional news the S&P 500 reached a new all-time high led by financials who are poised for increased performance as interest rates rise. Historically, banks and insurance companies have traded with low volatility and delivered predictable dividends, which is the opposite of the emerging performance of cannabis stocks.

What’s ahead for this week?

  • In Canada, the performance of our economy will be announced through July’s Gross Domestic Product (GDP) data. Economic growth in Canada influences our monetary policy.
  • In the U.S., it’s time for another Federal Reserve interest rate decision. It will be based, in part, by other economic data that will be released this week; GDP (Q2 revised), new home sales and pending home sales, durable goods orders and personal income and spending, all for the month of August 2018.

 

Last Week in the Markets: September 10 – 14, 2018

(source: Bloomberg)

What happened?

  • The lack of progress on NAFTA negotiations weighed down the TSX one-half of a percentage point as the U.S. indices gained one percent or more, while gold and oil also advanced.
    • The major points of contention involve Canada’s protected dairy market and the dispute resolution process.
    • Mexico has rejoined NAFTA negotiations, but the U.S. seems happy to pursue two bi-lateral agreements with Canada and Mexico, individually. Renewing the three-party NAFTA treaty could occur once bilateral agreements are reached.
      • Members of the U.S. Congress have threatened to block trade treaties unless Canada is included, but the political will hasn’t been tested.
      • President Trump has placed a September 30th deadline for the end of negotiations with Mexico, which is likely a signal, not a deadline, for Canada.
    • In economic news south of our border, many indicators provided positive influence over the U.S. markets, especially equities.
      • Jobs data; unemployment, job openings and “quit-rate” all show confidence by workers that they can easily find new employment, which fuels consumer spending.
      • The positive labour market that can require higher wages can lead to increasing inflation, but both consumer and producer prices have been unaffected to this point. Also, tariff costs haven’t hit bottom-line prices, yet, so the U.S. economy won’t be reigned-in until inflation fears are realized.

What’s ahead for this week?

  • In Canada, July figures for manufacturing sales and retail sales will be released. Of more significance will be August’s inflation data based on the Consumer Price Index.
  • In the U.S., housing data will dominate economic releases with August’s housing starts, building permits and existing home sales planned for release during this week.

 

Last Week in the Markets: September 3 – 7, 2018

(source: Bloomberg)

What happened?  

  • On Wednesday, the Bank of Canada held its benchmark rate steady and positioned markets for increases later this year as our central bank returns us to more traditional rates over time.
    • Inflation, at 3% for July, is higher than expected and desired, but is expected to return to the target level “around 2%”. The August jobs report showed that the Canadian economy lost over 50,000 jobs in August, an unexpected and very negative result. NAFTA negotiations and other international trade policies are a concern for the Bank for the next quarter and beyond as Gross Domestic Product rebounded in the second quarter.
      • These indicators played into the decision to hold the target for the overnight rate at 1.5%. More details can be found in the Bank of Canada’s statement https://www.bankofcanada.ca/2018/09/fad-press-release-2018-09-05/
    • The markets, Canadian dollar, gold and oil were all-red last week. The first across-the-board decline since the week ending March 2nd. Equity indices declined as trade worries, originating mostly from the U.S., continued to threaten economic growth. The TSX has turned in 6 consecutive daily losses as NAFTA negotiations weigh down our future economic prospects.
    • The technology-heavy NASDAQ index had its most difficult week in recent memory as industry leaders testified before Congress. Despite the decline over the past week, Amazon exceeded $1 trillion market capitalization before retreating, the second company to achieve this level.

What’s ahead for this week?

  • In Canada, housing data will dominate the economic indicators released this week with July’s new housing price index and August’s housing starts. Both indicators represent a measure of consumer confidence (income and job security, for example).
  • In the U.S., the most important data released this week is inflation for August with the Consumer and the Producer price indices, and important export price indices. Inflation is a key concern for the Federal Reserve Bank, and heavily influences interest rate decisions.

 

Last Month in the Markets: August 1 – 31, 2018

(source: Bloomberg)

What happened in August? 

Canadian investors with a domestic focus had another relatively disappointing month in August:

  • The TSX lost just over 1% for the month, which lagged the S&P 500 by over 4%, the Dow by more than 3% and the NASDAQ by nearly 7% once the differences are calculated and the effect of our declining dollar is included.
    • S. indices stumbled at the end of the month as President Trump indicated that the threatened trade actions against Chinese imports, and likely Chinese retaliation, are proceeding and could be increased. Nonetheless it was a strong month south of our border for equity investors.

(source: Bloomberg)

  • At the end of the month, both the S&P 500 and the NASDAQ reached new record highs. The effects of reduced corporate taxes, strong economic growth through the Gross Domestic Product (GDP) data and progress on North American Free Trade Agreement negotiations pushed U.S. equities higher.
    • Mexico and the U.S. have announced a tentative agreement between the two countries. Canada, at this point, has not come to terms with the U.S. Some of the decline in equity values can be attributed to the lack of negotiating progress by Foreign Affairs Minister, Chrystia Freeland, and her team.
      • It is possible that the tripartite NAFTA agreement could be replaced with three bipartisan trade treaties (U.S./Mexico, U.S./Canada and Canada/Mexico); that prospect has only been hinted at.
    • The trade-related political wrangling with the U.S. makes the Canada/Saudi dispute seem like a distant memory. Less than a month ago, the Saudi central bank was selling off Canadian instruments, regardless of price, to demonstrate their resolve that their domestic affairs are not open for discussion by foreign governments.
    • For the NASDAQ and the S&P 500, the charge was led by Apple and Amazon, two members of FAANG, (Facebook, Apple, Amazon, Netflix and Google). The market capitalization of FAANG stocks comprise about 12% of the value of the S&P 500.
      • That is, these 5 companies, which are 1% of the index are worth about one-eighth of the entire index. Early on September 4th, Amazon’s stock price rose enough to push the company’s “market cap” past $1 trillion.
      • Much has been discussed about the tech-heavy NASDAQ composite index, but the S&P 500 is moving in the same direction.

What’s ahead for September and beyond?

For Canadian investors interest rate policy will increase in importance during the last four months of 2018. The U.S. Federal Reserve has reaffirmed its intention to continue to raise its Federal Funds rate, and Canada will pay close attention to their moves, as well as the strength of our economy.

The strength of our economy will depend in large part on the success at the negotiating table with Mexico and the United States for NAFTA’s reset. Expect Stephen Poloz, the Governor of the Bank of Canada, to pay close attention to U.S. monetary policy, NAFTA negotiations in addition to traditional economic indicators like employment, GDP and inflation.

Politics will continue to influence markets, and the remainder of 2018 will be no exception. The U.S. mid-term elections will occur in 2 months. The mandate of the Federal Liberals expires in a little over a year.  Canadians should expect the rhetoric, spending and programs aimed to generate employment, economic activity and favourable votes to increase in the short term. The effect on the TSX should be positive, especially if NAFTA negotiations are successful.

 

Last Week in the Markets: August 27 – 31, 2018

(source: Bloomberg)

What happened last week?

  • American stocks gained for the week, driven significantly by the positive news of the U.S./Mexico portion of NAFTA being successfully negotiated. Canadian stocks suffered from the exclusion of Canada the trade treaty, at least to this stage, and the rhetoric from President Trump.
    • Canadian negotiators led by Foreign Affairs Minister, Chrystia Freeland, struggled to justify and maintain our position within the three-party agreement as the U.S. attempts to turn NAFTA into 2 two-party treaties with itself at the centre.
      • The major stumbling block with the Americans is our dairy supply management system. It will be on the table for discussion this week.
    • The NASDAQ and S&P500 reached new, record high levels based on last week’s performance, which relied on strong second quarter Gross Domestic Product results and accelerating consumer confidence.
    • Canada’s TSX dropped ½ point, and barely kept itself in positive territory for 2018.
      • Energy stocks suffered after the Trans Mountain pipeline’s expansion was not approved by the courts. This occurred while crude advanced; typically Energy stocks move together with the price of crude.
      • Crude’s recent rise can be attributed, in part, to Iran’s threat to block exports through the Strait of Hormuz unless their exports can travel the same route.

What’s ahead for this week?

  • In Canada, the most recent interest rate decision will be announced by the Bank of Canada on Wednesday. Additionally, two significant economic indicators will be updated with July’s building permits and August’s employment report being announced.
  • In the U.S., August employment data will also be released along with trade balance, factory and durable goods orders and construction spending for July.

 

Last Week in the Markets: August 20 – 24, 2018

(source: Bloomberg)

What happened?  

  • Last week was the first all-green week since early May 2018. Each of the major North American indices did well although the TSX lagged behind its American counterparts for the week, this year and over the past 12 months. Despite its struggles in 2018, it has returned 8½% over the past year, emphasizing its strong performance at the end of last year.
  • The Federal Reserve’s reiterated its plan to slowly raise interest rates. Chair Jerome Powell stated at their annual Jackson, Wyoming summit, “As the most recent Federal Open Market Committee statement indicates, if the strong growth in income and jobs continues, further gradual increases in the target range for the federal funds rate will likely be appropriate”.
    • World markets, specifically France, Germany and Britain, reacted favourably to this continued course of action with positive performances in the short-term.
  • It was a more difficult week than usual for President Trump; his former campaign manager, Paul Manafort, was convicted on 8 felony charges, and Trump’s personal attorney and “fixer”, Michael Cohen, pleaded guilty to campaign finance charges.
    • Cohen implicated Trump by stating under oath that he executed these crimes at the direction of “a candidate for Federal office in the 2016 election.”
      • Perhaps the greatest indicator of Trumps legal peril is his desperate insistence that his impeachment would cause equity markets to crash!

What’s ahead for this week?

  • In Canada, June’s Gross Domestic Product (GDP) will be released and will provide monthly, year-to-date and year-over-year data indicating the relative strength of our economy.
  • In the U.S., a more balanced release of economic news will occur with GDP for the second quarter, and July information on pending home sales and personal income and spending.

Last Week in the Markets: August 13 – 17, 2018

(source: Bloomberg)

What happened?  

  • The TSX was essentially unchanged last week, down less than 3 points compared to last Friday’s close. This does not indicate that all stocks or sectors achieved the same neutral result. The Energy and Materials sectors pulled the rest of the index downward.
    • Commodities within the Materials sector, like copper, zinc, gold and other precious metals fell as the confidence in China’s economic growth also fell. Gold hasn’t been this low since January 2017, and copper has lost 20% since June 2018. West Texas Intermediate (WTI) oil fell to a 10-week low on news that U.S. reserves had grown.
  • S&P 500 companies continued to report their second quarter earnings to mostly excellent, analyst-exceeding results. Both the Dow and S&P 500 had strong weeks.
  • On the international front the not-so-exciting news, even for Canadians, was the bilateral progress made between the U.S. and Mexico on NAFTA renegotiations.
    • The more exciting and globally significant news was the continued debt and currency struggles for Turkey. The two prominent debt rating agencies, Moody’s and Standard & Poor’s, lowered their ratings for Turkey’s sovereign debt.
    • The Turkish Lira has lost 40% of its value against the U.S. dollar. Turkey’s difficulties have drawn additional scrutiny for other emerging markets and economies, casting a negative and dark shadow on them.
      • Many investors use emerging markets for more speculative investments, so any losses or volatility shouldn’t be a surprise, but no less easy to accept.

What’s ahead for this week?

  • In Canada, June retail sales will be the lone indicator of significance that is scheduled for release. It provides insight regarding consumer confidence.
  • In the U.S., it will be a similarly light week for financial and economic announcements with July data for new and existing home sales and durable goods orders.

Last Week in the Markets: August 6 – 10, 2018

(source: Bloomberg)

What happened?

  • The TSX and the Canadian dollar had difficult weeks; the growing dispute between Saudi Arabia and Canada negatively affected our market and currency.
    • Canadian Foreign Affairs told the Saudi government that they should immediately release Saudi activists who had criticized their own government.
      • In response the Saudi central bank began liquidating Canadian instruments and dollars, regardless of price, causing an increase of supply, and lower prices.
      • The Saudi government placed a limit, at least for now, on the penalties they are willing to impose. They are still willing to sell their crude oil to Canada, most of which arrives and is processed in Saint John, NB by Irving Oil.
    • There is positive news in the U.S. as the second quarter earnings season draws to a close.
      • 9% of the companies that have reported exceeded analysts’ expectations. This is well above the long-term average of 64%, and above the past four quarters (75%).
      • To date, 454 of the S&P 500 companies have reported Q2 results and are running 24% ahead of Q2 2017. Another 14 firms are expected to report this week.                        (source: http://lipperalpha.financial.thomsonreuters.com/2018/08/this-week-in-earnings-9/)
      • The strong earnings results pushed the S&P 500 to its highest level since late January and reached its second highest closing point in the past 5 years.                             (source: https://www.bloomberg.com/quote/SPX:IND)

What’s ahead for this week?

  • In Canada, July data will be released for existing home sales, along with the National Bank’s index of home prices for the same period. Inflation for July will be released through the Consumer Price Index (CPI).
  • In the U.S., the effects of trade actions will begin to appear when July’s import and export price indices are released. July data in the form of retail sales, industrial production and capacity utilization, and housing starts and building permits will also be announced.

Last Week in the Markets: July 30 – August 3, 2018

(source: Bloomberg)

What happened last week?

  • Optimistic economic news arrived in the form of Canada’s Gross Domestic Product (GDP) for May rising 0.5% over April. For the first five months reported so far, this was the strongest month-over-month performance in 2018. The Canadian economy may be riding the coattails of the U.S. economy’s strong growth rate of 4.1% annually.
    • Unfortunately, this news hasn’t immediately translated into higher equity prices on the TSX, as its year-to-date and year-over-year performance of 1.3% and 8.1%, respectively, are still trailing the American indices by wide margins.
  • The NASDAQ had another very strong week, up nearly 1% in five days of trading. Apple led the way by becoming the first firm to top $ 1 trillion in market capitalization. Apple’s 5-day gain of 10% followed its release of very strong quarterly earnings.
  • Last Wednesday the U.S. Federal Reserve left its benchmark “federal funds” rate unchanged indicating that GDP growth, employment and inflation (the major economic indicators under the Fed mandate) are either in-the-range or not requiring a correction.
    • Job creation was lower than expected last month at 157,000 instead of the consensus expectation of 190,000. Over 6 million U.S. job postings are unfilled, and it is an absence of qualified candidates, not jobs, that is the current issue.
    • The Fed believes that the current, historically low rates need to be raised gradually (¼ point increases). The next rate increase is likely to occur next month according to most analysts, expect more certainty in the next updates as September approaches.

What’s ahead for this week?

  • In Canada, the holiday-shortened week celebrating a unique circumstance for each province and territory will see Housing Starts and the Unemployment Rate released.
  • In the U.S., it will be a similarly light week for economic data with Jobless Claims and Inflation being the most significant news.

Last Month in the Markets: July 1 – 31, 2018

(source: Bloomberg)

What happened in July, and on the 1st of August? 

July included exciting developments;

  • strong economic growth in the U.S.,
  • the U.S. Federal Reserve released its latest interest rate non-decision,
  • the ebb and flow of restrictive trade positioning between President Trump and most western countries and China,
  • the equity markets continue to strengthen,
  • continued legal announcements and revelations for Trump that could hamper his ability to implement his trade strategy,
  • the price of oil retreated based on supply decisions by OPEC and others.

The July announcement of American economic growth pegged the rate of expansion at an annualized rate of 4.1%. This is a very strong growth rate for a mature economy and naturally increases concern that the U.S. economy may be growing too quickly. Inflation could be triggered, and prices could begin to rise too quickly as well.

Typically, the next manoeuvre would be for the central bank, in this case, the Federal Reserve, to increase interest rates, slowing the economy and in-turn reduce the likelihood of inflation picking up speed.

The popular and business press, both domestically and internationally (Globe&Mail, National Post, Wall Street Journal, ThomsonReuters, Bloomberg), all agreed that the Federal Reserve would not increase rates at this time.

The Federal Reserve did not disappoint on August 1st, when it held the “Federal Funds” rate unchanged at 1¾ to 2%, as expected. Without an increase now, the pressure builds for the next meetings since the Fed has indicated that they plan to increase the rate twice more this year.

The press release can be found at https://www.federalreserve.gov/monetarypolicy/files/monetary20180801a1.pdf

Another contributor to the decision to hold rates steady is the uncertain impacts that could be caused by trade tensions emanating from Washington. Trump seems to have picked-a-fight with every country that the U.S. has any level of significant trade with. As July was ending, President Trump and EU President Juncker eased tensions, and the U.S. and Mexico ‘fast tracked’ their portion of NAFTA.

With a last-day up-turn North American equity indices continued their winning ways of the first three weeks of July. All of the indices are returning positive year-to-date returns, and even the laggard TSX has a reasonably healthy 1-year return of over 8%. The U.S. indices; the S&P 500, the Dow and NASDAQ have delivered 14%, 16% and 21%, respectively, over the last year.

(source: Bloomberg)

President Trump came under more pressure from Robert Mueller’s probe into allegations of Russian influence on the 2016 elections. Former Trump Campaign Chairman, Paul Manafort, began his trial. Manafort is charged with tax evasion on about $60 million of undeclared income from his political consulting in Ukraine. This trial, and growing cooperation by Michael Cohen, could erode Trump’s credibility and place his political agenda in jeopardy.

Oil reached its high for the month near the start of July, dropped then rose again on the 10th, and has retreated since then. OPEC has taken steps to overcome restrictions placed on Iran, American lawmakers discussed utilizing strategic reserves to contain price increases.

What’s ahead for August and beyond?

The U.S Federal Reserve will continue to monitor major economic indicators (GDP growth, employment and inflation) to determine the next round of interest rate increases.

Based on strong corporate performance and an expanding U.S. economy the climate seems positive for American firms. As our largest trading partner, despite recent trade restrictions, good news south of the border tends to migrate northward.

Last Week in the Markets: July 23 – 27, 2018

(source: Bloomberg)

What happened last week?

  • It was an exciting week for market publications with the massive sell-off and price decline for Facebook. The headlines generated by a 20% price drop and a record-setting single day loss of greater than $120 billion, sold some newspapers (if newspapers are still bought and sold!).
    • Despite the massive, single-day loss caused by Facebook’s increased spending on security measures most equity markets continued along relatively unfazed.
      • The TSX was down slightly (¼ point), with Healthcare and Industrial firms performing well enough to stem further losses. The Healthcare sector is benefitting from the progress being made by provinces on retail sales schemes for cannabis as the mid-October legalization deadline approaches.
      • Both the S&P 500 and Dow moved ahead. The Dow had a particularly strong week gaining more than 1.5%. Of course, the technology-heavy NASDAQ suffered a loss for the week after Facebook’s troubles even while Google posted better-than-expected earnings.
    • Moving the markets ahead positively was the news that the U.S. economy is growing at 4.1% annually based on the latest data, its fastest rate of growth since 2014.
      • Also, trade threats have lessened slightly between the U.S. and EU after a meeting between President Trump and EU President Juncker easing fears of continued escalation and creating hope that a resolution exists.

What’s ahead for this week?

  • In Canada, we will see how well the Canadian economy is tracking with the American growth as Gross Domestic Product (GDP) figures for May will be released on July 31st.
  • In the U.S., important information will be consumer spending, core inflation, employment and the Federal Reserve’s latest announcement on interest rates. Also, 140 firms that comprise the S&P 500 will announce quarterly earnings this week.

Last Week in the Markets: July 16 – 20, 2018

(source: Bloomberg)

What happened last week?

  • The TSX had a difficult week with the retreating price of oil and its effect on firms that comprise the Energy sector.
    • The Financial and Energy sector dominate the TSX sector weightings, and a negative return in either is usually enough to drag the entire index down. Last week the pressure on oil from OPEC’s announcement to release additional supply and the U.S. discussion of easing domestic gasoline prices by releasing strategic reserves caused another downtown in the price of crude.
      • Any questions regarding financial firms will be answered in the next few weeks as the Canadian major banks will be announcing Q2 corporate performance.
    • Two competing forces are restraining and promoting American stock prices; continued restrictive trade discussions and actions, and strong corporate earnings, respectively.
      • The United States, led by President Trump’s appeal to his political base, continues to impose and threaten additional tariffs of foreign imports.
      • Earnings for firms during their second quarters are being announced over the next few weeks, and indications are that they could be 20% higher than the same period last year.

What’s ahead for this week?

  • In Canada, it will be a light week for economic announcements, the sole major information will be for May’s wholesale trade sales.
  • In the U.S., it will be a slightly busier with June data for new and existing home sales and durable goods orders. The most important information will be the Gross Domestic Product release for the second quarter of 2018. It will represent whether the U.S. economy is continuing to grow this year, and how much more than the same period last year. The U.S. economy is expected to continue its strong performance, and this expectation has been a positive influence on equity markets.

Last Week in the Markets: July 9 – 13, 2018

(source: Bloomberg)

What happened last week?

  • The most significant news for Canadian investors was the interest rate increase made by the Bank of Canada (BoC) last Wednesday. The benchmark lending rate was increased from 1.25% to 1.50%. This was the fourth rate increase since summer 2017, and additional quarter-point increases are predicted over the next 18 months.
    • One immediate effect was the Canadian dollar trading higher against its American counterpart. Those gains, which peaked around 9:15 am, were eliminated by 10 am.
    • Even though it hasn’t been this high in nearly a decade, the BoC is attempting to contain inflation, while continuing to spur economic growth.
    • The negative effects of increasing trade actions between Canada, and the U.S. and the continuing unresolved NAFTA renegotiations, are not fully understood yet and will likely influence the next round of domestic interest rate actions.
      • According to Stephen Poloz, Governor of the Bank of Canada, “Monetary policy by itself could not undo the long-term damage to jobs and income that could result from rising protectionism.”
        • Governor Poloz may be indicating future moves will be based on Canada/U.S. trade actions, and that monetary policy will not be able to reverse the negative effects entirely.
      • Despite all of the negative trade-talk, it was still a positive week for North American equity markets with U.S. corporate tax breaks and a healthy economy driving increases in stock value.

What’s ahead for this week?

  • In Canada, inflation numbers will be announced by June’s Consumer Price Index. Also, retail sales numbers, an indicator of consumer confidence, for May will be released.
  • In the U.S., June data for housing starts and building permits, industrial production and capacity utilization, and retail sales will be released.

Last Week in the Markets: July 2 – 6, 2018

(source: Bloomberg)

What happened last week?

  • In a holiday-shortened week, trade issues dominated the news and heavily influenced the markets. The U.S. introduced the lion’s share of their trade action with China by placing tariffs on $34 Billion of imported goods. The Chinese government retaliated immediately with a similarly sized action focused on soy products and automobiles leaving the U.S.
    • The short and long-term effects of these actions, and those between the U.S. and other countries will be seen soon. Watch for additional escalations or increased efforts to negotiate further to end the growing trade hostilities.
  • Another important influencer of markets last week was encouraging employment data.
    • Canada and the U.S. added 32,000 and 213,000 jobs last month, respectively. Canada’s performance in June reversed a terrible May report.
      • Unemployment decreased in both countries. During a period of strong jobs growth, this is an encouraging sign. It is a signal that workers are returning to the labour market with a more optimistic view of gaining employment.
      • Additionally, wages have risen, which also attracts more back to the labour market, in Canada and the U.S., at 3.6% and 2.7%, respectively.
        • A short summary . . . a healthy labour market leads to additional consumer spending, and higher economic growth in both countries.

What’s ahead for this week?

  • In Canada, housing data will dominate the upcoming releases. Numbers for June’s housing starts and existing home sales, along with May’s building permit volume will be released.
  • In the U.S., inflation will be the most significant information released. Consumer and Producer Price Indices for June will be announced along with Import and Export Price Indices for the same period. These latter two indices will be important to watch after July, once new tariffs take effect this month.

Last Month in the Markets: June 1 – 30, 2018

(source: Bloomberg)

What happened in June? 

The end of June concluded the first half of 2018, or H1. The graph below illustrates inconsistent performance of major indices in North America.

(source: Bloomberg)                                                                                                   

  • The TSX (black line), based in Toronto and representing the broad Canadian equity market performed well in the last three months. Well enough to bring the index back into positive territory (+ 0.42% since January 2nd).
    • Using a timeline that is twice as long, 1 year returns vs year-to-date, the TSX has returned a much healthier 7.22% at the end of June.
  • The American indices; S&P 500 (gold line), the Dow (blue) and NASDAQ (red) have performed much better than the TSX over the past year. The S&P 500 and the Dow have doubled the TSX, and the NASDAQ has tripled it.
    • The NASDAQ, despite a poor finish in H1, has exceeded the TSX’s last year in the past half year.
    • The Dow after an even rougher end to June is now below its starting point for 2018, off nearly 2% since the beginning of January.

Many events and influences are driving the softening performance in the equities markets in North America and around the world:

  • President Trump, despite warnings from Congress, Republicans in Congress and Republicans in general, is pursuing his protectionist strategy of introducing tariffs to “protect” American interests.
    • This rhetoric is extremely popular with his base of support, but it will ultimately cause damage to many countries’ economies including the U.S.
    • The emerging trade war, which began with Chinese steel and aluminum has expanded to include Canada, Mexico and European Union countries.
      • Trump appears to prefer a series of bilateral trade agreements, feeling better terms are available when two countries negotiate than when the U.S. faces off against several countries. The prime examples are the Trans-Pacific Partnership and NAFTA.
    • NAFTA negotiations continue to continue. American negotiating stances reflect the belligerence of Trump. His reaction to Prime Minister Trudeau’s statement to protect Canadian interests at the conclusion of the G7 leaders meeting was utilized by Trump to fan the flames of diplomatic discord.
  • Interest rates, in the form of consumer lending, central banks overnight rate and long-term bonds, have been climbing. This is drawing some money out of the various forms of the equities markets as the returns have grown to the point to facilitate some rebalancing of portfolios in the market.
  • In Europe, Italy’s economic and debt woes have pulled the regions stock market downward. Although Italy does not represent a large proportion of the EU’s GDP, like Germany, it is not insignificant either.

What’s ahead for July and beyond?

Expect the domestic, legal difficulties for President Trump to motivate him to distract on the international stage. His self-congratulatory analysis of his meeting with North Korean leadership will be repeating before, during, and after his meeting with Vladimir Putin. More severe retaliation will be declared as countries finalize their reaction to American import tariffs.

The Bank of Canada has been positioning for a rate increase in July, but less than stellar economic news has created some doubt concerning the timing of the next rise. The continued NAFTA talks, without resolution, and tariffs between Canada and the U.S. may be the culprits should a delay occur.

Last Week in the Markets: June 25 – 29, 2018

(source: Bloomberg)

What happened?  

  • It was a difficult week for equities as Canada and the United States approached their national holidays celebrating independence.
    • The major North American indices all lost more than 1% last week, with the tech-heavy NASDAQ doubling that loss at more than 2% after some tech firm rhetoric by President Trump.
      • As if there wasn’t enough trade war commentary, Trump waded in with a national security threat for American technology and a promise to protect it from Chinese interests and their investments in ownership.
      • American officials, especially the President, threatened to impose import tariffs on cars, which would have a tremendous effect on Canadian manufacturing.
    • Oil continued its rise in 2018 and since June of 2017, gaining over 8% last week after Trump threatened to end the Iranian regime by discouraging the purchase of oil from that country.
    • During times of uncertainty like this, it is more important to plan and strategize effectively to prepare for the unexpected, instead of succumbing to it.
      • As an example, cruise ships have lifeboats, not wood, nails and lifeboat assembly instructions. If the trade war pronouncements or other global intrigues are creating a feeling of unease, review your investment strategy with your advisor.

What’s ahead for this week?

  • In Canada, our independence day shortens the trading week at home, and presents a very light reporting week economic indicators.
  • In the U.S., their Independence Day (official name) on Wednesday makes for a lighter than usual trading week, and a lighter than usual reporting week with durable goods as the sole, major economic data to be released.

Last Week in the Markets: June 18 – 22, 2018

(source: Bloomberg)

What happened?

  • Canada’s TSX was a rare bright-spot for equities indices around the world. Buoyed by the Energy sector, which mirrored the rise in the price of oil, and investor interest in cannabis companies following the announcement that October 17th is the scheduled date for legalization.
    • OPEC reached yet another deal that bolstered its price by restricting production.
    • Marijuana stocks comprise about half the weighting of the TSX Healthcare sector, and once the new law received full approval, these stocks saw a corresponding jump in price.
  • The release of lacklustre inflation and retail sales data is creating some uncertainty over the Bank of Canada’s anticipated rate increases during the remainder of 2018.
    • According to Edward Jones, “We expect the focus on interest rates and trade negotiations to drive volatility for the remainder of the year, so investors should prepare by rebalancing their portfolios . . . ” (source)
  • Elsewhere, the U.S., Europe and Asia, had equities declining on the continuing and increasing likelihood of a global trade war.
    • In particular, China and the European Union (EU) announced retaliatory measures for American imports into their countries. The U.S. further responded with tariffs on an additional $200 Billion of Chinese imports.
    • $200 Billion represents about 1% of the U.S. economy, Canada’s much smaller economy, would make the domestic effects of an international trade war much greater for us.

What’s ahead for this week?

  • In Canada, Gross Domestic Product (GDP) data for April and the Bank of Canada’s Q2 business outlook, both will strongly contribute to the July 11th interest rate decision.
  • In the U.S., May figures for new and pending home sales, durable goods orders and personal income and spending will be released.

Last Week in the Markets: June 11 – 15, 2018

(source: Bloomberg)

What happened last week?

  • Interest rate actions heavily influenced markets last week in both North America and in Europe.
    • Midweek the U.S. Federal Reserve Chair, Jerome Powell, announced that the benchmark rate would increase to a range of 1 ¾ to 2%. This was the seventh increase since the financial crisis of 2008. The increase indicates the Fed’s confidence in the American economy, and that it can withstand the additional costs of increased borrowing costs.
      • The increased cost of borrowing caused a slight downturn for American indices on Wednesday; only the NASDAQ has returned to its Tuesday level.
    • Conversely the European Central Bank announced that it would not raise its interest rates for over a year; until the second half of 2019.
      • There is much less optimism for Europe’s overall economy. The delay in an interest rate increase is meant to assuage fears that Italy’s woes won’t further damage the Continental economy or have it leave the Euro.
    • Trade issues continued to influence markets as Trump’s plans for tariffs against China, and almost everyone else, continue to move ahead.
      • The threatened actions and the promised retaliations, which now include the importation of Canadian-assembled cars, caused the Canadian dollar to drop one-and-a-half cents. Some of this dollar-drop can be attributed to increasing threat to NAFTA negotiations brought on by the increasing likelihood of a trade war.

What’s ahead for this week?

  • In Canada, it will be a quiet week for economic data releases with April’s retail and wholesale sales figures, and more importantly May’s inflation numbers will be announced through the Consumer Price Index (CPI).
  • In the U.S., May housing numbers will provide most of the insight into the American economy with housing starts, building permits and existing home sales being released.

Last Week in the Markets: June 4 – 8, 2018

(source: Bloomberg)

What happened last week?

  • Last week had markets moving from strong economic news and data, while the end of the week and weekend moved matters toward politics as the threatened trade war has almost arrived.
    • In Canada the TSX moved ahead 1% and has all but erased year-to-date losses while posting more than 5% overall returns over the past year. Not stellar performance, but a near reversal of Q1 returns of YTD -5.2% and -1.2% year-over-year.
    • Jobs data in the U.S. helped to move the broad-based S&P 500 by a healthy percentage for the week; greater than 1 ½ points.
    • The NASDAQ reached historic highs relying on gains by Apple and Amazon to move the entire index.
    • The G7 met near Quebec City, and trade and tariffs were on the mind of every attendee. Once Trump departed early from the conference to meet with North Korean leadership in Singapore the rhetoric shifted into high-gear. Prime Minister Trudeau has been vilified in the American media and accused of “stabbing us in the back” by U.S. economic advisor Larry Kudlow for retaliating dollar-for-dollar. Canada’s Foreign Affairs Minister Chrystia Freeland said, “Our retaliatory tariffs will come into effect on July 1, which is Canada Day, perhaps not inappropriate.”
    • Again, on the Canadian home-front, Ontario elected Doug Ford and the PCs to run the provincial government in a move back to the right side of the political spectrum.

What’s ahead for this week?

  • In Canada, housing data will dominate the economic releases this week; new housing price index (April) and existing home sales (May), as well as manufacturing sales (April).
  • In the U.S., the Federal Reserve Open Market Committee will release an interest rate decision. May numbers for consumer and producer inflation, retail sales, import and export price indices will also be released.

Last Month in the Markets: May 1 – 31, 2018

(source: Bloomberg)

What happened in May? 

An easier question to answer might be, ‘what didn’t happen in May?’

  • There was no meaningful progress on NAFTA renegotiations among Canada, Mexico and the U.S. and the open trading among the three countries took a decidedly negative turn on May 31st.
    • President Trump imposed tariffs on certain steel and aluminum products originating in the United States in the amount of 25% and 10%, respectively. Unfortunately, he defied many of his fellow Republican members of Congress, and didn’t just penalize China, but also included NAFTA counterparts.
      • In total two-way trade in steel and aluminum products approximately $70 Billion in goods crosses the border in both directions according to the Globe and Mail.
    • Both Canada and Mexico retaliated in a new round of tit-for-tat trade restrictions with Canada promising to affect $16.6 Billion (based on 2017 levels) in goods. Click here to read the announcement.
      • The list of affected products found at the weblink (above) is extensive and naturally includes flat-rolled iron and steel alloy, metal bars and rods, wire, cables. Also included in the list are yogurt, mayonnaise, whiskies, beer kegs, toilet paper, lawn mowers, dishwashers, and many other products. The list of products will be finalized in mid-June.
    • The European Union (EU) is preparing its retaliatory measures as well.
  • The Bank of Canada did not raise its benchmark interest rate on May 30th as many analysts had earlier expected.
    • The Financial Post predicted the likelihood of a rate increase in May as high as 40% until mid-month, when April’s inflation figures were announced. Annualized inflation for April fell to 2.2% from 2.3% in March. Gross Domestic Product (GDP) data indicated that economic growth is weakened in 2018 compared with last year. Factoring in these two indicators and several more, of course, the markets had priced-in a May rate increase at 17% likelihood, and now stands at 55% for July according to CBC News.
  • Oil discontinued its recent rise to levels that exceeded 2014 levels. As political strife in Venezuela threated their production and exports, which caused an 8% rise in prices during the first three weeks of May. In the last ten days of the month, all of the gains were given back and more.

For the entire month, the price of oil had the TSX peaking at the same time (roughly the 20th and 21st.  American indices, along with the TSX, delivered strong performance. The NASDAQ was the star again for the month, with a return for May well over 5%.

(source: Bloomberg)

What’s ahead for June and beyond?

Expect the trade war started by President Trump to generate much political rhetoric domestically in the U.S. and in all affected countries. The retaliation from Canada, Mexico and the EU will affect equity markets and jobs.

The Bank of Canada may have its anticipated rate increase for July postponed based upon trade restrictions, and their effect on Canadian economic growth, inflation and jobs. Delayed interest rate decisions and trade numbers could also continue the trend of a lower Canadian dollar.

Last Week in the Markets: May 28 – June 1, 2018

(source: Bloomberg)

What happened?  

  • International developments were the major influence on markets last week, the Italian election had temporary effects and the U.S. imposition of steel and aluminum tariffs, with equities, currencies and commodities under pressure.
    • In Italy the fear that a newly elected government could threaten the European Union (EU) and the Euro was an exaggeration. There was a major shift in the power structure inside Italy, but the feared right-wing, nationalism wave did not materialize. Any market influence emanating from Italy last week was mostly erased by week’s end since a new array of cooperative coalitions is required to govern the country.
    • Of more direct and lasting influence was President Trump’s imposition of tariffs on steel and aluminum products effective June 1st. The temporary exemptions for Canada, Mexico and the EU from these restrictive measures was not renewed. All effected countries, including Canada, retaliated with opposing measures. The EU requires a few extra days to articulate its plan, but it will likely include a World Trade Organization case.
      • Expect international trade to suffer, production to decline, corporate profits to come under pressure and stock values to be challenged for firms directly and indirectly affected by trade tariffs.
      • The Guardian published a comprehensive summary of the situation. Click here to read the article.

What’s ahead for this week?

  • In Canada, a broad array of data will be released; Q1 Labour Productivity and Capacity Utilization, Building Permits for April, and May’s Housing Starts and Employment.
  • In the U.S., Q1 Productivity and Labour Costs and April’s Factory and Durable Goods Orders, Trade Balance and Wholesale Sales and Inventories will be announced.

Last Week in the Markets: May 21 – 25, 2018

(source: Bloomberg)

What happened?

  • It was a relatively slow week in Canada last week with the observance of Victoria Day, and the same pattern will repeat in the U.S. with the Memorial Day holiday falling on May 28th.
  • The TSX suffered from the fall in the price of oil by nearly 5%, knocking the value off many stocks in the Energy sector and dragging the entire index downward. Following Monday’s small increase oil fell each of the next four days and started this week ‘down’ as well. The total decline over the four days plus Monday’s beginning was $6/barrel.
    • The decline can be attributed to the consideration by Russia and OPEC to increase production in response to new sanctions against Venezuela.
  • The TSX was also hurt by President Trump’s negative comments on the future of NAFTA and its renegotiation. Trump’s insults of both Mexico and Canada were seen by some as either grandstanding or a public relations move, but his continued resistance to a smooth process foreshadows more delays “at the table” during negotiations.
  • Lastly, the TSX was pulled downward by the major banks, as the Financial sector tugged the TSX down as well. Some of the market performance seemed out-of-step with the reported results. For example, Royal Bank increased their second quarter earnings by 11% over the same period in 2017 to $3.06 Billion and the stock dropped 2.44% for the week. Since Financials comprise 36% of the TSX, they must perform much better than their year-to-date decline of 1.92% (source: TMX), to lift the entire index.

What’s ahead for this week?

  • In Canada, an interest rate decision will be made by the Bank of Canada on Wednesday. Economic growth will be released through the March’s Gross Domestic Product (GDP) figures.
  • In the U.S., Q1 GDP along with April data for retail and wholesale inventories, personal income and spending, pending home sales and construction spending will be released.

Last Week in the Markets: May 14 – 18, 2018

(source: Bloomberg)

What happened?

  • The most interesting news revolved around interest rates, corporate taxes and political moves.
    • Government bond yields in both Canada and the United States reached their highest levels in four and seven years, respectively.
    • The likelihood of an interest rate rise in Canada has fallen slightly with the next increase predicted for July according to many analysts.
    • The earnings expectations for American firms has been raised by the implementation and effects of Trump’s corporate tax cuts. The changes in earnings dynamics have significantly raised merger and acquisition activity in the U.S. according to Thomson Reuters. 2018 is 67% ahead of the same period in 2017 at nearly $2 trillion.
    • China and the U.S. made progress on the trade and tariff dispute with U.S. Treasury Secretary Steve Mnuchin declaring that the trade war is “on hold”.
    • NAFTA negotiations continued at a heightened level and pace, but still no framework agreement was reached during the latest series of meetings in Washington.
      • A major negotiating point is the U.S. demand for higher domestic automotive content for them in exchange for less restrictive rules elsewhere. Mnuchin stated, “There are still some very significant, open issues” on CNBC.

What’s ahead for this week?

  • In Canada, it is a light week for the reporting of economic data due to the Victoria Day holiday with March’s wholesale trade sales as the lone major announcement.
  • In the U.S., there are more indicators than in Canada being released, but not significantly more with new and existing home sales and durable goods orders for April and the minutes of the May 2nd Federal Reserve Open Market Committee’s meeting.

Last Week in the Markets: May 7 – 11, 2018

(source: Bloomberg)

What happened? 

  • Last week saw plenty of positive results for equities and North America was no exception. The four major indices advanced nicely, and the TSX, up a strong 1.6% for the week, was the laggard as the U.S. indices rose about 2 ½%.
    • The S&P 500 and the Dow crossed back into positive territory for 2018, their year-over-year numbers are still very impressive, which reminds us how strong the second half of 2017 was. The TSX rose on a broad-based increase as metals, oil, financials, healthcare and technology sectors turned in strong performances.
    • Despite some mid-week negative sound-bite rhetoric by President Trump, increased optimism regarding the successful renegotiation of NAFTA gave the Canadian dollar strength against its U.S. counterpart.
  • On the political front, Trump declared his intention to withdraw from the nuclear treaty with Iran who reacted in a predictable manner. Iran’s leader threatened U.S. security, vowed to revive their nuclear weaponry, and burned U.S. flags at public demonstrations.
    • In the shorter term, reinstating sanctions on Iranian oil exports will shorten global supply and push crude prices higher. Western European nations began diplomatic efforts among themselves to maintain the current arrangement.
    • The effects of the Iran-U.S. hostilities were muted by positive progress with China on trade sanctions and increasing diplomatic warmth between North Korea and the U.S.

What’s ahead for this week?

  • In Canada, April’s inflation numbers by the Consumer Price Index (CPI) will be released along with existing home sales for the same period and March retail and manufacturing sales.
  • In the U.S., it’s a more technical week with business inventories for March, retail sales, housing starts and building permits and industrial production and capacity utilization for March also scheduled for release.

Last Week in the Markets: April 30 – May 4, 2018

(source: Bloomberg)

What happened? 

  • Overall, it was a relatively tame week for equities when all of the activities are considered. Like last week, the TSX outperformed the S&P 500 and the Dow; all three stayed within a few points of last Friday’s close. The NASDAQ beat them all, which is consistent with recent history. Last week, the news included the following:
    • Oil reached its highest level since 2014, rising above $70. Higher prices are being seen at the gas pump and in Energy equities.
    • A tight timeline is being imposed on NAFTA negotiations with 2 weeks being the de facto deadline. An agreement needs to be in-place at least in-principle in May to avoid political interference by campaigns for the Mexican President and the U.S. mid-term elections which conclude in July and November, respectively.
    • The Q1 2018 earnings season for the S&P 500 is concluding, and to this point revenues for reporting companies have grown >8% and profits >20%; an extremely strong performance.
    • The U.S. labour market is extremely strong, as the unemployment rate fell below 4%; its lowest rate since 2000. 164,000 jobs were added in the U.S. in April, which is below the monthly average of 190,000 over the past two years but still a strong result.
    • The U.S. Federal Reserve held interest rates steady despite concerns about growth, inflation and employment. The Fed is still expected to raise rates 2-3 times in 2018.

What’s ahead for this week?

  • In Canada, housing data (March’s new housing price index and building permits, and April’s housing starts) and April’s employment report will dominate domestic economic news.
  • In the U.S., inflation for April will be announced through the Consumer Price Index. Also, wholesale sales and inventories and import/export price indices will be announced.

Last Month in the Markets: April 1 – 30, 2018

(source: Bloomberg)

What happened in April? 

Two closely linked market factors provided Canadian-focused investors with largely positive returns last month. The price of oil continues to rise driving Energy stocks upward, and when coupled with the trend to higher interest rates that drive Financials higher, the TSX turned-in its best monthly return since September and October of 2017. The result significantly outpaced the U.S. markets indices.

The S&P 500, Dow and NASDAQ ended April essentially where they began. With only very small gains for the month, the U.S. major indices had a much choppier, and much more “interesting” month than our TSX.

(source: Bloomberg)

American indices rose crisply at the start of the month, fell back just as sharply at the end of the first week, rose again and peaking on April 17/18th, then dropping 2-4% a week later on the 24th.  By comparison the TSX enjoyed the same start-of-month increase, not nearly as a severe pull back in the first week, and then a steadily increasing overall value for the remainder of the month. Like the U.S. indices a little was ‘given back’ on April 30th.

The profiles of the three U.S. indices during the middle of the month followed one another closely, while, thankfully, the TSX took its own path to positive returns.

Many economic, market and political factors contributed to these differences between Canadian and American markets. In a somewhat surprising trend, the rhetoric and effect of President Trump’s personal and electoral legal troubles seem to be subsiding. A congressional committee dominated by Republicans cleared him of any wrongdoing with Russia related to the 2016 election. Also, his personal attorney, Michael Cohen, received a 90-day suspension of the civil proceedings involving Stormy Daniels (which centre on a $130,000 payment made to avoid a Trump scandal immediately before the Presidential election), while Mr. Cohen attends to his criminal legal issues.

With these two items fading slightly into the background, U.S. economic developments that often directly affect Canada rose in importance. The trade rhetoric concerning tariffs and NAFTA progress moved into positive territory. There had been a stated desire by the U.S. to have a tentative agreement on NAFTA by mid-month to coincide with the Meeting of the Americas in Peru, but the American response to gas attacks in Syria kept President Trump at home.  Upcoming mid-term elections in the U.S. and a Mexican Presidential election are expected to continue to push progress along.

Even with plenty of chest-beating by all involved the possibility of positive discussions between North and South Korea, and with the U.S., appear to be moving ahead. North Korean leadership has had a track record of promising and/or agreeing to reforms to receive economic concessions and then failing to hold up their end of the agreement with de-militarization and improved human rights changes. President Trump seems very optimistic, while State Department veterans are more pessimistic that lasting changes will result; but any progress is better than further erosion of relations.

What’s ahead for May and beyond?

During the first week of May, approximately 25% of S&P 500 firms will announce their latest financials (earnings are expected to be more than 20% ahead of last year according to Bloomberg, Edward Jones, and others). This ongoing positive run is expected to continue once lower corporate income tax rates take hold and provide their expected benefit as the next year unfolds.

The U.S.  Federal Reserve will announce its latest interest rate decision on May 2nd.  If interested, it will be reported and is available for streaming at: https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm

Watching the Federal Open Market Committee announce interest rate policy, and specifically their underlying rationale, is an excellent tonic for those suffering from insomnia! As previously mentioned, the Fed is expected to quicken the pace and size of interest rate increases in 2018 compared to last year with a possibility of four increases this year. It doesn’t appear that the Fed will announce their second increase of 2018 on May 2nd, but we may begin planning for slightly higher interest rates as 2018 progresses, and into 2019.

Last Week in the Markets: April 23 – 27, 2018

(source: Bloomberg)

What happened? 

  • Despite the TMX suffering a hardware failure causing a shut-down at 1:40 pm Friday and then suspending trading for the day and week at 3 pm, the TSX was the lone positive result.
    • The TMX is the parent company that runs the TSX and other Canadian exchanges.
  • Last week it moved ahead nicely on several sectors, posting a 1.2% gain while the U.S. indices lost ground along with our dollar, gold and oil.
    • The S&P 500 was down, but by less than a single point, and only one-one hundredth of a percent. This “flat” performance occurred despite current earnings almost 25% ahead year-over-year.
    • The Financial sector of the TSX was positively influenced by rising interest rates, with several retail banks able to increase their mortgage rates last week. Industrials grew on positive news from the NAFTA talks, while materials and energy sectors trimmed TSX gains as the gold and oil declined for the week.
    • Indications from the Bank of Canada that they would not tighten interest rates in response to an increased inflation rate, even if it exceeds their 2% target, caused the Canadian dollar to lose nearly half a cent against the U.S. dollar.
    • The TMX, and its exchanges, will be ready for trading on April 30th.
  • 10-year U.S. Treasury yields cleared 3% for the first time in over 4 years based on strong S. economic performance.

What’s ahead for this week?

  • In Canada, economic growth numbers will be released with February’s Gross Domestic Product (GDP) results, along with March’s industrial and raw materials price indices.
  • In the U.S., it’s time for another Federal Reserve interest rate announcement. Additionally, March numbers will be released for construction spending, pending home sales, factory and durable goods orders, and April’s vehicle sales and employment.

Last Week in the Markets: April 16 – 20, 2018

(source: Bloomberg)

What happened last week?

  • Market performance made a positive week for most Canadians, but, of course, not all.
    • North American equities were led by the performance of the TSX. In total, Canadian stocks were up nearly a point-and-a-half, which was about 3 times the size of the U.S. indices. This is true, even though American stocks had a strong week!
    • The Bank of Canada (BoC) held its interest rate steady, keeping the benchmark rate at 1.25%. This is good news for indebted Canadians, like mortgage borrowers, home equity line of credit (HELOC) users, and credit card debtors. Those looking for interest income will have to wait for a bump in the BoC rate to boost deposit and GIC rates.
    • The unchanged benchmark rate caused the Canadian dollar to fall from midweek until Friday. This was despite some optimistic news from the NAFTA renegotiations, which included weekend sessions.
      • The Bank of Canada and the International Monetary Fund (IMF) continue to be cautious about the rate of economic growth in Canada.
      • Without better economic performance, which would then be trimmed and moderated, expect Canadian interest rates to lag behind American increases.
    • Back in the U.S., it is Earnings Season as first quarter corporate performance is announced. The news and outlook are optimistic, with a broad-based increase across most sectors of the S&P 500 as the result. Additionally, American production data indicates the U.S. economy is continuing to grow at an increasing rate which should lead to more growth in Canada.

What’s ahead for this week?

  • In Canada, February wholesale sales is the sole scheduled announcement for this week.
  • In the U.S., it is a more typical week with March numbers for existing and new home sales, durable goods orders, retail and wholesale inventories.

Last Week in the Markets: April 9 – 13, 2018

(source: Bloomberg)

What happened? 

  • It was an ‘up-down’ and ‘up-down’ week for North American equities last week, with North American and global influences taking their toll or bolstering values depending on the news and actions as the week progressed. Overall, the week was “green”, but more choppiness is expected since the underlying causes of increasing volatility have not disappeared.
    • Tension grew dramatically between Russia and the U.S. over the recent events in Syria, and the rhetoric and threats and delivery of retaliatory strikes against the Russia supported al-Assad regime.
      • Growing concerns in the Middle East drove the price of oil higher and Energy stocks also buoyed by this price increase led most companies for the week.
    • The frequency, intensity and depth of trade threats between China and the United States lessened, giving markets a more optimistic viewpoint.
    • The Federal Reserve has indicated within its Free-Market committee minutes that they are likely to increase interest rates slightly more quickly or frequently than thought. Four increases in 2018 seem more likely now than in late 2017.
      • How negative economic shocks from Chinese/American trade difficulties might affect rate increases is not fully understood at this point but would likely reduce the number of increases if trade restrictions increase.

What’s ahead for this week?

  • In Canada, Wednesday will bring an interest rate decision from the Bank of Canada. Governor Stephen Poloz has proven to be a worthy adversary for those who attempt to predict his moves. It is difficult to predict if Canadian rates will rise this week. Also, February retail and wholesale sales and inflation for March (Consumer Price Index) will be announced.
  • In the U.S., March numbers for retail sales, industrial product and capacity utilizations, and housing starts and building permits will be released.

Last Week in the Markets: April 2 – 6, 2018

(source: Bloomberg)

What happened?    

  • The second quarter of 2018 began as the first quarter ended; restrictive trade posturing dominating the news and placing equities into increased volatility and losses.
    • Despite some easing of the rhetoric by both the Chinese and American leadership mid-week, and an apparent agreement to negotiate before enacting new and punitive tariffs, stocks took a ‘wild ride’ last week.
    • When President Trump first announced his punitive intentions, China responded with duties on $3 billion worth of trade, and two days later the amount of trade involved was $50 billion for each country. The strength of the Chinese response surprised most, and it was a real-time and clear demonstration of “tit-for-tat”.
      • The definition of “tit-for-tat” trade policy relies heavily on the term “equivalent retaliation”, where each new escalation is immediately matched, and often causes a further increase by the original combatant.
    • On the positive side, it appears that NAFTA re-negotiations could be concluding soon. Both Mexico and the U.S. have been increasing the intensity and progress of NAFTA negotiations.  A desire to reach a new agreement before the Summit of the Americas meetings, and before upcoming elections in both of these countries, has given Canada an opportunity to move the talks to conclusion on a more positive note.

What’s ahead for this week?

  • In Canada, economic data will focus on housing with February’s new housing price index and building permits and March’s housing starts and existing homes sales being released.
  • In the U.S., the Federal Reserve will release the minutes of their most recent meeting on March 21st and February’s wholesale inventories and sales and job openings. Also, March import and export prices indices, employment reports, and hourly earnings reports will be announced.

Last Month in the Markets: March 1 – 30, 2018

(source: Bloomberg)

What happened in March and the First Quarter?

Several market events occurred in March that haven’t recently transpired but many activities are seeming very familiar. Volatility continues to be ‘new’ for 2018, and Donald Trump’s agenda has similarities to policies that have been in place in the past, and until his Presidency, would not have been imagined to return.

The Trump Administration in the U.S. has continued its agenda of unpredictable actions (primarily on the personnel front) and a return to policies that appear to be a generation or two old.  The most searing new/old policies involve trade protectionism.  Mr. Trump has embarked on a program of tariffs for steel and aluminum, and against China.  The equity markets reacted predictably to his announced intensions by suffering dramatic losses.

It is counter-intuitive for most people, who believe that protecting domestic jobs by imposing tariffs and duties on imports will be positive.  Protecting domestic jobs with trade restrictions is expensive and delivers long-term negative effects.  The reason that firms purchase foreign goods, services and inputs is that they are cheaper than domestically produced ones.  By using more expensive domestic inputs, firms see their profits squeezed, or they raise their prices, both eventually leading to reduced production, further reduced profits; and eventually reduced overall employment.

As an example; to bolster the simplified explanation (above), imagine the production/extraction of flagstone for patios.  It occurs naturally in Canada and it is quarried and transported to landscape suppliers who sell to contractors and the public.  The Canadian version of this product sells for about $17/square foot whereas a similar product from India retails for less than half at $8.  If a tariff is imposed, equalizing the price of domestic and foreign flagstone, only those who can afford $17 will buy, and all those who cannot will not.  No new customers will be created and no additional demand will be created at $17.

It’s difficult to imagine a product with more transportation costs other than stone manufactured across the Pacific Ocean, and within the interior of a large country.  Once it is cut, stacked, crated, shipped overland, placed on a ship, sailed across the Pacific, off-loaded, transported from the far west of Canada to all points eastward, it is then available for sale.  Raising the price of this cheap, and some would likely say inferior product, does nothing to increase demand or employment in the domestic stone and landscape business.

The equity markets, and the players within them understand the negative effects of trade protectionism.  The markets react immediately to the negative statements and the times when the American President seemed to soften his stance later in the month.

(source: Bloomberg)

The emerging change for 2018 over 2017 is the increasing amount of volatility in the market.  ‘Volatility’ is, essentially, whether changes in value for a security or index is likely to be large or small.  The higher the chances that the changes will be larger, the larger the volatility.  The security could be compared to itself, or to a benchmark like the TSX.  If a stock is more volatile than the index it will typically rise and fall more than the underlying index’s rises and falls.

So far in 2018, when indices like the Dow, S&P500, NASDAQ and the TSX are compared to themselves, volatility has risen dramatically during the first quarter.

For the final nine months of 2017, the U.S. indices climbed steadily, with relatively few hiccups.  Toward the end of January 2018, the wild swings in daily closing values began for the Dow, S&P500 and NASDAQ.

Perhaps a single silver-lining in all of this for Canadians who invest domestically, the volatility of the TSX compared to the three major US indices has been lower.  Unfortunately, the positive returns are lagging, and, thankfully, so are the negative returns.

As a further contributor to negative volatility, the U.S. Federal Reserve raised their benchmark rate by ¼ point, which came as a mild surprise.  Also; Canadian economic production numbers significant underperformed causing negative effects at home.

What’s ahead for April and beyond?

All indications are that April will continue the trend toward increased volatility for equity markets in North America that the last 10 weeks have delivered.

Tariffs and trade-treaty negotiations will supply much of the fuel for this volatility, along with announcements and pronouncements from the White House.

Despite many months and several rounds of negotiations on NAFTA, indications from the U.S. are that they would like a speedy conclusion before the Summit of the Americas meetings in Peru in mid-April.

Expect positions, official and on Twitter, to affect markets in both directions as the Summit approaches, as the Presidential Mexican elections approaches this summer and U.S. mid-term elections occur this autumn.  If two-thirds of the triumvirate (Mexico and the U.S.) want an end to negotiations, it is possible that Canada could be forced to conclude talks prematurely or we may finally have some leverage that hadn’t existed previously.

As these days of increased volatility are expected to continue, if you should have concerns, or any questions arise, do not hesitate to reach out to your advisor.

Last Week in the Markets: March 26 – 30, 2018

(source: Bloomberg)

What happened?    

  • The market performance for equities last week was positive. Under normal circumstances the gains during four days of trading would be welcomed without reservation. However, this week followed the worst week for stocks in two years. By week’s end (Thursday) equities were able to reverse some of the losses of the previous week, but it was not without significant volatility.
    • Progress was being made on trade talks by the U.S. with Canada, South Korea and China to prevent or at least lessen protectionary measures, and stocks rebounded positively from the previous week.
      • Unfortunately, restrictions were discussed by the U.S. administration on Chinese investment in sensitive technology, related to national security, and this negatively affected the tech-sector and the NASDAQ.
      • President Trump also indicated that he was aiming his sights on Amazon, and other global e-commerce firms, who is using the breadth of its operations to avoid paying U.S. taxes.
    • The TSX continued its tradition of moderating the performance of U.S. equity indices by not losing as much or regaining as much as the wild swings in American markets.

What’s ahead for this week?

  • In Canada, it is a relatively quiet week for economic data, with the employment report for March being the most important scheduled release.
  • In the U.S., March employment information will also be released along with vehicle sales for the same period. February’s construction spending, factory and durable goods orders and trade balance will be announced.
    • Expect more volatility as China is retaliating with tariffs of its own against the U.S., and Trump is to announce more details of his plans later this week.

Last Week in the Markets: March 19 – 23, 2018

(source: Bloomberg)

What happened? 

  • Last week could not have been much worse for North American equity investors. The trouble began with actions out of the United States.
    • President Trump, perhaps in an effort to distract from his legislative failings, the Mueller investigation and multiple personal scandals added to his growing trade war. Adding to his earlier steel and aluminum tariffs, Trump has targeted China.
    • The U.S. Federal Reserve increased its benchmark lending rate by ¼ point. The decision was based on economic growth, but it didn’t appear to account for the negative effects of trade restrictions recently introduced and planned by Trump.
      • The Fed maintained its position that three rate hikes will occur in 2018 This adjustment in early 2018 makes the possibility of four increases possible.
    • Since trade restrictions and tightening of monetary policy wasn’t enough bad-news, Facebook’s emerging scandal regarding the use and misuse of data by Cambridge Analytica caused $50 billion in value trimmed from its market capitalization.
      • The U.S. indices lost 5% to 6%, while the TSX lost 3.1% for the week. After last week, just the NASDAQ remains in positive territory for year-to-date 2018.
    • The Canadian dollar gained ground against the USD, and gold and oil moved ahead as the only shred of positive results (for some) during the week. Positive progress did occur for NAFTA renegotiations, as the U.S. dropped a restrictive demand in the automotive sector.

What’s ahead for this week?

  • In Canada, January’s Gross Domestic Product (GDP) will be released. Notwithstanding the recent turmoil in capital markets brought on by trade and tariff issues emanating from the U.S., the Canadian economy is expected to post positive results for economic growth.
  • In the U.S., wholesale and retail inventories, pending home sales, personal income and spending for February will be announced.

Last Week in the Markets: March 12 – 16, 2018

(source: Bloomberg)

What happened last week?

  • The TSX did an about-face from American major indices last week. Instead of losing ground while the U.S. advanced, or not losing as much as the U.S., the TSX moved almost a percentage point higher while the Dow, S&P 500 and NASDAQ each lost well over a 1%.
    • In another departure from recent weeks, regarding volatility, the S&P 500 has had a weekly rise or fall of greater than 1% in 9 of 11 weeks (82%) in 2018, versus just 13 weeks (25%) in all of 2017.
  • Another week couldn’t have passed without more turmoil at the highest level of the U.S. government as Secretary of State, Rex Tillerson, was relieved of his duties.
    • It shouldn’t surprise many that this announcement was made via Twittter!
  • Equity markets in North America are still awaiting the effects of trade moves made by Trump as it appears that the tariff war will be expanded by the U.S. against China.
    • Gary Cohn, former National Economic Council Director, will be replaced by Larry Kudlow. Whether Kudlow can influence Trump will be known in the coming weeks and months; until then a cautious tone is prevailing.
      • Almost as an afterthought, Vladimir Putin has been re-elected in Russia, continued “co-opetition” will likely ensue, and eventually affect markets.

What’s ahead for this week?

  • In Canada, January retail and wholesale sales and February inflation (Consumer Price Index) will be released. Inflation numbers and employment data are arguably the most important indicators of whether monetary policy (i.e. interest rates) could change.
  • In the U.S., the U.S. Federal Reserve will release their latest interest rate decision. Last week’s release of the latest inflation rate, pegged at 2.2% year-over-year, isn’t expected to affect their monetary policy dramatically. Also, February data for new and existing home sales and durable goods orders will be released.

Last Week in the Markets: March 5 – 9, 2018

(source: Bloomberg)

What happened last week?

  • It was a tumultuous week for markets as they were heavily affected by American political activities. Trump’s tariff threats have been made real, causing a significant resignation.
    • A trade war has been initiated by President Trump as he imposed tariffs on steel and aluminum imports, with at least exceptions for Canadian manufacturers.
      • Gary Cohn, Senior Economic Advisor, announced his resignation based on his inability to reign in his boss. Much was made of his willingness to stay-on following many of Trump’s previous threats and bad acts. The consensus seems to be that he was willing to overlook these events, if he could continue to provide a steadying hand economically. When he was unable to fulfill that role, he decided to depart.
      • Capital markets reacted poorly to Trump’s tariff rhetoric and the signal that Cohn’s resignation showed that Trump was unwilling or unable to understand the real, negative effects of tariffs and a trade war.
    • By the end of the week, it was “all green”; perhaps demonstrating Trump’s true ability to influence markets.
  • The Bank of Canada left its benchmark lending rate unchanged, as predicted. The careful wait-and-see approach continues as trade issues and NAFTA renegotiations continue.

What’s ahead for this week?

  • In Canada, it will be a light week for economic announcements. January’s manufacturing sales and February’s existing home sales will be released.
  • In the U.S., inflation numbers through their Consumer Price Index (CPI) for February will be announced along with Import and Export Price Indices for the same period. Retail sales, building permits and housing starts, and business inventories will also be released.

Last Week in the Markets: February 26 – March 2, 2018

(source: Bloomberg)What happened last week?

  • Action in the United States dominated the influencers of markets last week.
    • Donald Trump stated that he wants to impose tariffs on steel and aluminum, which could ignite a global trade, causing equities to plummet mid-week before flattening out and regaining some lost ground on Friday.
    • The new Federal Reserve Chair, Jerome Powell, indicated that the American economy was stronger than anticipated, suggesting additional or larger rate hikes could be possible. Higher interest rates, although good for financials, increase the cost of capital for all firms causing pressure on profitability.
  • At home in Canada the TSX followed the same trend as the U.S. equity indices with a good Monday followed by losses on Tuesday, Wednesday and Thursday closing the week with a Friday that held its ground and value.
    • The seventh round of NAFTA negotiations occurred in Mexico City this past week. When Trump spoke of tariffs on metals, Trudeau lobbied for an exemption.
    • The reaction to the release of the Federal government’s budget by Finance Minister Bill Morneau was muted. The gender pay, indigenous skill development, and Canada Parks programs were overshadowed by Powell and Trump in the U.S. and NAFTA talks in Mexico.

What’s ahead for this week?

  • In Canada, the Bank of Canada has an interest rate decision on Wednesday.
  • Building permits and house prices for January, and February’s housing starts and employment data will be released.
  • In the U.S., a lighter week for economic announcements awaits as employment, wholesale inventories and sales, factory and durable goods orders will be released during the week.

Last Month in the Markets: February 1 – 28, 2018

(source: Bloomberg)

What happened in February?

Last month, February 2018, may be remembered as the month where the long, steep uphill climb of U.S. equities began their reversal in earnest. Many analysts had warned of a coming correction. It may have been supported by economic or market data, but the overwhelming sentiment among retail investors seemed to be that ‘this can’t go on like this forever’.

By the conclusion of the month, February didn’t have the single correction like one that has occurred in the past. Instead February ushered in a return to volatility, and losses for some sectors and investors; not a wholesale downturn.

Many people equate volatility with only losses. They consider gains, even when they occur amid wild swings, as simply gains and good news.  It’s only when rapid price changes occur while accompanied with losses that people pay much closer attention.

Volatility is the measurement of the change in value over a period of time. Higher volatility means that the price swings are more extreme, while lower volatility means much less extreme changes in value.

Volatility does not measure the riskiness of the investment other than its price riskiness.  Price riskiness is important if you intend to use invested assets for a major purchase or expenditure on a particular date (cottage or college, perhaps) or to utilize your nest-egg to fund your retirement.

A simple example of the difference between volatility and risk

Think of a household appliance you need to buy in early December. It will work just as well as the identical one you buy on Boxing Day, but today’s sale-price might not be as good as late December’s price. There’s no risk, other than the price-risk of paying more now than later.

As we exit a period of exceptionally low volatility, and upward volatility that most investors diminish, it might be worthwhile for us to have a discussion on risk versus volatility, and your tolerance for both.

With the exception of the NASDAQ and Gold, which lost under 2% for the month; equities, the Canadian dollar, and oil lost 3-5% in February.

(source: Bloomberg)

For the major equites indices in North America, the correction seemed to be in-place one-third of the way through the month. Despite a poor closing day of February, much of the early losses that had occurred by the 8th and 9th of the month had been eliminated until the trading on the 28th.

In Canada the month closed with the major banks reporting better than expected earnings and the release of the Federal Budget from Finance Minister Bill Morneau.

The highlights from the budget:

  • Pay equity legislation, without a price tag, was announced for the federal government and federally regulated industries to close the gender pay gap by nearly 3%.
  • The amount of passive income inside small businesses will affect the rate of tax for active business income and profits.
  • A working group to study the viability of a national pharmacare program to pay for prescription drugs was established.
  • Additional funding for indigenous skills development and childcare was announced, totalling nearly $1.9 billion over the next 6 years.

One of the largest influences on equities’ prices in February was the rising bond yield, which is drawing investment toward it, and away from stocks.

What’s ahead for March and beyond?

March will likely continue the trend toward increased volatility for equity markets in North America that February delivered.

Last Week in the Markets: February 19 – 23, 2018

(source: Bloomberg)

What happened? 

  • With Louis Riel Day/Family Day in Canada and President’s Day in the U.S. on Monday, five days of trading were accomplished in four.
  • The performance of the TSX was more than double the Dow and S&P 500 and nearly as good as the NASDAQ.
    • The earnings season for the major Canadian banks has begun with strong results announced for RBC and CIBC (RY up >2% and CM up >4% last week). A strong banking sector bodes well for those who own them, and almost every Canadian investor does, directly or indirectly through mutual and exchange-traded funds.
  • Last week was ‘more typical’ of previous times, than of recent times, in the United States.
    • The Federal Reserve released positive statements regarding 2018 economic growth, U.S. equities rose, and then fell back after the news was released.
    • Overall for the week, the U.S. markets hovered and then closed with most of the gains achieved on Friday. The positive close to the week provided solace for investors who rode the ups-and-downs of the last few weeks.
      • The news from the Fed was that this year’s economy would grow more quickly than its long-term growth rate, making 2018 an above-average year.

What’s ahead for this week?

  • In Canada, our economic growth expectations for 2018 will be influenced by how well 2017 concluded as December’s Gross Domestic Product (GDP) numbers are released.
  • In the U.S., fourth quarter GDP will be released along with several indicators that reflect current and future confidence; January’s durable goods orders, new home sales, pending home sales, personal income, construction spending and retail and wholesale inventories will be announced. Each, compared with last month and January 2017, will provide evidence of the U.S. economy’s strength and weaknesses.

Last Week in the Markets: February 12 – 16, 2018

(source: Bloomberg)

What happened? 

  • Most investors enjoyed last week compared to the rest of February 2018. Across the board and across Canada and the United States, stock prices rose consistently and rapidly. The increasing volatility is causing heartburn for many, but it’s easier to swallow when prices are rising, and you are holding/weathering the storm.
  • The recent steep declines in equity markets were reversed last week, and for Canadian-focused investors it was excellent news that the TSX followed along.
    • The TSX rose over 400 points for the week, approaching a 3% gain.
    • The Canadian dollar held steady with the U.S.; so, our gains weren’t driven solely by foreign exchange machinations.
      • The TSX benefitted from the return of the price of oil to over $60 barrel, with a $9 USD rise last week. In addition to the Energy sector, metals (i.e. gold), industrials, and technology all had good weeks.
    • The U.S. indices did much better than the TSX gaining 4 and 5%. The end of the corporate earnings season saw fourth quarter and 2017 results at their highest levels since 2011. These results exceeded analyst expectations driving individual stocks and the American indices upward.
      • The Financial sector led the way on the S&P 500 with both their earnings reports and the slight rise in retail interest rates.

What’s ahead for this week?

  • In Canada, retail and wholesale trade for December and the Consumer Price Index (CPI) for January will be released. Our inflation, as expressed through the CPI, will provide guidance for the upcoming interest rate decision for the Bank of Canada.
  • In the U.S., it will be a quiet week for economic data releases with January’s existing home sales and the Conference Board’s Leading Index scheduled.

What the Experts are Saying About the Market Fluctuation

Executive Summary

The following is a collection of what industry experts have said regarding the current market.  All in all most experts express very little concern regarding this downturn. The recent bull-market in the U.S. has continued without any significant correction for many, many months, and the results of the last two weeks was viewed as long overdue by analysts and popular press alike.

CBC – Published excerpt from February 7, 2018

Click here for full article

“We gotta know that trees don’t grow to the sky, the market doesn’t go up forever,” said Latremoille, who heads up the Toronto-based Latremoille Group, a wealth management firm.

“When days like this come along, nobody likes it, but it is a fact of life. It is part of the investment landscape to have volatility.”

CNBC – Published excerpt from February 6, 2018

Click here for full article

“This is very healthy,” said financial advisor Paul Pagnato, founder and CEO of PagnatoKarp in Reston, Virginia, noting that the long-term outlook for the economy, market sentiment and world stability remains the same. “We’re long overdue for a market correction,” he said.

“Investing in stocks rewards you in the long term,” Ma said. “These day-to-day changes in the market shouldn’t affect you.” Financial advisor Roger Ma, founder at Lifelaidout in New York.

The Washington Post – Published excerpt from February 8, 2018

Click here for full article

 “Stay the course. This is normal, despite the very placid market environment we saw in 2017. Markets go up and down, not just up,” says Greg McBride, Bankrate.com’s chief financial analyst. “But they go up a lot more than they go down, so hang in there and consider buying more.”

Global News – Published Excerpt February 5, 2018

Click here for full article

“What we’re seeing right now is an economy overall that is doing quite well and has strong fundamentals,” said Gregory Daco, chief U.S. economist at Oxford Economics. “The economy remains on track to expand at a fairly solid pace, and along with that comes inflation.”

VOX – Published Excerpt February 6, 2018

Click here for full interview

Sean Illing – Interviewer

How alarmed should people be by what we’ve seen the last few days on the market?

Jacob Kirkegaard – Senior fellow at the Peterson Institute for International Economics

“I don’t think people should be panicked at all. Fundamentally, the number that we got with the 2.9 percent wage increase is good news. But it does signal that perhaps the period of extraordinarily low interest rates and low inflation levels that we’ve had since 2008 is over. And stock markets and other financial markets will need to adjust to that.

But from the perspective of the average American, the fact that he or she gets, on average, higher wages is good news. Of course, it’s not so good if a week ago you put all your savings into the stock market, but there are always winners and losers, and the markets tend to balance out on a much longer timeline.”

Bottom Line

A strong majority of experts both at home and in the US share the feeling that there is no need to panic. Reach out to your advisor if you have more questions but keep in mind that markets go up and markets go down. Your financial advisor is there for you regardless of which direction is happening and their job security and success does depend on making you feel safe and secure and confident in your investments and savings.

Last Week in the Markets: February 5 – 9, 2018

(source: Bloomberg)

What happened? 

  • It was the second consecutive “all red” week for equities, oil, gold and the Canadian dollar.
    • The American major indices all lost more than 5% of their value with the Dow edging out the S&P 500 for this dubious honour.
    • Thankfully the Canadian TSX continued its underperformance of the U.S., limiting its losses to about two-thirds of the American decline, which is small consolation.
      • All major Canadian and American indices are in negative territory for 2018, with the TSX down over 7%.
    • The recent bull-market in the U.S. has continued without any significant correction for many, many months, and the results of the last two weeks was viewed as long overdue by analysts and popular press alike.
      • However, the swiftness and strength of the drop now seems more severe than anticipated. Despite losses approaching 10% in the U.S., and year-to-date returns negative, the year-over-year returns for American indices are still healthy.
      • The performance over the next few days will drive an investor’s 2018 returns;
        • stabilizing and building a base for renewed growth,
        • a reversal of the most recent results and return to growth, or
        • a continuation of February’s decline that requires additional time and losses before stabilizing.

What’s ahead for this week?

  • In Canada, a light reporting week with January home sales and December manufacturing sales will allow investors and analysts to focus on market events.
  • In the U.S., January inflation (consumer, producer, import and export price indices) will be the most important data released. Housing starts, retail sales and business inventories will round out the week’s economic news.

Last Week in the Markets: January 29 – February 2, 2018

(source: Bloomberg)

What happened? 

  • Unlike many recent weeks, the ‘all green’ has turned ‘all red’.
  • The TSX, S&P 500, the Dow and NASDAQ all fell by roughly 4%, with the losses occurring most days for each of these indices. Expect more of the same today with weakness ‘at the open’ as North America follows the direction of European indices.
    • The decline of North American equities was driven by an increase in 10-year bond yields to their highest levels in 2 years. Unlike other declines with similar broad-based drops, investors were moving ‘to’ bonds, not generally ‘away’ from equities.
      • Last week several analysts, including our CBC, suggested that some of the warnings of an equity correction were unfounded since interest rates were too low to attract significant investment in-flows.
        • This changed over the course of one week. 10-year yields are 2.84%, their highest level in 4 years. Compared with historic levels these yields remain low, but their recent rise is causing the stir in markets.
      • Corporate results remain strong, suggesting that the decline in equity prices last week is the result of investor fatigue, profit taking and growing concern over volatility and corrections.
        • The Canadian and American markets are up 30 and 50%, respectively, over the past 2 years, and many retail investors saw their paper-profits trimmed last week; not their beginning capital eroded.

What’s ahead for this week?

  • In Canada, December building permits and housing starts for January will be released along with January’s employment report.

In the U.S., it will be a similarly light week for economic information. December’s trade balance, job openings, and wholesale inventories and sales will be announced.

Last Month in the Markets: January 1- 31, 2018

(source: Bloomberg)

What happened in January?

The investment and political environment in North America continued on its recent trajectory last month.  Except for a small drop at the end of January, which was mostly recouped the next day, American markets surged ahead, setting new records, while Canadian equities languished.  Gold, oil and the Canadian dollar all moved ahead briskly for the month.

  • Major American indices; the S&P 500, the Dow and NASDAQ mirrored one another closely. They each gained more than 5%, with the NASDAQ well over 7%!
  • However, the TSX lost more than a one-and-a-half points for the month, which is a difference (or ‘delta’ in investment terminology) of almost 9% compared with the NASDAQ index.

(source: Bloomberg)

  • The Dow and NASDAQ both gained 32% in the past year. What is the likelihood that this trend will continue? Is a correction likely? How do I feel about the possibility of continued gains versus the possibility of a reversal?
    • Expressed another way, “If your portfolio jumped or fell by one-third, would the gain or loss cause the biggest change in your demeanor?” For most people, a loss of 1/3 would make them feel much worse than a gain of 1/3 would make them feel better.
      • That is, gains are appreciated, but losses really hurt.
    • Once these questions are addressed (admittedly, answering them is a near impossibility), then investment decisions can be made.
      • If I have under-invested in the U.S., is now the time to increase my holdings of American investments?
      • If I have been holding American investments, is now the time to harvest gains?

As always, a sound plan, that is monitored and adjusted as time passes is the most effective method to ensure long-term financial success. After all, you cannot find your way without a map.

What’s ahead for February and beyond?

The first Friday of February also happened to fall on Groundhog Day. The most official (if such a thing exists) groundhogs in Punxsutawney, PA and Wiarton, ON each saw their shadows, and tradition predicts 6 more weeks of winter. Continued cold weather across Canada and the United States would typically cause energy prices to rise.  More likely catalysts for changes to energy prices will be the level of U.S. oil reserves and OPEC’s ability to limit production.

More importantly for most Canadian investors is a growing sentiment that U.S. equity gains are slowing or reversing themselves. CBC radio reported that if U.S. equities begin to fall out of favour then investors may look to Canadian firms and raise share prices here.

Comments like these can be viewed as ‘speculation’, which is not how retirement funds should be invested.

February is likely to be a month with increased volatility since the month is beginning as January concluded; with losses on the equity markets in North America.

Last Week in the Markets: January 22 – 26, 2018

(source: Bloomberg)

What happened last week?

  • Last week saw economic leaders congregate in several places; Montreal hosted NAFTA negotiations between Canada and the U.S, OPEC convened in Vienna, Austria, and Davos, Switzerland hosted the World Economic Forum.
    • These meetings and various announcements caused the U.S. dollar to fall sharply, especially when President Trump contradicted his Treasury Secretary from overseas on the desired strength of their currency.
  • The week also began with the U.S. Federal government closed for business with a budget crisis in Washington as lawmakers were only able to agree to a short-term resolution. This will be repeated when the agreed deal expires on February 8th.
  • With the Canadian dollar strengthening against the U.S., export industries were hard hit, and led the TSX to a loss for the week, while the U.S. hit record highs again.
    • Strong corporate earnings growth overcame all other news as equities surged 2% or more on each of the major indices in the U.S.
      • Each of the 11 sectors in the S&P 500 gained last week, and the 7+% gain in 2018 is one of its best starts to any year.
    • A bright spot for Canadian equities was the Energy Sector. The price of oil reached its highest level since November 2015.

What’s ahead for this week?

  • In Canada, the most important economic data released will be November’s Gross Domestic Product (GDP) figures. It will likely support the recent interest rate increase by the Bank of Canada.
  • In the U.S., the Federal Reserve will announce an interest rate decision. Also, December’s personal income and spending, construction spending, and January’s vehicle sales and durable goods orders will be released.

Last Week in the Markets: January 15 – 19, 2018

(source: Bloomberg)

What happened?

  • The biggest economic and investment news affecting Canadians last week emanated from the Bank of Canada. The benchmark, overnight lending rate was increased another quarter-point (0.25%); the third such increase in less than one year.
    • Stephen Poloz, Governor of the Bank of Canada, expressed a cautious tone regarding future increases. The largest concern is the potential dissolution of NAFTA. Any trimming of economic growth, the unemployment rate or inflation (i.e. the Canadian economy growing too quickly) will be more than addressed by the failure of NAFTA, and additional interest rate increases would be unnecessary.
  • In the U.S. the budget impasse dominated the mental shelf-space of the White House more than the North American trade treaty.
    • The Democrats utilized the need for budgetary approval to push their agenda regarding immigration and rights, and specifically to preserve the status of “Dreamers” who entered the U.S. illegally while still children.
    • The shutdown and rhetoric continued during the weekend, and into Monday, with fingers pointed in all directions. Another vote is scheduled for noon today.
      • President Trump called for the Senate Majority Leader, Mitch McConnell, to change the rules from a 60% majority to a 51% majority to approve his budget in the Senate.

What’s ahead for this week?

  • In Canada, inflation for December will be released by StatsCan with their Consumer Price Index (CPI), along with November’s retail and wholesale data.
  • In the U.S., December data for durable goods orders, wholesale and retail inventories and existing and new home sales will be announced. Preliminary Gross Domestic Product numbers for the fourth quarter of 2017 will be released.

Last Week in the Markets: January 8 – 12, 2018

(source: Bloomberg)

What happened?

  • Last week increasing fears of the United States invoking their right to withdraw from NAFTA caused both the TSX and the Canadian dollar to fall despite a large surge in the price of oil.
    • Uncertainty over NAFTA’s future placed exporters of Canadian goods and services, like industrial manufacturers, on uneven ground.
    • Typically, a rise of nearly 5% in the price of oil would lift the energy sector enough to buoy all of the TSX.
      • S. oil reserves have been reduced, and OPEC continues to maintain its commitment to lower production levels. The smaller supply of oil has caused the price to move up sharply, just over 7% since the beginning of the year.
    • Coincidentally, Canada has complained to the World Trade Organization (WTO) alleging that the U.S. and others have acted unfairly in over 200 incidents over the past 20 years.
      • This is an attempt by our government to increase their negotiating position regarding NAFTA, as Trade Minister Francois-Philippe Champagne said, “When people see that you’re firm, you get respect.” The next round of meetings in Montreal will demonstrate the validity of this new strategy.
    • The Dow, S&P 500 and the NASDAQ all reached historic highs, again and Year-to-Date returns that approach the TSX’s return achieved during all of 2017!

What’s ahead for this week?

  • In Canada, the Bank of Canada will announce an interest rate decision. Similar decisions in the United States by the Federal Reserve are well anticipated, and markets there price-in monetary decisions more effectively than in Canada. Expect some volatility mid-week.
  • In the U.S., December data for housing starts and building permits, along with industrial production and capacity numbers will be announced.

Last Week in the Markets: January 2 – 5, 2018

(source: Bloomberg)

What happened?

  • 2018 began as 2017 ended, with an “all-green” week . . . AGAIN!
    • All major North American equity indices had a strong week of price increases, with the Canadian dollar, gold and oil following along in positive territory.
      • The TSX set fresh records in the first few trading sessions of the year, the Dow rose above 25,000 points for the first time. The S&P 500 had its best week since 2016, even while posting positive returns over the past 14 months.
      • The Canadian economy showed strong results with nearly 80,000 new jobs created in December and the unemployment rate falling to 5.7%.
        • As a result, with other factors also contributing, our dollar rose three-quarters of a cent against its U.S. counterpart.
      • Gold continues its rise based on continuing political influences as the temperature in North Korea falls, it increases elsewhere, particularly in Iran.
      • The record cold weather across most of Canada and the United States drove the price of energy higher, which provided additional fuel the raise in the TSX.
        • West Texas Intermediate (WTI) oil is well above the $60/barrel, which is a level last seen 30 months ago.

What’s ahead for this week?

  • In Canada, housing data will dominate the week’s releases with December housing starts and November building permits and new housing price index, and National Bank’s home price index.
  • In the U.S. a more balanced release of information will occur; December’s import and export price index and producer price index, and November’s wholesale inventories and sales.

Last Month in the Markets: December 1 – 31, 2017

(source: Bloomberg)

What happened in December?

  • December 2017 concluded a year that many won’t soon forget . . . for many reasons.
    • From an investment perspective the major North American markets delivered strong returns; some were record-setting.
      • The TSX delivered 6% overall, but made up for some of its shortfall compared to the S&P 500, Dow and NASDAQ with 7% foreign exchange gains. Also, Canadian firms typically pay dividends to shareholders (more often, and usually in larger yields, than American firms), which could add another two to five percent to domestic investments.
      • The S&P 500 delivered 12 consecutive positive monthly returns in a calendar year for the first time in its history.
        • There were several months in 2017 that returned well over 2%. The average return per month for 2017 was about 1.5%. NASDAQ returned an average of approximately 2% each month!
      • The U.S. Federal Reserve Bank continued its course of increasing its benchmark lending rate to temper growth and inflation.
        • The Fed’s most recent increase occurred less than a month ago in December; it was another quarter-point increase.
        • The general consensus is that 2 more similar increases could occur in 2018, but as always, current economic data will govern these decisions.
          • The Bank of Canada has been less enthusiastic to increase rates, but that attitude may change if the U.S. continues to create a gap.
            • Canadian economic growth has slowed slightly and the Bank of Canada is remaining patient. The U.S is a market-maker, essentially. They can do as they please based on the size and might of their economy. Canada is a market-taker, we cannot make interest rate decisions in isolation.

Last Week in the Markets: December 27 – 29, 2017

(source: Bloomberg)

What happened?

  • In opposition to most of the rest of the year, the last week of 2017 saw the TSX outgain the three major American indices.
    • In 2017, the TSX returned about one-third of the price advances of the S&P 500, a similarly broad-based index.
    • The S&P 500 had 12 consecutive months of positive returns. This is the first time that this has ever happened. The Dow and NASDAQ were in the investment stratosphere with returns in the mid to high 20’s.
  • The Canadian dollar finished 2017 more than 7% ahead of where it started against the U.S. dollar.
    • This eroded some unhedged gains for Canadians when they brought their U.S. investment returns home.
    • A strengthening dollar slows our economy. The rising price of Canadian exports tempers American demand for our goods and services.
      • Also, a significant percentage of export contracts are priced in USD, so a rising Canadian dollar means less for exporters to pay their domestic suppliers and staff, effectively squeezing profits.

What’s ahead for this week?

  • 2018 trading begins on January 2nd in North America now that the holiday season is over.
  • Expect renewed concerns about a market correction to appear in the popular press. Remember that reporters, editors and publishers must sell their ‘news’, and being provocative is a necessary element of their communication . . . in addition to journalistic principles, of course.
    • Be vigilant, but also rely on the sound decisions of the past, strong investment strategies to weather any rough waters, real or imagined, ahead.

Last Week in the Markets: December 18 – 22, 2017

(source: Bloomberg)

What happened?

  • An “all-green” week was the result for the week preceding Christmas.
    • New highs were reached for the four major indices, mostly pushed by the passing of the tax reform bill in both houses of the U.S. Congress.
      • Barring a large, last week move, it appears that the major U.S. indices, the S&P 500, Dow and NASDAQ will finish 2017 at approximately 20, 25 and 30% returns respectively. The TSX is at the 6% level.
        • An important difference between most Canadian and American stocks is the likelihood that the Canadian firm will pay dividends. Dividends are paid by some, but not nearly as many U.S. as Canadian firms.
          • Also, for Canadians, who bring their foreign earnings home, these U.S. returns have lost 6% in currency conversion.
        • Depending on your income needs, as well as your risk and volatility tolerance, the lower and more predictable returns delivered at home in Canada through dividends could be more suitable.
      • Stocks were pushed higher by strong consumer spending numbers in both countries, and are expected to stay strong until the end of 2017.

This Week?

  • The TSX is looking to close the year positively as prices for materials and energy continue their rise, and lead the way for the entire index.

A quiet week for the three trading days between Christmas and New Year’s Eve is expected.  If the S&P 500 stays positive for December (it’s up about 40 points month-to-date), it will be the first time this index has had positive returns for all twelve months in a calendar year.

Last Week in the Markets: December 11 – 15, 2017

(source: Bloomberg)

What happened?

  • The biggest economic and investment news last week was the Federal Reserve’s increase of their benchmark rate by ¼ point to a range of 1.25% to 1.50%, the third increase of 2017.
    • The move is aligned with the Fed’s opinion that the U.S. economy will continue to grow at an increased rate. Gross Domestic Product (GDP) growth is now pegged at 2.5% by the Fed, which includes anticipated tax cuts taking effect next year.
    • This rate increase was well anticipated by the market and when it occurred as predicted the markets had already priced-in the rate hike, and reacted only slightly.
    • The Bank of England and the European Central Bank also held meetings last week, and held their interest rates steady, also as expected. The Bank of Canada held its meeting the week before its peers, and left its rate unchanged as well.
      • Finally, the consensus of analysts is that the Fed will raise rates twice in 2018.
    • The TSX was down slightly for the week, while the Dow, S&P 500 and the NASDAQ all reached new record highs.
      • The S&P 500 has finished each calendar month with a positive return, if this occurs in December, it will be the first time that 12 months during a year were positive.
      • The Dow and NASDAQ have posted year-to-date gains in the 25-29% range. However, the gain in our dollar has trimmed those results for many Canadian investors, unless they utilized hedged products to mitigate foreign exchange effects.

This Week?

  • Canadian retail and wholesale sales, and GDP for October, inflation for November through the Consumer Price Index (CPI) will be released.
  • In the U.S. November data will be released for new and existing housing sales, housing starts and building permits, durable and capital goods orders and personal income and spending.

Last Week in the Markets: December 4 – 8, 2017

(source: Bloomberg)

What happened?

  • The TSX, which is over 95% of the total value of Canadian stocks, was under pressure on several fronts last week.
    • The Bank of Canada held its overnight lending rate steady even as a December increase in the U.S. seems more and more likely. Without a rate increase, the Canadian dollar fell relative to the USD; exactly one cent for the week.
    • The price of oil fell for the week as well; exactly one U.S. dollar for the week. Energy stocks, which are healthy portion of the TSX responded accordingly, for the most part.
    • Materials, led downward by precious metals and copper, pressured the TSX further.
      • Despite these negative influences the TSX finished the week higher than it began, with a gain that mirrored the performance of Dow and the S&P 500.
    • In the U.S. investors were moving into stocks expected to gain from the upcoming interest rate increase by the U.S. Federal Reserve and the tax reform plan.
      • For example, financial firms, like insurance companies, can generate higher returns on their invested capital when interest rates rise. A minor increase in interest rates on billions of dollars can generate millions in additional revenue, and profit, if all other things remain the same.

This Week?

  • The biggest news in the U.S. will be their interest rate decision. All expectations are that the rate will increase slightly. Additionally, consumer and producer inflation numbers will be announced.
  • With the concentration of media and investors focused on the rate announcement from the Federal Reserve, it will be a quiet week in Canada for economic data releases; existing home sales (November) and manufacturing sales (October).

Last Month in the Markets: November 1 – 30, 2017

(source: Bloomberg)

What happened in November?

  • November continued the recent, year-long, tradition of equity gains in Canadian and American markets.
    • Last month wasn’t as strong as October, and some volatility crept into the picture, but taking the two months together, they have delivered significant percentage returns across the board.
      • Also, the major North American markets achieved record highs again, continuing the rise that began with the U.S. election. Trump celebrated the first anniversary of his election win in November.
      • Regardless of one’s political leanings, the last year has seen wonderful gains in equities, particularly in the United States.
        • Canadian investors with U.S. company holdings, directly through stock ownership or indirectly with U.S. stocks owned by the funds that they hold, have seen this portion of their portfolios jump over the past 12 months.
      • The Canadian stock market has had a more uneven gain in 2017 than the U.S. indices.
        • Graphically, the TSX in 2016 performed similarly to the three American indices (above), with a total gain of nearly 18% for the year.
        • Since January 1, 2017 the TSX has underperformed the U.S. markets. Much, but certainly not all, of the lagging returns can be related to the price of oil.
        • Several other factors, like short and long-term interest rates, employment rates, consumer and producer confidence, GDP growth, inflation, balance of trade, actively affect Canadian markets. Each of these indicators both domestically and globally have an effect here.
          • As always, it is important to monitor performance and risk, and base investment decisions on the best available information.

What’s ahead for December and beyond?

  • The U.S. Federal Reserve is expected to increase interest rates in December, as part of their long-term plan, to return their economy to a more typical interest rate environment instead of the ultra-low rates that borrowers have enjoyed over the past 9+ years.
    • A rise in rates will be in response to inflation risk, primarily, which is difficult to assess, as always. As difficult as predicting Fed manoeuvres.
  • In Canada, the most significant developments to influence our economy and markets will be the on-going NAFTA talks.
    • Also, difficult to predict, are President Trump’s intentions and actions, but it seems unlikely that he will withdraw from NAFTA. It is more likely that small revisions in favour of the U.S. will be declared as a great victory by the Executive branch of their government. Time will tell.

Last Week in the Markets: November 27 – December 1, 2017

(source: Bloomberg)

What happened?

  • The TSX lost ground last week, which was much more mixed than most in 2017. Technology and Materials stocks lost the most ground, and dragged the entire index into the red.
    • With the price of oil also down for the week, the Energy, Materials and Technology sectors, which comprise 35.5% of TSX, pulled the overall performance lower.
  • The NASDAQ, whose composition is Technology-heavy was the lone American index to decline last week.
    • The S&P 500 and the Dow were lifted by the increasing belief that a rate-hike will occur in the U.S., and investors shifted from Technology stocks to banks, who will benefit from an increase in interest rates.
      • The U.S. economy continuing to grow strongly, along with the fear of inflation, increases the likelihood of an increase in interest rates.
    • Also in the U.S., the Republican-controlled Senate narrowly passed a tax reform bill 51 to 49. This is the first major election promise that the newly elected President and legislators have kept.
      • The bill was passed early Saturday morning long after domestic and overseas markets closed for the weekend, expect some volatility on Monday as this accomplishment begins to be priced-into the equity and debt markets.

This Week?

  • In Canada, the Bank of Canada will make an interest rate decision mid-week. All indications are that the U.S. Federal Reserve will increase their interest rate in December, it is expected that Canada will mirror their change, the real question is ‘when?’ Housing data (starts and building permits), and capacity and labour productivity will be released.
  • In the U.S., November employment, and October durable goods, factory orders and wholesale inventories will be announced.

Last Week in the Markets: November 20 – 24, 2017

(source: Bloomberg)

What happened?

  • Despite the quiet week in the United States due to their Thanksgiving holiday, American and Canadian equity markets moved ahead very nicely.
    • The S&P 500, the Dow, and NASDAQ reached new highs last week. All major North American indices, including the TSX, had their largest gain of the week on Tuesday in advance of the holiday, football, and eventually, Black Friday.
      • The popular press indicated that Black Friday was more subdued (or less frantic depending on your perspective) this year. Once the dust settles and retail sales numbers are officially compiled we will understand whether consumer confidence is waning or online shopping is increasing.
    • The price of oil continues to rise, pulling the rest of the TSX along with it. The Canadian dollar moved in-step with the price of oil last week.  There are many indicators and influencers of the Canadian dollar relative to its American counterpart, but generally an increase in the price of oil moves the Canadian dollar higher.
      • Canadians exchanging our dollars for their winter living expenses in the U.S. sunbelt appreciate this increase while Canadian exporters would prefer the opposite.
      • Some mutual funds “hedge” the currency to reduce the risk of foreign exchange fluctuations and volatility. This does add to the management cost of the portfolio.

This Week?

  • In Canada, two important indicators will be released; November employment and Gross Domestic Product (GDP) for September.
  • In the U.S., October home sales, personal income and spending, and third-quarter GDP will be announced.

Last Week in the Markets: November 13 – 17, 2017

(source: Bloomberg)

What happened?

  • Most global stock indices fell last week, with the TSX taking a sharper decline than most.
    • Canadian investors took a double-hit as our dollar also fell, for the second consecutive week.
    • Some of the TSX’s declines can be attributed to the start of the latest round of NAFTA renegotiations, and President Trump’s stated threat to withdraw from the trade treaty.
    • Another significant contributor was the decline of the Energy sector that saw oil fall, albeit only slightly. U.S. reserves rose unexpectedly and commitments to limit production by OPEC nations are tenuous.
  • American inflation numbers were higher than expected, lending credence to future interest rate rises there.
    • Interest rate rises are typically introduced by the Federal Reserve to temper economic growth and inflation, and by their very definition, place pressure on business performance.
      • Of course, the one exception to these negative effects is the NASDAQ, which reached another historic high.
    • It appears that volatility has returned to North American equities markets. This past week ended with little change from the previous Friday’s close, but mid-week and intra-day spikes and dips were larger than what’s been seen in more than a year.
      • Markets, as always, will be under tremendous scrutiny by financial professionals.

This Week?

  • In Canada, retail and wholesale sales for September will be released.
  • In the U.S. existing home sales and durable goods orders for October will be announced.

Last Week in the Markets: November 6 – 10, 2017

(source: Bloomberg)

What happened?

  • Last week generated little change in indices, in North America. The TSX was the only ‘gainer’ as the major U.S. indices were relatively unchanged by their small losses.
    • The TSX, moving ahead less than 20 points on only one-tenth of a percent for the week was still able to reach a new historic high.
    • The S&P 500, Dow and NASDAQ slipped, but only slightly after weeks of major increases.
      • The Energy sector, buoyed by the increase in the price of oil, reversed losses in other sectors, like Financials. Oil is increasing due to Middle East uncertainty between Saudi Arabia and Iran, and the domestic Saudi crack-down on corruption, and royal rivals, it appears.
    • In positive news for Canadian exporters and the economy in total, the Trans-Pacific Partnership (TPP), a trade agreement among many Pacific Ocean adjacent nations, was resurrected at the APEC (Asia Pacific Economic Cooperation) summit in Vietnam.
      • Trump’s third Presidential Memoranda, signed on January 23, 2017 withdrew the United States from the TPP, causing it to collapse. Eleven countries, including Canada, remain in the TPP, whose revised framework was agreed on November 11th.
        • Trump reinforced his position at the conference and during his tour of Asia, that it is unlikely the U.S. will rejoin the TPP.

This Week?

  • In Canada, October’s inflation numbers and home sales will be released.
  • In the U.S., October prices (inflation, producer, import, export) will be announced along with housing starts, building permits, and retail sales.

Last Week in the Markets: October 30 – November 3, 2017

(source: Bloomberg)

What happened?

  • Canadian and American large-cap stocks rose again this past week for the eighth consecutive week. It has been 11 years since an 8-week upward run has occurred.
    • Canadian company valuations and the TSX index were driven higher by earnings reports, the continuing rise in the price of oil, and the positive jobs news.
      • Weak economic production (Gross Domestic Product) performance for August tempered the results and limited the TSX gain.
    • In the U.S., in addition to the 8 weeks of stock price increases, the S&P 500 has increased each month in 2017 for the first time in 100 years according to Bloomberg.
  • It was a busy news-week in the United States for the markets.
    • The House of Representatives introduced details of their tax reform legislation, finally. Some simplifying factors (reducing the number of tax brackets) and complicating other factors (potential limits to mortgage interest tax credits). For individuals, this had less effect than the intention to lower corporate taxes and spur economic activity from the employer-side.
    • President Trump nominated a new head for the Federal Reserve, Jerome Powell. He is an existing governor of the Fed, and is closely aligned with Janet Yellen; the current Fed Chair. The possibility of a smooth transition from Yellen to Powell seemed to calm markets, particularly after the rumoured nominee, John Taylor, was bypassed.

This Week?

  • In Canada, housing starts, building permits and housing prices dominating the releases.
  • In the U.S. it will also be a quiet week for economic data with wholesale inventories and sales, and two studies (job openings and consumer sentiment) being released.

Last Month in the Markets: October 1 – 31, 2017

(source: Bloomberg)

What happened in October?

  • October was an exceptionally strong month for equities in Canada and the United States. Despite the political wrangling, posturing and news (good and bad) on both sides of the border, the four major North American indices surged forward.
    • It is almost ludicrous to say that the S&P 500 was the laggard after gaining more than 2% in October; however, the Dow and NASDAQ delivered significantly higher returns.
    • Even our market-index; the S&P/TSX returned 2 ½ points, and closed above 16,000.
  • Some negative news did occur even if it felt ‘manufactured’. The negativity may have gathered more interest than usual since the 30-year anniversary of Black Monday was observed on October 19th. In 1987, the Dow closed with its largest single day loss, 23%, and the popular press drew parallels between today’s performance, and three decades ago.
    • Notwithstanding these negative news accounts, the equity markets powered ahead, reaching new historic highs.
  • One of the largest news items that will affect the Canadian economy and our investment markets is the continued lack of progress on NAFTA negotiations.
    • The Americans have insisted that all future disputes be settled in U.S. courts, under U.S. laws, which is an unacceptable, sovereignty-robbing condition for Canadians.
    • The supply-control system for agricultural products, particularly milk, is under threat as well.
  • On a positive note, the Liberal government’s plan to update tax legislation affecting small business owners, family businesses (including farms), and professional corporations has been tempered following public consultation.
    • The final plan, and legislation, has not been written nor passed, but expect more balanced changes than originally proposed.
    • When a clearer picture of the proposed legislation and its effects emerges, those impacted should expect to consult with advisors for legal, accounting and investment matters to minimize tax under the new system.
    • Some of the tempering of Finance Minister Morneau’s initially proposed plan may be driven by two salacious events.
      • Morneau did not fulfill his commitment to place his investment assets inside a blind-trust, which would allow him to govern without understanding the direct impact of changes on his personal financial situation. Essentially, the purpose of a blind trust in this situation is to prevent the appearance and the reality of a legislator and Cabinet Minister from benefiting from new law that is intended to benefit the country and its citizens.
      • A hack of a Bermudian law firm has shown that many around the world, including prominent Canadian families and firms (Bronfman, Weston, Suncor, PetroCanada, etc) have utilized complicated offshore financial vehicles to minimize taxes. It is being referred to as the “Paradise Papers” since the information emanated from an exotic location.
        • Although no impropriety has been proven, the existence of these vehicles for the richest Canadians who can engage professionals, while low-income and middle-class Canadians cannot has reoriented some of the proposed legislation.
          • One organization who is red-faced over these revelations coming from Bermuda is the House of Windsor, further evidence that these schemes aren’t available for all!
        • Additional details on the new taxes, and their effect will be shared once known.

What’s ahead for November and beyond?

  • Expect more difficult negotiations regarding NAFTA. President Trump will continue to make proclamations and issue ultimatums on issues that will actually be discussed at the bargaining table. The schedule for topics places most of the thorny issues toward the final rounds, which allows some initial progress on smaller items. This encourages agreement on the larger issues, since no one wants to destroy progress that has been achieved.
  • Monetary policy, specifically interest rates, in Canada and the U.S. will be closely watched. The rates were unchanged by the Federal Reserve in October, and most analysts believe that a December rise is likely.
    • Stephen Poloz, the Governor of the Bank of Canada, has maintained a very independent stance for our benefit. However, he cannot resist forever, and will eventually succumb to pressure from the U.S. and follow along if U.S. rates rise.

Last Week in the Markets: October 23 – 27, 2017

(source: Bloomberg)

What happened?

  • Canadian and American equities rose higher again last week, and to record highs.
    • The Bank of Canada (BoC) left interest rates unchanged as expected and stocks continued along their recent trajectory.
      • Consumer debt and the lack of progress on NAFTA negotiations led the warnings issued by the BoC and provided rationale to not raise rates. As a result, the Canadian dollar fell against its U.S. counterpart.
      • The TSX rose to a new record high on broad-based strength of several sectors; Financial, Industrial, Telecom, Technology and Energy sectors.
      • The price of oil rose nearly 5% last week, and over 8% in the past year, and is now above its January 1st level; lifting energy stocks.
    • Over one-third of the S&P 500 reported quarterly earnings last week (earnings remain strong), and support the recent market gains. This is a reversal of traditional stock pricing, where earnings typically drive prices.
      • Although a new high was reached for the S&P 500, the gain of less than 6 points was modest. The primary concern is the rumoured appointment of John Taylor as the next Federal Reserve Chair, and the belief that a Taylor-Fed would raise interest rate rises and slow economic and company performance.

This Week?

  • In Canada, Gross Domestic Product (GDP) for August will be released along with the employment report for October.
  • In the U.S. the Federal Reserve will make an interest rate decision, and employment, construction spending, consumer confidence, personal income and spending and vehicle sales data will be released.

Last Week in the Markets: October 16 – 20, 2017

(source: Bloomberg)

What happened?

  • It was another strong week for Canadian and American equities, with large firm stocks advancing for six consecutive weeks driven by strong Q3 earnings in the U.S., more mixed here, and political progress on the 2018 budget in the U.S. Senate.
    • New highs were reached in the major U.S. indices, and a particularly stellar week for the Dow with a 2% gain.
    • This strong market performance was set against the anniversary of Black Monday, October 19th, 1987 when equities markets tumbled.
  • To counter the lack of progress, and existing tariffs, Bombardier struck a deal with France’s Airbus to jointly produce and own Bombardier’s C-class passenger jets.
    • As with all-encompassing market trends, like NAFTA or earnings reports, individual stocks can be affected significantly and differently by broad trends, therefore diversification will always be important to provide protection and risk mitigation.
  • The latest round of NAFTA negotiations produced little progress, yet most analysts believe that the agreement will be adjusted, not scrapped.
    • According to Edward Jones, 75% of Canadian exports go to the U.S., and comprise 20% of our GDP, while exports to Canada represent only 1% of U.S. GDP.
      • This imbalance of importance will lead to the adjustments, along with many U.S. state economies (border states) relying on heavily on trade with Canada (and Mexico in the south).

This Week?

  • In Canada, Bank of Canada interest rate decision will be the biggest domestic economic and financial news this week.
  • In the U.S. new home sales, wholesale and retail inventories, durable goods orders and third quarter Gross Domestic Product will be released.

Last Week in the Markets: October 9 – 13, 2017

(source: Bloomberg)

What happened?

  • Earnings results, along with other strong economic news and investor optimism continues to drive U.S. and Canadian markets higher.
    • In an unusual week, all major North American equity markets, gold, oil and the Canadian dollar finished the week ‘green’ by advancing.
      • Equity gains were modest compared with previous weeks, but most investors who own broad-based mutual funds, will continue to see an increase in the value of their portfolios; especially those with U.S. investments (even accounting for foreign exchange).
      • The largest percentage rise was for oil, moving upward by nearly 4% for the week and also pushing the Energy sector of each index higher.
    • The Third Quarter (Q3) earnings season has begun and it has started in a positive manner.
      • 81% of firms, according to Edward Jones, have reported “better-than-expected results”.
      • Reported results in the United States have been concentrated in the Financial Services sector; a strong banking sector provides economic energy.
    • In Canada, the domestic economy grew by 4% in the first half of 2017, leading all G7 nations. Household debt levels coupled with a rise in interest rates and slow wage growth will temper consumer spending and will cause GDP growth to slow for the balance of 2017 according to the Bank of Canada.

This Week?

  • In Canada, existing home sales, inflation (Consumer Price Index), retail and manufacturing sales figures will be released.
  • In the U.S. housing starts, building permits and existing home sales, along with industrial production and capacity utilization will be announced.

Last Week in the Markets: October 2 – 6, 2017

(source: Bloomberg)

What happened?

  • The TSX moved ahead strongly across most sectors; especially the materials sector as metal commodities had their prices rise.
    • The fourth quarter is typically a strong period of growth for North American equities, and Q4 2017 has begun well.
    • The S&P 500 hit 4 new record highs last week, continuing a trend that has been in-place for almost all of 2017.
  • In the U.S., financial firms led the way, based on the rising bond yields. Other economic activity and its indicators are feeling the after-effects of hurricane season, both good and bad. For example, vehicle sales jumped to replace damaged/destroyed vehicles and the Purchasing Managers’ index grew at its fastest rate in 8 years. On the negative side, the U.S. economy lost 33,000 jobs in September; the first monthly decline in more than 6 years.
  • The energy sector was the main outlier for the past week, reversing the broad-based climb that spread across almost all the rest of the markets.
    • Conflicting information regarding U.S. reserve inventories confused markets somewhat; the price of oil falling as a result.
    • OPEC seems to be struggling to limit production as Libya’s largest oil field came back into production.

This Week?

  • In Canada, the Monday Thanksgiving Holiday will slow the market activity. Economic announcements will focus on housing with National Bank’s housing price index, August building permits, and September housing starts.
  • S. announcements will be much more balanced with the Federal Open Market Committee meeting minutes, job openings and labour turnover for August, inflation, consumer and producer price indices for September, and retail sales and business inventories.

Last Month in the Markets: September 1 – 30, 2017

(source: Bloomberg)

What happened in September?

  • September was a very strong month for North American markets and oil. The Canadian dollar ended the month almost exactly where it began whereas gold took was the ‘loser’.
    • As with all compound situations, and with economics specifically, many factors contributed to the overall market performance, individual indices and stocks, and foreign exchange values and commodity prices.
      • As always, politics played an important role. The easing of tensions (temporarily or permanently?) between the United States and North Korea contributed to the fall in the price of gold. When uncertainty looms, capital flows to the safe-haven of gold, and when the situation is more certain, and markets and company stock prices are less influenced by political rhetoric, the investment in gold falls.
        • We are in a period of greater stability; at least for now!
      • Monetary policy affects more than just interest rates and in the case of Canadian and American equity markets, the predicted actions of the Bank of Canada and the Federal Reserve suggest a favourable environment “for business”.
        • The expectations for a rate hike have lessened. In Canada, the likelihood has fallen to below 33% according to the Globe and Mail. In the U.S., the current focus of the Fed is to reduce its bond holdings as a change in short-term interest rates could dramatically affect the value of its longer-term bonds. The Fed does not want to be seen as profiting or creating profits for others while it sells off some of its bonds.
      • There has been significant chatter, based upon real concerns, regarding the rising value of the Canadian dollar.
        • Most Canadian investors will ultimately spend their investment earnings, and any capital currently invested in Canada in Canadian dollars. Therefore, any investments in U.S. equities that generate U.S. dollar earnings will have those earnings reduced by foreign exchange losses as the Canadian dollar rises and the U.S. falls.
        • Also; the rising Canadian dollar makes Canadian exports more expensive for American buyers, which could lead to reduced sales, lower profits, and therefore the lowering of share prices.
          • The good news, for now, is that the Canadian dollar’s rise has slowed and essentially stopped in September. And if it has peaked, at least it has peaked just-in-time for Canadian Snowbirds to purchase their vacation/spending money.
            • If concern persists for you, there are ‘hedged’ investment funds that can protect investors from foreign exchange swings.
          • Regarding oil: Several events and situations are conspiring together to raise the price of oil.
            • OPEC, led by Saudi Arabia and Russia, has recommitted (again) to curtailing supply and reducing reserves to drive the price upward.
            • Hurricane season in the U.S. gulf coast has slowed productions, shipments and refining,
            • The healthy U.S. economy has demand at the ready.

What’s ahead for October and beyond?

  • Expect monetary policy in both Canada and U.S. to affect Canadian investors in the short and medium term. Despite the indicators that rate hikes might be less likely as we exit the ultra-low interest rate environment, and bonds are sold-off by the Fed, a long-term strategy that accounts for this inevitability will continue to be valuable.
  • Depending on the extent of U.S. corporate tax reform that is just beginning to be announced, this move by the Republican President and Republican-controlled Congress could cause significant market changes for American stocks.
    • In Canada, the effect of changes to small business taxes, income sprinkling and inter-generational ownership transfer could have a much higher impact for those directly affected (professionals, healthcare professionals, business families).

Last Week in the Markets: September 25 – 29, 2017

(source: Bloomberg)

What happened?

  • The Canadian dollar continued its recent downward trend at more than 2.5% over the last 3 weeks tempering concerns on several fronts.
    • Canadian investors with heavy concentrations in U.S. stocks had seen gains neutralized by the falling U.S. dollar when repatriating those earnings back to Canada and Canadian dollars.
    • Canadian exporters were seeing prices to Americans rising on foreign exchange costs alone; making Canadian goods and services more expensive to our largest trading partner.
  • The foreign exchange reversal for Canadian dollars helped boost the TSX along with another rise in the price of oil last week.
    • Several sectors gained; financials, energy, export-centric manufacturing and technology stocks moved ahead.
    • Energy stocks and oil prices were pushed higher by OPEC’s continued commitment to cutting supply and reducing reserves.
  • In the United States, Janet Yellen, Chair of the Federal Reserve Bank, indicated that more aggressive tactics are called for in general. That comment seemed to push the U.S. dollar higher.
    • Politically, the Republicans failed again on healthcare reform, but revealed more details of their tax reforms.

This Week?

  • In Canada, the September employment report will be released.
  • A busy week for U.S. indicators, with construction spending, vehicle sales, factory and durable goods orders, balance of trade, employment, and wholesale sales to be announced.

Last Week in the Markets: September 18 – 22, 2017

(source: Bloomberg)

What happened?

  • After gaining over 3% over the past two weeks the TSX has crossed back into positive territory year-to-date and is up a much more encouraging 4 ½% since September 2016.
    • The energy and financial sector led the way, with industrial and consumer stocks following along nicely in a broad-based rise.
  • Major American indices reached new record highs despite the end of the week not reflecting much change at all.
    • Telecommunications stocks, which are a very small part of these indices, were the large gainers, but their limited influence didn’t move the entire index.
  • In the United States, the Federal Reserve kept interest rates unchanged at its latest announcement last week.
    • Inflation is below their 2% target so there is no need to trim demand.
    • Labour numbers, like job creation and unemployment, are strong.
      • The Fed did announce that it will begin selling off its bonds ($4.5 trillion) to move its balance sheet toward pre-2008 levels.
    • No week would be complete without more news from the American President.
      • Political rhetoric and threats toward North Korea, delivered at the United Nations, captured the world’s attention, while statements deriding NFL players exercising their right to freedom of speech occupied domestic attention at week’s end.

This Week?

  • In Canada, specifically in Ottawa, another round of North American Free Trade Agreement (NAFTA) negotiations is planned, and Gross Domestic Product (GDP) for July will be announced along with August raw materials prices.
  • S. home sales, durable goods orders, and personal income and spending for August will be released. Also, Q2 GDP will be announced.

Last Week in the Markets: September 11 – 15, 2017

(source: Bloomberg)

What happened?

  • Last week was mostly “green” as Canadian and American equities and oil climbed higher. Several factors were driving these changes and weather played a significant part.
    • In the U.S., Hurricane Irma was not as devastating as anticipated. Leading up to Irma, insurance companies had their stocks beaten down, but rebounded this week following Irma’s relatively mild damage.
    • Crude prices moved ahead, clearing $50 USD for the first time in 2 months, after production had been interrupted by hurricanes; even as refineries came back on line.
    • Unrelated to weather, financials in Canada pushed the TSX higher as banks and insurance companies expect to gain more in an environment of increased interest rates. Inflation grew in the U.S. and U.K., reinforcing the need to slowly increase interest rates; which generally benefits financial firms.
    • Republican lawmakers in Congress announced that their tax reform plan would be released before the end of September, boosting expectations for growth in the second half (which may be premature based on President Trump’s healthcare reform performance) and beyond.
    • One final piece of good news for equities was that tensions appear to be easing between North Korea and almost all of the rest of the world.

This Week?

  • In Canada, August inflation represented by the Consumer Price Index (CPI) may predict future interest rate increases. Retail and wholesale sales will also be announced.
  • The U.S. interested rates will be announced as the Federal Reserve meets specifically on this topic. August house prices, building starts and permits will be released.

Last Week in the Markets: September 4 – 8, 2017

(source: Bloomberg)

What happened?

  • The Bank of Canada (BoC) raised its benchmark overnight lending rate by ¼ of a percentage point last week. It was the second rate increase of this size in two months.
    • o The Canadian economy is growing strongly at 4.5% per year, leading to the belief that the artificially low interest rate environment, which was created nearly 10 years ago in response to the global financial crisis, must be ending. Essentially, the economy is strong enough to no longer need this type of monetary policy support.
      • The BoC believes that the economy can sustain an interest rate increase, (not have its GDP growth strangled) while a slight tempering of growth will delay or lessen inflation fears.
      • Raising rates now, while it can be absorbed, provides the BoC with room to lower them if economic stimulus is required at some future time.
    • The move by the BoC has contributed to the continued rise of the Canadian dollar against its American counterpart. Rising interest rates coupled with our economy’s strong growth places a higher demand for Canadian dollars; pushing our dollar higher.
      • o The Canadian dollar is ‘up’ 10% in 2017 but only 6.4% over the past year.  The rapid rise over the past few months has magnified the attention it has received.
      • o The next effect will be to raise the effective price of Canadian exports to the United States. An increasing price lowers demand leading to slower growth in exports.

This Week?

  • In Canada, housing information will dominate with August numbers for housing starts and existing home sales and home price index released along with July’s new price index.
  • The U.S. will have a much more balanced release of economic information with August inflation numbers for consumers and producers, retail sales, industrial production and capacity.

Last Week in the Markets: August 28 – September 1, 2017

(source: Bloomberg)

What happened?

  • The Canadian economy grew by 4.5% in the second quarter of 2017. This strong performance had been predicted by the Organization for Economic Cooperation and Development (OECD).
    • Consumer spending was a major driver of this expansion along with an increase in exports based on foreign exchange and a strong U.S. economy placing demands on Canadian resources, products and services.
      • S. GDP expanded by 3%, which was based on both consumer and business spending over the same period.
    • There will be economic effects from the aftermath of Hurricane Harvey. In the very short term, the GDP, certainly in the areas affected will dip. If the example of Katrina is followed, the following quarter and quarters will show increased activity as rebuilding occurs.
      • Many of the predictions in the popular press indicate that the effect, and rebuilding from Harvey will be significantly larger than Katrina.
      • One short-term effect has been the price of gasoline at the pump which has jumped 20-25% in just a few days as Gulf of Mexico refineries closed.
    • Also in the U.S., President Trump continued his war of words with North Korea and with the North American Free Trade Agreement (NAFTA).
      • In the first case with North Korea, negotiations are impossible. With NAFTA; if negotiations with Canada aren’t in favour of the Americans further discussions will cease according to Trump’s rhetoric. Thankfully, many U.S. firms and voters rely on NAFTA and have significant political influence.

This Week?

  • Labour Day week is light on economic announcements with both country’s central banks releasing data, labour numbers, and productivity indices.

Last Month in the Markets: August 1 – 31, 2017

(source: Bloomberg)

What happened in August?

  • August 2017 will be remembered for quite some time; unfortunately for mostly distressing events and disasters.
    • Hurricane Harvey battered US coastal cities in Texas, with Houston suffering tremendous loss of life and significant property damage due to flooding.
      • S. oil refineries in the area were closed, and gas prices have risen dramatically in the last few days of August and first day of September. The economic theory of “price stickiness” suggests that once refining capacity is back on-line, the price of gas at the pump will be slow to return to pre-Harvey levels.
      • A post-hurricane boom could occur as re-building efforts may produce additional construction and manufacturing employment. The timing of this uptick in U.S. domestic gross domestic product will depend upon the flow of funds from their Federal government and insurance payouts.
    • The Canadian equivalent to Harvey was the wildfire situation in British Columbia, which is another devastating year for those directly affected. Thankfully that number is relatively small at this point and the Canadian economy will not be negatively affected as like in the aftermath of the Fort McMurray fire, which was officially declared as “out” on August 2, 2017.
    • Internationally, the rhetoric from President Trump regarding North Korean nuclear aggression continues. A missile fly-over of northern Japan and threats to U.S. territory, Guam, does not induce a calming influence over the situation.
    • NAFTA renegotiations began in earnest and could have a damaging effect on Canadian exporters; as well as American firms.
  • The markets themselves and the Canadian dollar were relatively muted for the month, with the TSX, S&P 500 and the Dow performing well, and with the NASDAQ and gold jumping up.

What’s ahead for August and beyond?

  • Investor concern regarding the strengthening Canadian dollar is increasing. Investors with unhedged U.S. dollar holdings have seen nearly 8% of their gain eliminated by foreign exchange losses.
    • Most Canadians hold the majority of their retirement savings in Canadian dollars, so this news will have a minimal impact for most.
    • If an investor has significant holdings in a foreign currency, purchasing a fund that is hedged against currency changes or hedging themselves are options that their advisor can provide them.
    • Long-term investors have had their U.S. holdings boosted since the Canadian dollar is weaker than it was 5 years ago. The recent run-up in 2017 is only about 4 months old.

(source: Yahoo Finance)

Last Week in the Markets: August 21 – 25, 2017

(source: Bloomberg)

What happened?

  • The overall expectation that world economic growth is optimistic was further supported by the Organization for Economic Cooperation and Development (OECD). The OECD predicts that all 45 countries it tracks will see their economies grow in 2018.
  • Weather held a significant amount of media attention last week with Typhoon Hato in Hong Kong and Hurricane Harvey battering the Gulf of Mexico. Despite increased pressure on crude supplies and refining by the storms, oil fell again.
  • Closer to home, the TSX advanced last week, as did all major American markets based on the strength of the financial sector; along with materials and metals.
  • President Trump made headlines with more “cancel NAFTA” remarks and statements that his pragmatic negotiating approach would be to cancel NAFTA and then replace it rather than renegotiate it.
  • In a report issued by Edward Jones, the current bull market is 3,100 days into its run, the second-longest bull market on record. The last 13 bull markets averaged 1,500 days in length making the current run-up twice as long as usual.
    • o During this period the TSX is up 165% and the S&P 500 is up 331%.
    • o Edward Jones analysts predict more positive news in the short-term based on positive Gross Domestic Product (GDP) growth, increasing corporate earnings and a favourable interest rate environment.

This Week?

  • For Canada, industrial and raw materials prices for July and June Gross Domestic Product will be released.
  • U.S. data for the second quarter GDP, personal income and spending, consumer confidence, and employment will dominate the releases this week.

Last Week in the Markets: August 14 – 18, 2017

(source: Bloomberg)

What happened?

  • At home, the TSX had another “down week” dropping another half-point and driving the Year-to-Date further lower and the 1-year return closer to zero. 2016 was a fantastic year, but 2017 has not followed suit for the TSX.
    • Energy stocks continue to weigh-down the TSX as the price of oil slides further; almost 10% down from mid-August 2016.
    • NAFTA renegotiations began last week and progress or lack thereof was overshadowed by domestic American political news.
  • It was another, in a long series of tumultuous weeks, in the U.S.
    • Although the political rhetoric between the U.S. and North Korea eased slightly, there were other domestic events to hold everyone’s attention, and to cause many to doubt the leadership of President Trump.
      • The rally and counter-rally in Charlottesville, Virginia that resulted in the death of one, and the injury of many, was mishandled by Trump by his delayed, ill-conceived, corrected, clarified, and re-confirmed comments. Resignations by business leaders caused Trump to disband two advisory councils and terminate another close advisor.
      • Mid-week the American equity markets had their second-largest single-day loss based on political events that included the rumour that Trump’s Economic Advisor, Gary Cohn, had resigned. CNBC calls Cohn ‘the last pro-business, pro-investor’ member of the White House.

This Week?

  • For Canada, it will be a light week for data releases including wholesale and retail trade numbers.
  • The U.S. Federal Reserve holds its annual retreat in Jackson Hole, Wyoming while durable goods and housing sales data is announced.

Last Week in the Markets: August 7 – 11, 2017

(source: Bloomberg)

What happened?

  • “Everything is relative” is a phrase that is used often to compare two similar items to each other. For the equity markets ‘relativity’ is associated with the effects of competing news.  Last week was sparse for economic news, so political news dominated.  Politics were the relatively influential category of news that drove equity markets down across North America.
    • The sparring match between the U.S. and North Korea escalated, with the prospects of an American pre-emptive action seeming to be more likely.
    • North Korea indicated that U.S. territory, Guam, was in-danger of a nuclear attack.
      • More relatives exist since it was Kim-John Un’s father who got-the-job, and the White House is filled with Trump’s family members.
      • And naturally, the safe haven investment of gold was the only gainer for the week as money fled to ‘higher ground’.
    • Canadian markets, like those in the U.S. and around the world struggled for the week. After being closed on August 7th through various holidays across the provinces and territories, domestic equities lost 1.5% in four days of trading.  S. markets took 5 days to achieve similar results.
      • The TSX fell on the weakness of oil, but was bolstered somewhat by the flight of gold.

This Week?

  • For Canada and the U.S. (and Mexico) the North American Free Trade Agreement (NAFTA) begins its Trump-led renegotiation and could have significant short and long-term effect on cross-border trade and Gross Domestic Product (GDP) for both, or all three countries.
  • In Canada, inflation, housing prices and manufacturing prices are to be released.
  • In the U.S., housing starts and building permits, along with retail sales and industrial production will be announced. Also, import and export prices for July will appear as NAFTA talks begin.

Last Week in the Markets: July 31 – August 4, 2017

(source: Bloomberg)

What happened?

  • Canada’s flagship index, the TSX, enjoyed a strong week with a rise of nearly 1% based on a broad-based rise in several sectors:
    • Industrial firms, along with tech, telecom and financial stocks did well for the week.
    • The drop in the value of our dollar made Canadian stocks cheaper for U.S. investors, which encouraged buying, and reduced the cost of our exports.
  • In what seems to be commonplace, the Dow Jones Industrial Average (“the Dow” or DJIA) reached another historic high last week. Not long ago, it flirted with the 20,000 point level before breaking through, and has now surpassed 22,000.
    • Banks and insurance companies led the way with the spectre of inflation and continued rising interest rates.
    • The performance of the S&P 500 and the NASDAQ mirrored economic news.
      • These two indices gained and lost modestly as economic news was mixed with negative news for income and spending, and strong jobs numbers.
    • Across Europe the news was very positive and raised investor confidence globally.
      • Inflation remained low, while economic output continued to grow.
        • Germany as the engine of the Euro-zone economy had its unemployment rate fall, while its Gross Domestic Product (GDP) grew by more than 2% compared with July 2016.

This Week?

  • In Canada, housing data will dominate the news with prices, starts, and building permits being released.
  • In the U.S., a mix of indicators will be updated; consumer and producer prices, wholesale inventory levels, labour costs and labour productivity.

Last Month in the Markets: July 1-31, 2017

(source: Bloomberg)

What happened in July?

  • July 2017 began with the 150th anniversary of Canadian Confederation (and Independence Day on July 4th in the U.S.). Unfortunately, the first month of our 151st year saw the TSX remain essentially flat, while the three major American indices continued to move ahead; achieving historic high levels.
    • The S&P 500, which is the U.S. index that best mirrors our TSX is more than 11% ahead of the TSX year-to-date; nearly 10% ahead over the past year.

(source: Bloomberg)

  • The Dow is comprised of a small number of the largest American firms, and the NASDAQ is technology-focused and not nearly as broad or representative of the entire market as the S&P 500 is.
  • The Canadian dollar rose sharply against its U.S. counterpart in July, gaining almost 3 cents and nearly 4%.
    • Much of this gain has been due to the drop in value of the U.S. against most major currencies.
    • The International Monetary Fund (IMF) has predicted that the Canadian economy will grow the fastest among G7 nations. That is, our Gross Domestic Product will grow faster than the US, UK, France, Italy, Japan and Germany over the next year.
      • In April, the IMF predicted Canadian GDP growth at 1.9%. It has revised its outlook to 2.5% for 2017.
    • Another contributor to the strength of the Canadian dollar was the Bank of Canada raising its benchmark interest rate by ¼ of a percentage point.
      • At the very least the increase allows Canada to keep pace with increases elsewhere.
      • This increase may have hurt stock prices in Canada, since an interest rate rise is like an across-the-board cost increase for all companies that could depress future profits.
        • Nonetheless, current rates are still very low compared to historic rates, and are still ‘down’ from the 2008/2009 financial crisis, when the global economy needed cheap-money to restart economic growth.

What’s ahead for August and beyond?

  • It appears that the political turmoil in the United States will continue unabated.
    • The new Chief of Staff, John Kelly, who replaced the old Chief of Staff, Reince Priebus, fired White House Communications Director Anthony Scaramucci, who forced Priebus out.
    • In more prescient news the Republican-led effort to replace Obamacare has failed to make any real progress.
      • Senator John McCain delivered the somewhat surprising ballot to defeat the vote to repeal President Obama’s signature legislation on healthcare.
        • This is all occurring while U.S. firms deliver earnings beyond expectations and the U.S. markets reach new records almost daily.
      • In Canada, we seem to maintain our boring path, which through sound fundamentals will provide investors in Canadian equities and debt strong, long-term returns.

Last Week in the Markets: July 24-28, 2017

(source: Bloomberg)

What happened?

  • Canada enjoyed strong economic news last week that pushed our dollar to its highest level against the US in 25 months.
    • May 2017 Gross Domestic Product (GDP) rose much more than expected, and at a year-over-year rate that has not been achieved in 15 years. This measure of total economic output is growing faster among G7 nations as predicted by the International Monetary Fund.
    • The higher dollar muted many stocks in the TSX as Canadian exports are made more expensive by a climbing $CDN.
    • The price of oil’s benchmark, West Texas Intermediate (WTI), surged upward by nearly 8%, due to falling American reserves and a renewed commitment by Saudi Arabia to limit its exports.
  • In the U.S., new highs were reached again on the major indices as the quarterly earnings season continues to present strong earnings.
    • Second quarter earnings are 9.1% higher than last year, according to Edward Jones.
    • The Republican-led health care reform and/or repeal failed again last week with a convalescing Senator John McCain casting a decisive vote.
    • At the White House, Trump’s Chief of Staff was replaced in response to the arrival of his new Director of Communications.

This Week?

  • In Canada, employment data for July will be released this week. New job creation, the balance between full-time and part-time jobs, and the unemployment rate will provide further insight into the economy’s health.
  • In the U.S., employment data along with income and spending information will dominate.

Last Week in the Markets: July 17-21, 2017

(source: Bloomberg)

What happened?

  • The Canadian dollar reached its highest level in over a year against its U.S. counterpart as strong economic information continues to flow.
    • Manufacturing and retail sales led the way last week, but cautiousness is felt in the housing market after another monthly drop in home sales.
  • At the TSX, a very small gain for the week was driven by the materials and energy sectors that are benefiting from price-increasing news regarding U.S. energy reserves falling and Saudi Arabian export reduction rumours.
  • In the U.S., it appears that the most salient information for equities is the most obvious. Despite plenty of local and internationally-based political turmoil regarding healthcare and tax reform (not to mention rumours regarding relations with Russia and Russians close-to and inside the White House), strong corporate earnings drove stock indices to new all-time highs during the week.
    • Bloomberg reports that nearly 80% of firms have beaten earnings expectations; many by generating significant revenue increases.
    • Expectations of another Federal Reserve interest rate increase are low. With inflation in-check and little progress in Washington on economic stimulus and tax cuts, the need to reign-in a too robust economy is disappearing in the short-term.

This Week?

  • In Canada, economic strength will be released through May Gross Domestic Product data. Wholesale sales and Bloomberg’s confidence survey will also shed light on performance.
  • In the U.S., the Federal Reserve will release an interest rate decision to accompany the Purchasing Managers index, durable goods, and home sales information.

Last Week in the Markets: July 10-14, 2017

(source: Bloomberg)

What happened?

  • The Bank of Canada (BoC) raised its benchmark interest rate by ¼ point, the first increase in seven years.
    • The increase was highly anticipated by analysts and traders; the market had its effect already priced-in to the market, so its impact on equities and bonds was minimized.
    • The interpretation of this rate increase and the need for the increase will be debated for some time.
      • Inflation is well below the BoC’s ideal and job creation and employment levels are also strong.
      • Growing sentiment seems to be that very low interest rates, once in place and in-place for years, does not drive business investment, but consumer borrowing.
      • Also, when rates are close to zero, this is very little room to cut rates further to spur an economic expansion.
    • The Canadian dollar rose to its highest level in more than one year against the U.S. dollar, even as the U.S. dollar regained some of its recent declines against other currencies.
  • Oil produced strong gains on the week, over 5%, and along with most other sectors in the TSX also increasing, the index gained 1%, while the major U.S. indices gained more.

This Week?

  • In Canada, home sales and inflation data will be released.
  • In the U.S., housing starts, building permits and mortgage application information will form the bulk of the releases, while the President of the European Central Bank addresses the Federal Reserve’s annual conference in Wyoming.

Last Week in the Markets: July 3-7, 2017

(source: Bloomberg)

What happened?

  • As Canadian and American markets closed for a day last week, Monday and Tuesday, respectively, the results of the 4 days of trading were mixed.
    • The TSX fell again for the week, this time by 1%, driven largely by the market for oil, which lost almost 4%.
      • Most sectors fell with Financials moving ahead on the belief that the Bank of Canada will raise rates this week. If so, the change will be small, and will begin to be reflected in retail mortgage rates and likely GICs.
      • In positive news 45,000 jobs were added in June, well above the monthly average of 33,000 over the past 7 months of gains.
    • The Dow, S&P 500 and the NASDAQ had quiet weeks relative to recent performance. With many political events occurring domestically and internationally, the small yet positive results seem to recognize the strength of the U.S. and global economies.
      • 222,000 jobs were created last month, and a total of nearly 1.1 million in 2017. In June, the unemployment rate moved up slightly to 4.4% as more candidates returned to the labour force in search of a job.
      • North Korea was flexing its muscles with more military displays, while the G20 meetings occurred in Hamburg, Germany. Trump and Putin met privately with alleged Russian-meddling in the U.S. election and North Korea as two major discussion topics.

This Week?

  • In Canada, the Bank of Canada will announce its interest rate decision midweek. All indications support an increase after similar actions in the U.S. and strong economic indicators at home, most recently continued strong job creation numbers.
  • In the U.S., inflation numbers for both consumers and producers, retail sales will be released along with a report to Congress by Janet Yellen, Federal Reserve Chair.

Last Month in the Markets: June 1-30, 2017

(source: Bloomberg)

What happened in June?

  • Canada’s TSX lost another percentage point in June, and when coupled with May’s results, the total loss is 2.5% for the past two months, and pushing the TSX into negative territory for 2017 Year-to-Date.
    • Despite this recent and slightly prolonged decline, the Canadian index has gained nearly 8% over the past year, demonstrating the strength of the second half of 2016, and its fourth quarter, in particular.
      • Q4 2016 saw a gain of about 5% from its level in late September.
      • The following graph for the past 12 months shows the TSX has advancing to its peak in February, and then declining below its year-end level.

(source: Bloomberg)

  • The Canadian economy has not definitively demonstrated its ability to perform with major indicators failing to point simultaneously upward.
    • Continued strong performance by banks was offset by volatility in the energy markets with OPEC struggling to control production.
    • GDP and employment numbers have been uneven and at times contradictory, and Stephen Poloz, Governor of the Bank of Canada, has maintained his wait-and-see attitude.
  • In the U.S., the big news was the interest rate increase announced by the Federal Reserve, lifting the benchmark rate another quarter-point.
    • This was almost non-news since it had long been anticipated, strongly hinted-at by Janet Yellen, Fed Chair, and priced into the markets by anticipatory traders.
      • According to Thomson Reuters, in late May, the long-term bond markets were priced in anticipation of a June increase as 94% likely.
    • This very slight tightening of money markets to temper growth and inflation by raising the cost of capital is expected to continue.
      • The Fed also indicated that another rate increase is anticipated in 2017, and three more increases in 2018.
      • According to Edward Jones the Federal Reserve is moving interest rates back to more normal levels, and they expect “the Fed Funds rate to be dependent on economic data, with a focus on unemployment and inflation. While U.S. labor markets have been strong, inflation has been below the Fed’s target, which may constrain future rate hikes”.

What’s ahead for July and beyond?

  • To begin the second half of 2017, Canada celebrated the 150th anniversary of its founding, could this milestone rejuvenate the attitudes of Canadians, and its economy and markets for the balance of 2017?
    • It is more likely that NAFTA re-negotiations will dominate the news in Canada since any changes with our largest trading partner could have dramatic effects on our economy.
  • On the U.S. political front, the Republican agenda, dominated by infrastructure spending, immigration restrictions, healthcare and tax reform, and an America-first perspective, is not progressing as quickly as predicted by the Administration.
    • The inability to implement the proposed changes could cause a reversal of recent equity gains in the U.S.

Last Week in the Markets: June 26-30, 2017

(source: Bloomberg)

What happened?

  • The first half of 2017 ended on a difficult week for North American equities.
    • After tremendous start to 2017 in the U.S. the three major indices all had an ‘off’ week, with the high-flying NASDAQ being trimmed by 2%.
      • Technology stocks continued their volatility, and mostly downward.
      • S. banks received positive market support for their reserves capital levels and ability to pass the Federal Reserve’s stress test.
    • After losing nearly 1% last week the TSX is down for 2017, yet still ahead almost 8% in the past year.
      • A gain of $3/barrel (7% increase) in oil last week was not enough momentum to allow the energy sector to lift the entire TSX.
        • S. oil reserves and production numbers pushed the price for West Texas Intermediate (WTI) upward.
      • The Canadian dollar, like most western currencies, moved ahead relative to the U.S. dollar.
        • $CDN hit a Year-to-Date high during the week, breaking through the 77 cent mark.
        • S. policy and the Trump-led political agenda is driving their dollar downward, and ours upward.
          • Healthcare reform has continued to be delayed, and has not been articulated well enough for many in the Senate to allow it to move forward, and a clear description of tax reforms with revenue neutral effects remains elusive.

This Week?

  • In Canada, a light reporting week is planned with building permits information and international trade data released.
  • In the U.S., construction spending, factory orders, unemployment claims will be released in a week with a Tuesday market closure for their Independence Day on July 4th.

Last Week in the Markets: June 19-23, 2017

(source: Bloomberg)

What happened?

  • Oil declined for the fifth straight week, falling to nearly $42 per barrel for West Texas Intermediate (WTI) before recovering slightly.
    • Oil is down 20% since the beginning of 2017 based on supply and reserve glut. OPEC has been unable to control production levels to prevent the fall in prices.
  • Oil and energy stock prices pulled down the major indices, and only the generally positive performance in other sectors has prevented a downward slide.
    • The energy sectors in both the TSX and the S&P 500 are down 15% year-to-date, by far the worst performing sector.
    • The TSX had a strong week while U.S. indices were less positive than their recent weeks. Despite the muted performance, both the Dow and the S&P 500 reached new highs during the 5-day session.
  • In Canada, Warren Buffett, the world’s preeminent value investor has chosen to invest $500 million in Home Capital, providing much needed confidence to this struggling firm, and boosting the stock price by 30%. Hudson’s Bay had their stock boosted by 27% by an interest by an external investor, and John Paulson joining the Board of Valeant Pharmaceuticals pushing their stock up by 24%.
    • These moves will always attract significantly more attention than solid planning, 5% dividend yields paid quarterly, and low volatility portfolios and funds
  • In the U.S. the Federal Reserve announced that all major banks (34) passed the quantitative portion of their ‘stress test’ signifying their resiliency during a potential financial crisis.

This Week?

  • In Canada, our economy’s overall health will be assessed based on April’s Gross Domestic Product (GDP) numbers, along with raw materials and industrial orders data.
  • In the U.S. GDP data will also be announced, as will durable goods orders, consumer confidence, and personal income and spending information.

Last Week in the Markets: June 12-16, 2017

(source: Bloomberg)

What happened?

  • The most significant economic development last week was the U.S. Federal Reserve confirming its long awaited and heavily indicated rate increase. On Wednesday the benchmark interest rate was increased by 0.25%. The rate’s range is between 1.00% and 1.25%. This is the third increase in the last 6 months.
    • The Fed also indicated that another rate increase is anticipated in 2017, and three more increases in 2018.
    • According to Edward Jones the Federal Reserve is moving interest rates back to more normal levels, and they expect “the Fed Funds rate to be dependent on economic data, with a focus on unemployment and inflation. While U.S. labor markets have been strong, inflation has been below the Fed’s target, which may constrain future rate hikes”.
  • Closer to home the TSX had a difficult week as falling oil prices dragged energy stocks downward. OPEC’s ability to limit production and support prices wavered with U.S. production and reserves growing, and Libya returning to production.
  • The TSX closed last week below its year-end level, and down almost 5% from its February peak.
    • Amazon’s surprise purchase of Whole Foods, and its intention to enter the grocery business hurt consumer stocks on both side of the border.
    • Large increases in the past year for U.S. equities, and this recent decline in Canada, has many investors rebalancing their portfolios.

This Week?

  • It will be a relatively light week for economic data.
    • In Canada, Retail Sales and inflation (Consumer Price Index) will be released.
    • S. home sales (new and existing) are announced.

Last Week in the Markets: June 5-9, 2017

(source: Bloomberg)

What happened?

  • It was a mixed week in North American equity markets. The TSX and the Dow were up, while the S&P 500 and the NASDAQ were down.
    • The TSX withstood the effects of falling oil prices to move ahead, albeit only slightly.
      • 77,000 full-time jobs were created in Canada last month, while part-time jobs fell by 22,000, netting an increase of 55,000 jobs, providing fuel for the TSX.
    • For the S&P 500 and the Dow, political uncertainty was overcome following former FBI Director, William Comey, testifying.
    • The NASDAQ had been up slightly for the first four days, and then fell nearly 2% on Friday, as profit-taking dominated the final trading session of the week.
  • The election results in Britain, where Prime Minister Elizabeth May received a smaller mandate, had little effect on European markets. The Brexit plans appear to be in-place and unchanged for now.
    • Perhaps the European Central Bank’s signal that rate cuts are unnecessary since the European economy continues to improve had a larger effect than elections in the U.K.

This Week?

  • In Canada, manufacturing data will be released along with the monthly numbers from the Canadian Real Estate Association (CREA).
  • It is a significant week for information and news emanating from the U.S. Inflation, Retail Sales, Manufacturing, Producer Prices, Industrial Production and Housing Starts will be announced.
    • Most important is the monetary policy announcement from the Federal Reserve. It has long been expected that an interest rate increase will be announced.
    • As a simplification, a rise in interest rates essentially increases the price of everything. Rising prices causes demand to fall and slow the economy keeping inflation in-check, which is the Fed’s goal.

Last Week in the Markets: May 29-June 2, 2017

(source: Bloomberg)

What happened?

  • The TSX reversed a string of weekly losses with a modest gain last week.
    • Energy and Financials were volatile and mixed, respectively with the price of oil losing more than 4% for the week, and major banks reporting their Q2 results.
    • Over the course of the first quarter of 2017, Canada’s economy grew by 3.7% over Q1 2016, the fastest growing economy in the G7, and Canadian exports grew to record levels during April 2017.
      • The early interpretation from analysts at Investors Group suggests that “Canada is on the path to sustained growth despite low oil prices”.
    • A short week in the United States with Monday’s celebration of Memorial Day didn’t slow down American indices as the NASDAQ, the Dow and the S&P 500 all reached record highs.
      • Based on strong economic indicators the markets leapt ahead again with a broad-based advance across multiple sectors; the S&P 500 relied on healthcare, materials, utilities and consumer goods and services companies to lead the way.
      • The negative news came from U.S. monthly employment numbers.
        • Fewer than expected jobs were created in May (138,000) and the unemployment rate fell to 4.3%, its lowest rate in more than 15 years!
          • These two numbers together suggest that filling open job postings with qualified applicants may be an emerging issue.

This Week?

  • In Canada, the significant economic data to be released, which is of great interest to virtually everyone, are house prices, housing starts and building permits. Monthly employment data along with corporate purchasing numbers will also be released.
  • In the U.S. purchasing and factory orders will be released, a relatively slow week for economic data. A lull before the expected Federal Reserve rate increase at mid-June.

Last Month in the Markets: May 1-31, 2017

(source: Bloomberg)

What happened in May?

  • The results for the major North American indices at the end of the month was not much of a surprise.
    • Unlike some other months, the month’s end virtually mirrored each week’s end.
      • The NASDAQ powered ahead with its tech-heavy listings, reaching new highs.
      • The S&P 500 and Dow following along, not as spectacularly, but all three have delivered year-to-date returns that would satisfy most investors if it were an entire year, not 5 months.
    • Canada’s TSX lost over 1.5% for the month despite strong corporate results, especially from Canadian banks.
      • The six largest banks delivered $10 billion in profits in the second quarter, up 22% from Q2 2016.
        • Unfortunately, the price of their shares didn’t see much upward change, merely recovery.
          • To open the banks’ reporting season, the Bank of Montreal delivered profits slightly below expectations, immediately lost about 3% off its share price, and dragged the other major banks downward temporarily, along with the entire TSX on May 24th.
          • Bank stocks had already been spooked in late April and early May by the liquidity crisis at Home Capital and Moody’s rating downgrade.
        • At the end of the month, most big banks’ stocks had bounced back, indicating their continued strength, and strategy execution is appreciated by the capital markets.
        • Except for Laurentian and HSBC (two smaller banks, relative to their peers) Canadian financial institutions are well ahead of last year’s revenue numbers.

(source: Globe and Mail)

What’s ahead for June and beyond?

  • The U.S. Federal Reserve continues to indicate their interest rate plan remains in place. Fed Chair, Janet Yellen, has indicated that small and regular increases in the key lending rate will occur.
    • According to Thomson Reuters, in late May, the long-term bond markets have priced in the anticipated June increase as 94% likely.
    • Bank of Canada Governor, Stephen Poloz, will likely not act until the U.S. does, and whether the Canadian economy can absorb small interest rate increases will be his primary concern.
  • The continuation of NAFTA re-negotiations will dominate business news in Canada since any changes to our direct relationship with our largest trading partner could have dramatic effects on our economy, employment and our currency.

Last Week in the Markets: May 22-26, 2017

(source: Bloomberg)

What happened?

  • Canadian stocks nearly closed the week where it began with a very small loss, while U.S. indices powered upward based on strong corporate results.
    • The expectation of higher interest rates drove financial stocks upward, but just enough to virtually cancel-out the losses elsewhere in the TSX.
      • Thomson Reuters has announced that nearly 50% of Canadian corporates have exceeded analyst expectations for the first quarter.
        • Despite this stronger than expected result The TSX is well behind the American indices at less than 1% growth in 2017.
      • The U.S. Federal Reserve continues to indicate an interest rate increase for June. The Financial Times has published that the likelihood of an increase has been priced into the bond market with a 94% certainty factor.
        • The high belief that the rate increase will occur is evidence for some that the U.S. economy is strong and needs to be tempered, meaning that U.S. companies are profitable, and therefore their stock prices have been bid upward.
      • Oil closed ‘down’ for the week after OPEC confirmed its planned production cuts from now until March 2018. This confirmation, like the anticipated interest rate rise form the U.S. Fed, had been priced into the market, but some analysts believed that further cuts beyond the current 2% would be announced.

This Week?

  • First quarter Gross Domestic Product numbers will be released, and these results along with U.S. Federal Reserve actions in mid-June will guide Canadian interest rates.
  • U.S. markets are closed on Monday for Memorial Day. Once their week begins it will be a rich week for information; employment, consumer confidence, individual income/spending and housing information will be released.

Last Week in the Markets: May 15-19, 2017

(source: Bloomberg)

What happened?

  • It appears that North American equity markets have settled-in to a more balanced valuation process as 2017 moves toward the summer months.
    • Stocks are returning to more economic, market and company-based criteria, not merely the political rhetoric from the U.S., as input for buy/sell decisions.
      • The non-stop advances associated with the Trump-effect have slowed, last week all four major indices were down, while gold and oil increased.
        • Trump’s effectiveness been questioned and defended.
      • A period of higher volatility is expected in the U.S. with a number of looming issues still unresolved; the Federal Reserve’s expected June rate-hike, Trump’s federal budget with significant pro-business measures proposed, to name two of many factors that will affect the U.S. economy and company performance.
    • In Canada, the woes of Home Capital stress-tested this firm’s reserves and the financial services industry’s resolve as a liquidity crisis threatened this institution’s viability.
      • Expect an investigation into Home Capital to bring new policies and procedures at the regulatory and market levels for institutions.
    • The Canadian dollar gained against the U.S. greenback, as did most major currencies.

This Week?

  • The Bank of Canada is expected to continue its wait-and-see attitude on interest rates, keeping them unchanged during its announcement on Wednesday.
    • The U.S. Federal Reserve has heavily hinted at a June rate-increase, expect the BoC to continue to wait-and-see until June.
  • In the U.S. President Trump while on a European and Middle East trip readies to present a budget that contains trillions in cuts.
    • A budget containing major tax cuts was a key plank in his election platform.

Last Week in the Markets: May 8-12, 2017

(source: Bloomberg)

What happened?

  • North American equity markets saw mixed results last week, which were based on mixed developments and results.
    • Of interest to seemingly 99.9% of Canadian investors was the ratings downgrade for the major Canadian banks by Moody’s.
      • Private sector debt has risen to nearly two-times Gross Domestic Product, and Moody’s downgraded the banks’ long-term and deposits by one ratings level.
      • One of the contributing factors is the continued rise in house prices, causing increased mortgage borrowing, as well as credit card debt increases.
        • The banks (Royal, Scotia, Montreal, TD, CIBC and National) that received the downgrade had their stocks drop 2-3% last week.
      • Oil moved ahead as OPEC supply cuts may continue.
      • Inflation in the U.S. dropped slightly in April 2017 compared to April 2016, to an annualized rate of 2.2%, it was 2.4% in March.
      • The results of the French Presidential election, with a moderate candidate winning, have increased optimism across Europe that the inter-country cooperation will continue.
        • Also, analysts have predicted that Q2 corporate earnings will be a continuation of the strong Q1, reaching levels not seen for over 6 years.

This Week?

  • In Canada, inflation data through the Consumer Price Index (CPI), retail sales and manufacturing information will accompany the Canadian Real Estate Association (CREA) release of existing home sales.
  • In the U.S. housing information will flow as well (prices, starts and building permits) along with industrial production and regional manufacturing data.

Last Week in the Markets: May 1-5, 2017

(source: Bloomberg)

What happened?

  • The TSX was dragged downward by the fall in the price of oil, gold and other materials.
    • One-third of the TSX is comprised of firms from the Energy and Materials sectors, declines in those two areas are often reflected in the overall market index.
    • OPEC’s control on the supply of oil came back into question with their agreement to limit production failing to support prices. However, renewed commitment surfaced at week’s end, causing oil to gain in Friday’s trading, and limiting the effect on the TSX.
  • American indices had another strong week, again.
    • Corporate results, especially for technology firms, were strong as Q1 earnings are about 10-15% above Q1 2016 according to Thomson Reuters.
    • Technology dominated, the NASDAQ index set new record highs again last week.
    • The more balanced S&P 500 and the large-firm Dow gained as well, relying on corporate performance, and not the uncertainty that will develop after the repeal of the Affordable Care Act (Obama-care).
    • Additionally, the Federal Reserve left interest rates unchanged as economic growth slowed. June is the consensus among analysts for the timing of an increase.
      • The Fed indicated that the growth slow-down was temporary, supporting the June rate increase, and the ‘temporary’ opinion was bolstered by the creation of 211,00 new jobs in April and unemployment rate falling to 4.4%.
        • In Canada 3,200 jobs were created in April and the unemployment rate fell to 6.5% because candidates abandoned the job-search.

This Week?

  • In Canada, housing information (prices, starts and building permits) will be released.
  • In the U.S. releases of inflation numbers and retail sales will be the focus.

Last Month in the Markets: April 1-30, 2017

(source: Bloomberg)

What happened in April?

  • The major North American indices ended April ahead of their March closing levels.
    • The TSX significantly underperformed the US equity markets, and its own very strong performance in 2016.
    • The NASDAQ reached an all-time high just prior to month-end, advancing well over 2% for the month.
    • The last week of the month reversed the results of the first few weeks in the United States, otherwise American results would have been similar to the performance of the TSX.
  • The Canadian dollar had a difficult April in relation to the US dollar closing the month down nearly 2 cents and 2.45%.
    • It is not a coincidence that the price of oil is also down (and coincidentally almost the same amount at 2.51%), since the demand for Canadian dollars to purchase Canadian oil is inversely linked to the price of oil.
      • As a simplification, as the price of oil drops, the demand and supply switches to lower priced sources, not the Canadian oil sands which produces a lower quality oil at a higher price than other locations.
    • April concluded with Donald Trump finishing his first 100 days as the sitting US President, with 1,360 more days left in his mandate. So far:
      • Two attempts at repealing the Affordable Health Care Act (i.e. Obama-Care) have failed to gather the necessary support in Congress, with a vote cancelled for the latest attempt to replace it;
      • “The Great Great Wall” as President Trump called the wall along the US-Mexico border in his address to Congress has been cancelled;
      • A lack of details regarding his personal and corporate tax reform, concerns over his protectionist trade ideals, and lack of legislative achievement and cooperation from the Republican-controlled congress has, among other things, taken some lustre off his Presidency over this period.

Click image to enlarge. (source: Business Insider and Gallup)

  • If President Trump raises his approval ratings by enacting regulatory, legal and legislative changes that make the US a better business environment, the Canadian economy could benefit dramatically.
    • This requires free trade to continue between the two countries so that Canadian firms can supply raw materials and finished goods and services to US firms and to his infrastructure renewal program.
  • As a side note, Trump’s disapproval rating at his Inauguration was 45% according to Gallup, George W. Bush started his Presidency with a now lowly 25%, and the remaining eight Presidents (in the graph above) had an average disapproval rating of 9.5% at their Inaugurations.

What’s ahead for May and beyond?

  • Unless the US economy shows more signs of growth, the Federal Reserve’s ‘promise’ of additional interest rate increases in 2017 will likely be broken, since increases won’t be necessary.
    • The Bank of Canada wants more definitive indicators of our economy, either healthy or sick, before adjusting Canadian interest rates.

Last Week in the Markets: April 24-28 , 2017

(source: Bloomberg)

What happened?

  • North American equity markets experienced a volatile week, again.
    • The TSX lost ground, albeit only slightly.
    • All the US indices leapt ahead strongly, opening on Tuesday well above their Monday closing figures.
      • Thursday was a down-day, except for the NASDAQ that soared to a record high during the trading day.
    • The volatility was caused by domestic and international news that was both positive and negative. During trading sessions sectors were affected differently, and caused contradictory results, that eventually ended the week positively.
      • European influences (BREXIT and the French Presidential election) opposed one another. The EU has taken a firm stance at the beginning of negotiations with Britain indicating future acrimony. A moderate candidate advanced to the next presidential election round, tempering concerns of a FREXIT (French exit of the EU).
      • President Trump softened his trade rhetoric temporarily by not “cancelling” NAFTA, opting for a negotiated update of the trade treaty, and then promptly promising to cancel it if negotiations do not go well for US interests.
      • The US economy did not perform well in Q1 2017 growing by less than 1%, while US house prices are almost 6% higher in February 2017 compared to February 2016.
      • President Trump announced personal and corporate tax reform, but the lack of detail has delayed the markets’ reaction to this news.
      • The Canadian dollar dropped to its lowest level since early 2016

This Week?

  • In Canada, employment and trade data will be released.
  • In the US, the Federal Reserve will release a monetary policy decision along with employment, personal and corporate spending and trade data.

Last Week in the Markets: April 17-21 , 2017

(source: Bloomberg)

What happened?

  • It was another “exciting” week for global politics; Elizabeth May, British Prime Minister, called an election to receive a clear mandate for Brexit negotiations, France’s Presidential election preparations saw the rise of right-wing conservative candidates, and President Trump took dead aim at Canadian exports.
    • All four major, North American indices moved upward.
      • Toronto’s TSX was driven by better-than-expected earnings reports, but was tempered by the steep decline in the price of oil, and the fall in oil stocks.
      • In the US, Financials spurred the rise early in the week, and then had gains trimmed by commodity and materials uncertainty. Also, corporate earnings for the first quarter have been mixed.
        • The expectations for earnings for the balance of 2017 is positive.
      • The political uncertainty in Europe caused their markets to drop, with UK’s FTSE index having its worst week since late 2016.
      • Economic growth around the world is expected to remain high, the International Monetary Fund (IMF) forecasts the global economy to grow at 3.5% for 2017. Much of this growth in output is related to the strong first quarter growth of the Chinese economy at 6.9%.

This Week?

  • In Canada, it will be a slow week for economic data with Retail Sales the lone major indicator to be released.
  • President Trump and his cabinet are scheduled to reveal more details for their tax-cut plan, which should also include its implementation and timelines. Also, Q1 Gross Domestic Product, Consumer Confidence and Durable Goods orders will be announced.

Last Week in the Markets: April 10-14 , 2017

(source: Bloomberg)

What happened?

  • North American equity indices fell during a shortened week with markets closed on Friday with each of the four indices lost about 1% over the four days of trading.
    • In Canada, the TSX was hurt most by falling financial stocks as the falling long term bond rate will reduce margins on loans, and this drove share prices downward.
    • On Wall Street, it was a subdued week with low trading volumes as demand dipped in reaction to global political concerns.
      • Rex Tillerson, US Secretary of State, visited Russia not long after the US had bombed an airbase in Syria, which is a regime supported by Russia.
        • “US/Russia relations are at an all-time low” was Tillerson’s summary.
      • The US dropped an 11 ton bomb, the most powerful non-nuclear bomb in its arsenal, on an ISIS cave and tunnel network to achieve two goals; reduce the threat from ISIS and deliver a threat to North Korea.
      • Gold, long considered a safe-haven during uncertain times, rose for the week based on US military actions in Afghanistan, and turmoil elsewhere.
        • All of this political and military action created uncertainty for equity markets last week.
      • The Bank of Canada expressed concerns mirroring Federal and Provincial Finance Ministers’ comments regarding speculation in the housing market.
        • Moody’s listed Canada as one of the four countries most vulnerable to a house price correction, while March housing starts reached its highest level in almost 10 years.

This Week?

  • In Canada, the Consumer Price Index (CPI) will report inflation figures and Canadian Real Estate Association will provide its latest statistics.
  • In the US housing prices, starts and building permits numbers will flow along with industrial production data.

Last Week in the Markets: April 3-7, 2017

(source: Bloomberg)

What happened?

  • The first week of the second quarter (Q2) of 2017 began with significant developments, politically and economically, from the US.
    • President Trump retaliated against the Syrian government for a gas attack.
      • Western leaders rallied behind Trump’s action, creating solidarity, but also a deepening gulf with Vladimir Putin, who is one of Syria’s few allies.
    • The Federal Reserve announced it would reduce its asset holdings from its current level of $4.5 trillion in treasury and mortgage securities.
      • These two events created uncertainty, moving some investors away from US equities. Materials and energy stocks resisted the trend, and helped to keep the major US indices to finish the week only slightly behind last Friday’s close.
    • In Canada, the news was different than the US, in a positive way.
      • The TSX was up a healthy 119 points for the week after the release of promising jobs data
        • 19,400 jobs were added last month, most of them full-time.
        • The unemployment rate rose from 6.6% to 6.7% indicating more job-seekers have optimistically entered or re-entered the employment market.

This Week?

  • Markets will be closed at the end of the week for Good Friday.
  • Prior to Friday, the Bank of Canada will release a monetary policy statement, housing and manufacturing data will be announced.
  • In the US, inflation data via the Consumer Price Index (CPI), Producer Price Index and retail sales information will be released.

Last Month in the Markets: March 1-31, 2017

(source: Bloomberg)

What happened in March?

March 31st ended one of the most interesting and exciting months and quarters in recent times.  A new American President was sworn-in in January, he addressed Congress in February, markets continued to surge in the US, in mid-March a US interest rate increase preceded a Federal Budget a week later in Canada.

Despite strong performance in the US, the Canadian market, defined by the TSX index, has lagged. The TSX Composite Index finished Q1 2017 in 83rd place among global markets at 1.70%, far below its year-long performance in 2016 of almost 18%, and nearly double the returns of the S&P 500 last year.

  • March began with strong results announced by Canadian major banks for their fourth quarter of 2016.
    • TD, Royal, Scotia, Bank of Montreal and CIBC bested same quarter last year by significant amounts, with Scotia trailing ‘with only an 11% increase’. However, they did announce a dividend increase, as did TD.
  • However, during the first full week of March, the inevitable drop in equity markets hit all major indices in North America, and gold and oil dropped as well.
  • Falling oil prices negatively affected the Canadian dollar, along with the expectation that US interest rates will rise.
    • Canadian interest rate changes are much less certain than in the US, with Stephen Poloz, Governor of the Bank of Canada, not willing to indicate his intentions.
    • In positive news, the Canadian economy continued its recent trade surplus situation and added over 15,000 jobs and lowered its unemployment rate in January.
  • As predicted, and as indicated by the Federal Reserve itself, the Fed raised its benchmark interest rate by one-quarter of a percentage point last Wednesday, the rate now falls in the range between 0.75% and 1%.
    • The Fed’s Chair, Janet Yellen, indicated that two more rate hikes are expected in 2017.
    • Rate increases are based on the Federal Reserve’s belief that the US economy is healthy, and healthy enough to withstand the slight negative nudge of a rate increase.
    • Canadian investors are awaiting a response from the Bank of Canada beyond its current stance of wait-and-see.
      • The measured approach to raise US rates by small amounts frequently, as stated by Yellen, provides additional time for Canadian central bankers to respond slowly and thoughtfully.
    • The Federal Budget, which was released on Wednesday, March 22nd had limited effect on Canadian markets since it didn’t address immediate actions, but focused on maintaining plans and investments already in-place and focused on long-term investments that improve long-term economic viability.
      • Most economic performance indicators are within target ranges, so there was little pressure to increase spending or reduce taxes beyond their previous plans.
      • The on-going Federal deficit continues at a higher-than-promised size, providing solid footing for the Opposition and Canadians to question the government’s fiscal plan.
    • In the US, President Trump’s effectiveness and ability to positively affect the economy and the stock markets came into question as his promise to replace Obamacare failed.
      • Trump and the Republican-controlled Congress had their ability to reduce taxes, reduce spending and enliven the economy brought into doubt by this outcome.
      • President Trump formally approved the Keystone XL pipeline, and then seemed surprised that Nebraska must still approve the pipeline signalling a lack of understanding of political processes to his critics.

What’s ahead for April and beyond?

  • It appears that the next round of interest rate increases by the Federal Reserve in the US is on-track. Two more increases have been suggested by Janet Yellen, Fed Chair, to temper inflation and economic growth should President Trump’s infrastructure reconstruction occur.
  • Stephen Poloz, Governor of the Bank of Canada, is awaiting indicators with greater momentum before committing to any rate adjustments, in either direction, up or down.
  • The renegotiation of the North American Free Trade Agreement (NAFTA) threatens to undo some of the potential gains of the Canada Europe Trade Agreement (CETA).

Last Week in the Markets: March 27-31, 2017

(source: Bloomberg)

What happened?

  • Last week concluded the first quarter of 2017 with Canadian and US markets moving ahead; continuing the overall trend for this year.
    • The TSX was driven mostly by strengthening oil prices and by over-achieving economic results as annualized Canadian growth, based on a strong January, is now pegged at 2.3% for 2017.
    • Canadian banks continued to perform well with support from strong US banking results and returns. The controversy at TD with its ‘upselling’ accusations seems to be having limited impact.
    • Overall for the quarter, the TSX’s 1.7% return “ranked 83rd in the world falling between Serbia and Croatia” according to CBC News. This is far from the results of last year and more optimism is appearing for Q2.
  • Economic news from the US powered their indices higher.
    • Consumer confidence is at its highest level in over 15 years with home prices rising at its fastest rate in more than 2 ½ years.
    • In Q4 2016, compared with a year earlier, after-tax corporate profits rose more quickly than they have in over 5 years. Profits were 22% higher in 2016 than 2015!
    • Inflation rose above 2% supporting the Federal Reserve’s previously stated intentions to raise interest rates again in 2017.

This Week?

  • In Canada, support for the Liberal government will be tested in by-elections in five ridings (Alberta-2, Ontario-2, Quebec-1). These ridings were previously held by high profile politicians; former Prime Minister Stephen Harper, former cabinet ministers Jason Kenney, Stephane Dion and John McCallum, and Mauril Belanger.
  • Employment, Purchasing and International Trade data will be released in Canada and the US.

Last Week in the Markets: March 20-24, 2017

(source: Bloomberg)

What happened?

  • The Federal Budget, which was released on Wednesday had limited effect on Canadian markets since it didn’t address immediate actions, but focused on maintaining plans and investments already in-place and focused on long-term investments that improve long-term economic viability.
    • Most economic performance indicators are within target ranges, so there was little pressure to increase spending or reduce taxes in any particular area.
    • The on-going Federal deficit continues at its higher-than-promised size, providing solid footing for the Opposition and Canadians to question the government’s fiscal plan.
  • In the US, President Trump’s effectiveness, and ability to positively affect the economy and the stock markets came into question as his promise to replace Obamacare failed.
    • Earlier in the week, to foreshadow the results of the healthcare vote, equity markets in the US had a very bad day on Tuesday.
    • If Trump and the Republican-controlled Congress cannot keep a 7-year-old promise to end Obamacare, their ability to reduce taxes, reduce spending and enliven the economy seem more doubtful than before the vote at week’s end.
      • Further, President Trump formally approved the Keystone XL pipeline, and then seemed surprised that Nebraska must still approve the pipeline saying, “I’ll call Nebraska”, indicating that a telephone call backed by the weight of his office would propel the project forward.

This Week?

  • Gross Domestic Product (GDP) data will be released in both Canada and the US.
    • In the US, personal income and spending, consumer confidence and housing performance will be announced.

Last Week in the Markets: March 13-17, 2017

(source: Bloomberg)

What happened?

  • The Federal Reserve raised its benchmark interest rate by one-quarter of a percentage point last Wednesday, the rate now falls between 0.75% and 1%.
    • The Fed’s Chair, Janet Yellen, indicated that two more rate hikes are expected in 2017.
    • Rate increases are based on the Federal Reserve’s belief that the US economy is healthy, and healthy enough to withstand the slight negative nudge of a rate increase.
      • 235,000 jobs were added in January; unemployment remains low.
      • Gross Domestic Product growth is above 2% annually.
      • Corporate earnings are strong.
      • Inflation is low, below the Fed’s goal, and under control.
    • Canadian investors are awaiting a response from the Bank of Canada beyond its current stance of wait-and-see.
      • The measured approach by the US to raise rates by small amounts frequently, as stated by Yellen, provides additional time for Canadian central bankers to respond slowly and thoughtfully, and maddeningly slowly for some.
      • Until a significant gap between US and Canadian rates is created, expect Stephen Poloz, Governor BoC, to base decisions and changes on Canadian data.

This Week?

  • The important news for Canadians will emanate from Canada this week.
    • Finance Minister, Bill Morneau, will release the latest Federal budget on Wednesday
      • For individuals, it is expected that new inflation indexing will be introduced for the CPP and OAS.
      • For business owners and their families, inter-generational transfers could garner additional scrutiny.
        • Expect far more than these two potential changes this Wednesday.
      • In the US, housing data will be released.

Last Week in the Markets: March 6-10, 2017

(source: Bloomberg)

What happened?

  • The inevitable drop in equity markets hit all major indices in North America last week, and gold and oil dropped as well.
    • The US Federal Reserve’s intention to raise interest rates has continued to grow, and stock prices fell as a result.
      • The Fed is concerned that the US economy will grow further when President Trump’s infrastructure rebuilding program takes effect. It is believed that continued job creation and demand for materials will create inflation, which The Fed will take action to prevent.
        • 235,000 jobs were created in January, again beating forecasts.
      • Oil stocks and prices had a trying week as production and reserves continued to grow in the US.
    • Falling oil prices negatively affected the Canadian dollar, along with the expectation that US interest rates will rise.
      • Canadian interest rate changes are much less certain than in the US, with Stephen Poloz, Governor of the Bank of Canada, not willing to indicate his intentions.
      • In positive news, the Canadian economy continued its recent trade surplus situation and added over 15,000 jobs and lowered its unemployment rate in January.

This Week?

  • Information released this week in Canada, real estate sales and manufacturing data, will be mundane compared to the expected interest rate increase in the US.
    • The Federal Reserve has a monetary policy announcement; the expectation that interest rates will rise is nearly universal. The Fed has indicated that rate increases should occur in 2017 if the economy’s performance continues; and it has.

Last Week in the Markets: February 29-March 3 , 2017

(source: Bloomberg)

What happened?

  • President Trump addressed a Congress last Tuesday to generally favourable reviews based on equity market performance immediately following his speech.
    • Overseas markets, and then North American markets the next day jumped up yet again indicating that Trump’s message of infrastructure re-build, buy American, and reduced regulation and corporate taxes are viewed as positive for the US economy and its business community.
      • Corporate performance had been strong, generally, before his election and announced results by the business community continue to contribute to equity market growth.
    • It was another strong quarter by Canadian major banks.
      • TD, Royal, Scotia, Bank of Montreal and CIBC bested same quarter last year by significant amounts, with Scotia trailing ‘with only an 11% increase’. However, they did announce a dividend increase; as did TD.
    • The Canadian dollar fell significantly against the US dollar; over 1.5% for the week. The US green-back strengthened against most currencies.

This Week?

  • Jobs data will be released in both Canada and the US this week. The job creation numbers in the US will have an impact on the upcoming announcement/decision by the US Federal Reserve to raise interest rates in mid-March.
    • The likelihood that The Fed will raise rates continues to increase based upon bond prices and yields, analysts and traders are ‘pricing in’ an increase in anticipation.
  • Stephen Poloz, Governor of the Bank of Canada, kept interest rates steady in Canada last week, indicating that uncertainty exists for our economy’s health.

Last Month in the Markets: February 1-28, 2017

(source: Bloomberg)

What happened in February?

February ended on a subdued and cautious day, with the TSX giving back most of its monthly gain on the last day.  This drop was attributed to profit-taking on gains accrued since the American election on November 8th, and President Trump’s first speech to lawmakers later that evening.

February highlights from the markets:

  • Fears that Trump would sink the market immediately after his speech were unfounded. He was able to express his infrastructure, security and healthcare initiatives thoughtfully enough; at least in the short-term.
  • By all indicators, the U.S. economy is performing very well, specifically . . .
    • 227,000 jobs were created in January with February figures to be released this week.
    • Corporate performance based on quarterly filings has been strong and in many cases ahead of analyst expectations.
  • The positive political climate exemplified by President Trump also contributed to the equity run-up on both sides of the border.
    • Suggestions that the Dodd-Frank Act would be dismantled gave US markets their best day of the year to that point in the first week of February.
    • The plan to reduce corporate taxes is ahead of schedule.
  • The positive news from the US is driving the Canadian equity market; along with some good news of our own.
    • The TSX hit an all-time high for the first time since 2014 during the second week of February.
      • The Canadian flagship index is dominated by financial firms and resources.
        • The Dodd-Frank announcement is seen as positive for banks and the positive US economy maintains and increases demand for Canadian raw materials.
      • 50,000 jobs were created in January, along with a movement away from part-time to full-time new jobs.
    • The CETA trade agreement, between Canada and the European Union, was passed by the European Parliament. It will remove trade taxes and tariffs on most goods and services for Canadian and European firms.
      • CETA will allow Canadian firms to enter the European market with more than 500 million consumers.
      • The agreement includes provisions for labour mobility and creating immigration opportunities in both directions.

What’s ahead for March?

  • It appears that the next round of interest rate increases in the US are much more likely to occur than previously thought; even from a few days ago.
    • According to Thomson Reuters, the probability of a rate increase was “priced into” the markets at 30%. After remarks by Fed Chair Janet Yellen and NY Fed President William Dudley bond yields jumped to 1.3%, and indicate a 68% probability of a rate increase, as per Thomson Reuters.
  • Stephen Poloz, Governor of the Bank of Canada, seems less sure of the appropriate course of action regarding the benchmark interest rate in Canada.
    • On March 1st, he kept the overnight rate at 0.50%, at the same level since the summer of 2015.
    • Poloz indicated that several uncertainties regarding the health of the Canadian economy exists, which include Trump’s assertion that elements of NAFTA between our two countries must be re-negotiated.
    • A rate cut is “on the table” as well as a rate increase, with no action expected until late 2017.

Last Week in the Markets: February 20-24 , 2017

source: (Bloomberg)

What happened?

  • A slightly losing week at the TSX until Friday delivered a 247pt/1.5% loss
    • Utilities, Financials, Telecommunication, Information Technology, Industrials, Consumer Discretionary and Staples, Materials, Health Care and Energy all lost ground on Friday, and contributed to a large and broad-based loss of nearly 2% for the week.
    • As an example, Royal Bank of Canada delivered more than $3 billion profit for the latest quarter, and its share fell by 1.65%, mirroring the week at the TSX.
  • Canadian inflation for January 2017 compared to January 2016 was 2.1%, rising from 1.6% for December 2016. Much of the increase is attributed to the price of gasoline.
  • In the United States, the markets continued their upward rise to historic levels
    • The Dow closed at new highs for 11 consecutive days!
    • The Trump administration set its economic growth rate goal at 3%, and, if achieved, it would be the highest growth rate since the world financial crisis in 2008.
    • The markets didn’t react negatively to the Federal Reserve’s comments that they would counteract tax cuts with interest rate increases to temper any inflation the proposed tax and regulatory cuts could cause.

This Week?

MARCH 1ST IS THE RRSP CONTRIBUTION DEADLINE!!!

Last Week in the Markets: February 13-17, 2017

(source: Bloomberg)

What happened?

  • The rally that began in November continued with enthusiasm as the major North American markets all reached record levels last week.
    • The Trump-Effect, where increased economic activity and company profitability through increased infrastructure spending and reduced regulation and costs, continued to power the markets.
    • A second market driver are third-quarter corporate reports. They continued their positive run with increasing revenues and profitability.
  • The carryover into Canada continued, as well. The ‘generally’ positive meeting between Trump and Trudeau reinforced that the positive relationship would continue; trade agreements would be adjusted, not eliminated, for example.
  • The trade agreement, known as CETA, between Canada and the European Union was passed in the European Parliament last week. It will remove trade taxes and tariffs on most goods and services for Canadian and European firms, and vice versa.
    • Despite the protectionist policies espoused by Trump, Canada continues to expand its base of economic trade. CETA will allow Canadian firms to enter the European market with more than 500 million consumers.
    • The agreement includes provisions for labour mobility, and creating immigration opportunities in both directions as well.

This Week?

  • Inflation numbers and retail sales results will be announced in Canada.
  • In the U.S., Federal Reserve minutes, housing information and consumer confidence are due.

Last Week in the Markets: February 6-10, 2017

(source: Bloomberg)

What happened?

  • The TSX hit an all-time high last week. With all of the records being set in the U.S. it was only a matter of time before our major index set a new record; its first since autumn 2014.
    • It was a broad-based increase for equities, and as is often the case, the resources and financials sectors led the way.
      • Trump’s activities spurred gold upward with fears of political instability. His infrastructure plan and buy-America rhetoric drove industrials upward, and his desire to reduce or eliminate the Dodd-Frank Act and reduce financial controls and costs could eliminate restrictions and costs for most firms; especially banks.
    • The Canadian economy created nearly 50,000 jobs in January, and unemployment fell by 0.1% to 6.8%.
  • The U.S. markets continued to set records as well, for the reasons above, and Trump’s declaration to reduce corporate taxes would be ready sooner than planned.
    • It also is important to note that for the current, quarterly earnings season that a significant number of firms are beating forecasts, reporting profits ahead of analysts’ projections.

This Week?

  • In Canada, manufacturing data and real estate sales from CREA will be released.
  • In the U.S., a more significant week awaits for economic data with inflation, producer prices, housing data, retail sales, manufacturing and production to be released.
    • The Federal Reserve Chair, Janet Yellen, will make her semi-annual report to Congress.

Last Month in the Markets: January 1-31, 2017

(source: Bloomberg)

What happened?

  • January was a more subdued month emotionally than November and December. Markets continued to improve, new records and milestones were reached, and optimism for increased economic activity based upon increased government spending are all continuing.
    • Donald Trump’s inauguration created emotional responses from many quarters; excitement for his supporters, and wistful recollection as President Obama left on a helicopter immediately after the ceremony.
    • Economic news for the month was generally positive in Canada and the United States.
      • Job creation in both countries has been stronger lately, with better than expected full-time jobs in Canada; a reversal of recent trends toward part-time employment, and large volumes of jobs in the United States.
      • Consumer confidence and spending have been increasing.
      • Manufacturing in Europe as well as Canada and the U.S. has expanded more quickly than it has in several years.
    • The Dow Jones Industrial Average (DJIA) broke through and closed above the 20,000 point level in January.
      • This achievement generated some additional analysis regarding this indices make-up and calculations.
        • The DJIA began in 1896, and is now comprised of 30 U.S. firms like 3M, Chevron, ExxonMobil, Microsoft, Apple, Boeing and General Electric.
        • Despite this record achievement, there is a growing sentiment that the DJIA isn’t as relevant of an indicator as it once was. Since jobs growth comes from small and medium sized enterprises, the DJIA is not a suitable indicator to predict job creation.  With the complexity of the global economy and capital markets, relying on a single index or indicator would be short-sighted.
          • It is important to combine and interpret multiple sources of information and data to understand the health of the economy and its potential impact on markets.
          • A message from the Dow could be, “celebrate this achievement, but realize that there is always more to the story”, which is a solid reason to rely upon a financial professional unless you can also dedicate your time, energy and attention to stocks, bonds, funds, economic data, political announcements, and interpret all of them.

What’s ahead for February and early 2017?

  • Politics and policy emanating from the United States will likely dominate and Trump economic performance in the short-term; Based on the market reactions to Executive Orders like restrictive immigration policy for citizens of seven nations and wall-building, approval of the Keystone XL pipeline, examinations and renegotiations to the NAFTA and the Dodd-Frank Act. Any positive or negative economic data seems to be taken as secondary compared with the new American President’s actions.
    • The good news is that the economic news has been positive, for the most part, and it is the economic news that will drive corporate performance and long-term share prices.
    • A solid plan with defined goals, and close monitoring, coupled with disciplined decision-making is still a better alternative to reacting to daily news. President Trump is likely to challenge investors’ resolve and ability to weather storms of controversy and volatility of his making.

Last Week in the Markets: January 30-February 3, 2017

(source: Bloomberg)

What happened?

  • It was a week where policy and politics dominated economic performance in the markets, for the most part:
    • In the U.S., President Trump’s announcements and Executive Orders caused investors to become apprehensive. North American markets were volatile and large early week losses were almost recovered by the end of the week for major indices.
      • 227,000 jobs were created in the U.S. in January, and housing prices are up almost 6% over last year.
      • The Federal Reserve left interest rates as-is, for now. The job creation results will contribute to The Fed’s ability to keep its promise of rate increases in 2017, which are expected to be small, yet frequent compared to recent history.
    • The Canadian economy performed well in November. 4% better than October with the Manufacturing sector posting its best month in two years.
    • In Europe, the fourth quarter was nearly 2% ahead of Q4 2016, with manufacturing growing at its fastest rate in 6 years.
  • Despite all this excellent economic news, the political agenda in the U.S. caused global and North American markets to deliver mixed, at best, results.
    • To further demonstrate the effect of potential policy changes, Trump’s comments on the Dodd-Frank Act caused the Dow to have its best day of 2017 on Friday.

This Week?

  • In Canada jobs data, housing prices, starts and building permits, and balance of trade data will be announced.
  • In the U.S. trade balance data will be released.

Last Week in the Markets: January 23-27, 2017

(source: Bloomberg)

What happened?

  • Most of the news this week was from the United States.
    • The Dow Jones Industrial Average closed over 20,000 for the first time ever. It was a record high that surpassed a milestone.
    • The NASDAQ, focused on technology stocks, and the S&P 500, a larger, more diverse index than the DJIA, were also setting records.
      • This has been attributed to the optimistic opinion that the Trump Presidency’s Pro-America stance and policies will create domestic jobs, domestic economic growth, increased corporate profits . . . leading to justified higher stock prices.
      • During the first full week of President Trump he signed several Executive Orders; the U.S. withdrew from the Trans Pacific Partnership, began the process of building a wall along its border with Mexico, continued the U.S. position that the North American Free Trade Agreement (NAFTA) will be negotiated, and approved the Keystone XL pipeline.
        • Each of these moves has been interpreted as positive for Americans.
      • In Canada, the TSX continued to advance, reaching its highest level since May of 2015, over 18 months ago.

This Week?

  • In Canada, November GDP data will be released indicating our overall economic performance.
  • In the US, it will be a very busy week for announcements; consumer confidence and personal income and spending data, home sales, house prices and construction spending, monthly jobs data, factory orders AND the Federal Reserve will have a monetary policy decision.

Last Week in the Markets: January 16-20, 2017

(source: Bloomberg)

What happened?

  • It was another week of decreased optimism in American equity markets with the S&P 500, Dow and NASDAQ losing ground for the week. After two months of historic gains following the US elections, the wave has crested, at least temporarily.
    • President Trump stated in his Inaugural Address: “We will build new roads and highways and bridges and airports and tunnels and railways all across our wonderful nation.”
      • The promise of increased infrastructure spending and the associated jobs and economic growth has not been specifically articulated, and markets are hovering and losing ground in the US as investors await details.
    • In Canada the TSX had another healthy week defying the growing concerns south of the border.
      • Stephen Poloz, Governor of the Bank of Canada, held Canadian interest rates firm. He indicated that rate reductions could occur if Trump’s protectionist trade policies hurt our economy.
        • Meanwhile, Janet Yellen, US Federal Reserve Chair, indicated that their plans for gradual interest rate increases was still the plan of action for 2017 since consumer prices are increasing at a growing rate.
      • According to the Canadian Real Estate Association, Canadian home prices grew at 10.5% in 2016 with the average price just above $490,000.

This Week?

  • In Canada no major announcements are anticipated.
  • In the US, economic performance with fourth quarter Gross Domestic Product results and first quarter projections announced.

Last Week in the Markets: January 9-13, 2017

(source: Bloomberg)

What happened?

  • North American equities ended last week nearly where they started, with either small losses or small gains on the indices.
    • Despite the net outcome, there was significant volatility during the week.
    • Most of the volatility was attributed to Donald Trump’s inability or unwillingness to provide substantive details of his plans for infrastructure spending, and reducing regulations that would reduce business expenses and tax reduction.
      • There was also little concrete detail provided at his recent press conference other than his hostility toward ‘the press’.
    • The NASDAQ was the exception as its technology dominated market reached a record high.
  • The TSX started the week down as the price of oil pushed energy stocks downward. By the end of the week, most of the oil losses were offset with positive news and prospects in other areas like financials and gold.
  • In positive international news, the Organization for Economic Co-Operation and Development (OECD) predicts a rise in global growth for 2017 at 2.7%.

This Week?

  • The Bank of Canada will release a monetary policy announcement. Additionally, inflation, retail sales, manufacturing and real estate data will be released.
  • It will be a busy and condensed week in the US with Martin Luther King Jr Day on Monday. Donald Trump’s Presidential inauguration on Friday. And with inflation, housing, industrial and manufacturing production data in-between.

Last Week in the Markets: January 2-6, 2017

(source: Bloomberg)

What happened?

  • It was an “ALL GREEN” week for the major indices, the Canadian dollar, gold AND oil. And in historic and near-historic fashion for equities.
    • The TSX reached its highest level in nearly two-and-a-half years.
    • The S&P 500 and NASDAQ reached new all-time highs.
    • The DOW nearly missed 20,000 points by less than a point; another all-time high.
    • Gold recovered some of its post-election losses from the last 8 weeks.
    • Oil rose again, slightly.
  • In Canada in November, a robust jobs report and the first trade surplus in 2 years are indicating that our economy is continuing to strengthen.
    • 81,000 full-time jobs were added, 27,000 part-time eliminated, netting 54,000 full-time jobs created in one month.
    • In the US, wage growth is quickening even while their 156,000 jobs created in December were below expectations.
  • With the anticipation of higher US interest rates, the American dollar rose strongly against most foreign, major currencies.
    • An exception is the Canadian dollar which continued to gain against the USD, and the major currencies.

This Week?

  • In Canada housing data; prices, starts and building permits will be released.
  • In the US, retail sales figures from December and inflation information will be released.

Last Month in the Markets: December 1-30, 2016

(source: Bloomberg)

What happened?

  • December did not disappoint! The month was filled with positive results for most with all major North American indices ‘up’ along with the price of oil.  The Canadian dollar was ‘flat’ against the US dollar, although gold continued to lose value, ‘down’ 2% in December.
    • During the first full week of the month the TSX reached another record high as the market regained its torrid pace driven by post-election optimism in the US.
      • Trump-mania continued as the materials and exporting industries continued to rise on the belief that a more robust U.S. economy will increase demand of Canadian raw materials, and goods and services.
      • Also, Canadian banks announced strong quarterly earnings, in-line with expectations for the most part; or slightly ahead of expectations.
      • In the US, the major markets advanced strongly again, each gaining more than 3% during the first week.
        • The S&P500, DJIA and NASDAQ all reached new record highs in response to the Republican “sweep” of the Presidency and Congress.
        • Financial firms have led the way for these gains, and have posted double-digit percent increases since the election results.
      • In mid-December, the big news was the US Federal Reserve raising its benchmark rate by ¼ of a percent (0.25%). This was the first increase in one year, and only the second increase since June 2006.
        • At the risk of over-simplifying the situation, US economic indicators, (primarily Gross Domestic Product and employment), have been performing well, and it was time to raise the rate slightly as evidenced by the unanimous vote by the Federal Reserve Governors.
        • The Federal Reserve is walking the tight-rope of encouraging economic growth without undue increases of inflation. Slowing the economy to temper or prevent inflation is the Fed’s objective with its minor increase.
        • The Federal Reserve indicated that future increases will happen more frequently, signaling the Federal Reserve’s intention of keeping growth and inflation in balance with interest rate adjustments.
      • The last full week of 2016 was positive for equities and oil, again, while gold continued its decline, all since the US elections on November 8
        • The Year-To-Date gains for the major indices, especially Canada’s TSX, have exceeded expectations.
        • The levels of the indices are reaching historic highs as well, with the Dow almost to 20,000!
          • The performance of the US economy in the third quarter has been revised upward to an annualized rate of 3.5%, which further supported the Fed’s interest rate rise.
        • The final week of 2016 was a little different than most recent weeks.
          • Markets in Canada were only open for three days, and just four in the US.
          • After several weeks of post-election bliss for North American equities, some gains were given back in the short-week ending December 30th
            • The TSX, the S&P 500, the Dow and NASDAQ all dropped
            • Gold reversed its multi-week trend of losses by stabilizing and then gaining 1.6% last week.
            • Oil continued to climb, even if it wasn’t a large gain. The price continues to be supported by OPEC’s agreement to cut production in 2017, and their apparent ability to honour, enforce and execute the agreement.

What’s ahead for January and early 2017?

  • The valuation of equities will likely dominate the news in early 2017. After nearly seven weeks of uninterrupted gains in Canada and the United States, questions about sustaining these levels are begin raised.
  • The US Federal Reserve stated intention to raise interest rates several times during 2017 driving the value and returns for bonds and stocks over the course of the year.

Last Week in the Markets: December 28-30, 2016

(source: Bloomberg)

What happened?

  • The final week of 2016 was different than most recent weeks.
    • Markets in Canada were only open for three days, and just four in the US.
    • After several weeks of post-election bliss for North American equities, some of those gains were given back in the short-week ending December 30th.
      • The TSX, the S&P 500, the Dow and NASDAQ all dropped.
        • Prior to last week’s poor performance, the indices were within shouting distance of all-time highs and significant milestones. The Dow was within 12 points of 20,000 in December!
      • Gold reversed its multi-week trend of losses by stabilizing and then gaining 1.6% last week.
      • Oil continued to climb. Even if it wasn’t a large gain, the price continues to be supported by OPEC’s agreement to cut production in 2017, and their apparent ability to honour, enforce, and execute the agreement.

This Week?

  • The strength of the finish to 2016 will be tested over the next few days and weeks
    • Questions about the underlying fundamentals for companies, the valuation levels relative to earnings, and the difference between pre-and-post-election predictions have begun to emerge
      • Prior to Trump’s victory, his positions on economic issues had many analysts predicting dire consequences if he won. However, his victory spurred one of the sharpest upticks ever.
        • The concern is that the recent gains could be reversed. Therefore understanding long-term effects and diligently managing investment portfolios will be as important as ever.

Last Week in the Markets: December 19-23, 2016

(source: Bloomberg)

What happened?

  • It was another positive week for equities and oil, while gold continued its decline, since the US elections on November 8th
    • The Year-To-Date gains for the major indices, especially Canada’s TSX, have exceeded expectations
      • The levels of the indices are reaching historic highs as well, with the Dow almost to 20,000!
      • Although they had relatively small changes compared to recent weeks their weekly percentage gains were still impressive for their consistency
    • The performance of the US economy in the third quarter has been revised upward to an annualized rate of 3.5%
      • The increase in interest rates earlier this month has caused home sales to jump in anticipation of higher mortgage rates
    • The most surprising news was that the Canadian economy faltered in October with a very modest 0.3% gain over September. Manufacturing dropped by 2%, but was offset by an increase in consumer spending.
      • Also, inflation for November was 1.2% compared with 1.5% in October

This Week?

  • Markets will be closed at the beginning of the week; on both sides of the border on Monday for Christmas and Tuesday in Canada to observe Boxing Day.
    • A slower than normal week is expected for volume and volatility

Last Week in the Markets: December 12-16, 2016

(source: Bloomberg)

What happened?

  • The big news last week was the US Federal Reserve raising its benchmark rate by ¼ of a percent (0.25%) on Wednesday. This was the first increase in one year and only the second increase since June 2006.
    • At the risk of over-simplifying the situation, US economic indicators, primarily Gross Domestic Product (GDP) and employment, have been performing well, and it was time to raise the rate slightly as evidenced by the unanimous vote by the Federal Reserve Governors.
      • The Federal Reserve is walking the tight-rope of encouraging economic growth without undue increases of inflation. Slowing the economy to temper or prevent inflation is the Fed’s objective with its minor increase.
    • Immediately after the announcement by the Fed, the major North American indices dropped but recovered Wednesday’s losses quickly.
      • The post-announcement rally was led by financial firms as higher rates are viewed as a positive for banking and insurance firms.
    • The Federal Reserve indicated that future increases will happen more frequently, signaling the Federal Reserve’s intention of keeping growth and inflation in balance with interest rate adjustments.
      • It will be interesting to see the reaction of equities to more rate increases and the reaction of Trump to an environment of increasing interest rates from a truly independent body like the US Federal Reserve.

This Week?

  • This coming week should be a bit slower than last week now that markets have responded to the US Federal Reserve raising its benchmark rate.
    • In Canada, the GDP for October, and inflation data will be released.
    • In the U.S., Q3 GDP data, home sales and prices, personal spending and consumption figures will be released.

Last Week in the Markets: December 5 – 9, 2016

market-update-chart-dec-5-9

(source: Bloomberg)

What happened?

  • The TSX reached another record high this week as the optimism since the U.S. election regained its torrid pace, after a slight one-week slow-down last week
    • Trump-mania continued as the materials and exporting industries continued to rise on the belief that a more robust U.S. economy will increase demand for Canadian raw materials, goods, and services
    • Also, Canadian banks announced strong quarterly earnings, in-line with expectations for the most part, or slightly ahead of expectation
      • Canadian policy and regulation supports a healthy banking sector, and it continues to be effective in producing strong results
    • The Bank of Canada held its benchmark interest rate steady at 0.50% in advance of this week’s announcements on the same topic from the U.S. and a desire to not over-react to our strong Q3
    • In the U.S. the major markets advanced strongly again, each gaining more than 3%
      • The S&P500, DJIA and NASDAQ all reached new record highs during the week in response to the Trump victory and the Republican “sweep” of the Presidency and Congress
      • Financial firms; banks, insurance companies, have led the way for these gains, and have posted double-digit percent increases since the election results

This Week?

  • In Canada, it will be a slower week for announcements as the manufacturing index and the Canadian Real Estate Association release data
  • The most anticipated news of the quarter, and perhaps 2016, will come from Janet Yellen, Chairperson of the U.S. Federal Reserve
    • Interest rates have not increased since June 2006, and the indicators, rumours, predictions and the “experts” say that an increase will be announced

Last Month in the Markets: November 1 – 30, 2016

monthly-market-update-chart_november

(source: Bloomberg)

What happened?

  • November did not end like it began! Down, then UP and UP, and UP again!
    • The uncertainty surrounding the U.S. election took its toll on global equity markets during the first week of the month before the election on November 8th, and it was especially ruthless for American indices and the TSX.
    • November ended with markets hitting all-time highs, and bond yields rising as well
    • The price of oil fell dramatically at the beginning of the month; almost $4. By the end of the month, oil closed more than 12% above its November low point.
    • Gold rose, then fell with the election, as its safe-haven reputation was damaged.
  • Into the second week of November, equity markets around the world surged upward after Donald Trump’s surprise victory in the U.S. Presidential election and the return of the Republican congress.
    • The Dow Jones Industrial Average (DJIA) established a new record high on November 10th, with the S&P 500 nearly topped its all-time high hit in August.
    • President Trump’s lone policy statement from his acceptance speech was his reiteration that American infrastructure would be rebuilt and “be the envy of the world”. Government spending under a Trump Presidency has created optimism that the U.S. economy will expand and drag the rest of the world along.
    • Canadian stocks gained for the week based on the tag-along effect of U.S. optimism. Longer-term; if the U.S. economy grows, American spending on Canadian materials, goods and services is expected to grow as well.
  • Two weeks after his victory, the Trump-Effect was still driving the American and Canadian stock markets upward.
    • Trump campaigned on a restrictive platform for immigration and trade that economists believe would cause an economic downturn but he is now hedging and softening his statements.
    • Additionally, the combination of a Republican President, Republican-controlled Senate and Republication-controlled House was a potent combination for the U.S. stock markets and returned an average of 13% per year in a previous incarnation.
    • Canada’s TSX followed along, buoyed by the good news from the U.S., and a rise in oil prices as OPEC’s agreement to cut production moved closer to reality.
  • As the month continued, it was certainly a week for “Giving Thanks” in the U.S. as the S&P500, Dow Jones and the NASDAQ reached record highs.
    • President-Elect Trump’s policies are expected to drive the economy higher, and other data like durable goods orders and consumer confidence rose to support the rise in share prices.
    • At home, the TSX rose to its highest level in almost 18 months on the back of its three main components; oil, metals, and financials.
  • OPEC meetings during the week of November 28th, and the continued progress toward a deal to limit production to 32.5 million barrels per day caused an immediate jump of $4.21 USD per barrel on November 30th.
    • Gold suffered from the rise in investor confidence in equities and fell more in the last week of the month closing down $100 USD per ounce or about 8%.in
  • On November 30th, StatsCan released its third-quarter economic and GDP numbers with Canada’s economy growing 0.9% during the quarter (expressed annually at 3.5%), both numbers are dramatic reversals from Q2 numbers, which included the Alberta wild fires.

What’s ahead for December?

  • The global equity markets, and most certainly the U.S. and Canadian markets, will be affected by two major influences in December.
    • President-Elect Trump will continue to name members of his cabinet, identify more specific actions and policies, and communicate them.
      • If Trump continues to soften his economy limiting stances (canceling NAFTA, restricting immigration and deporting illegal immigrants, for example) and continues to promote expansionary positions the equity markets are expected to continue to increase in value.
    • A major limiter for stock markets could be the long-anticipated increase in the benchmark interest rate by the U.S. Federal Reserve Bank led by Janet Yellen
      • A rate increase has become more and more likely as time has passed, equity markets have risen, and economic output, employment, and inflation have increased.
    • Canada’s market will follow the U.S., and in addition to the major American policies and actions, our energy sector will be driven in large part by the decision and implementation of the production cut by OPEC.

Last Week in the Markets: November 21 – 25, 2016

market-update-nov-21-25_2016

(source: Bloomberg)

What happened?

  • It was certainly a week for “Giving Thanks” in the U.S. as the S&P500, Dow Jones and the NASDAQ reached record highs. The week was predicted to be relatively uneventful with many Americans taking time-off for family celebrations.
    • Instead the major markets continued the post-election momentum. President-Elect Trump’s policies are expected to drive the economy higher, and other data like durable goods orders and consumer confidence rose to support the rise in share prices
    • These increases, along with building sentiment to raise rates within the Federal Reserve, support the prediction that the Fed will increase rates next month
  • At home, the TSX rose to its highest level in almost 18 months on the backs of its three main components; oil, metals and financials.
    • OPEC meets in December to further plan its production cut, which could increase the price, because the confidence in OPEC’s ability to implement its plan is mixed
    • Gold fell more this past week, and tempered some of the metals sector’s gains
  • The Trump-effect, and the confidence of U.S. economic expansion has hit Europe as their markets moved higher as well.

This Week?

  • In Canada, Q3 economic output with Gross Domestic Product (GDP) will be released, and monthly employment data, where the number and proportion of full-time jobs are becoming an increasingly notable indicator
  • In the U.S. GDP, employment information, house prices, consumer confidence and personal income and spending will be released in a ‘heavy week’ information-wise
    • The Federal Reserve will be utilizing these data points, especially economic output and employment, along with inflation, as fuel for any rate increase

Last Week in the Markets: November 14 –18, 2016

market-update-chart-nov-14-18_2016

(source: Bloomberg)

What happened?

  • The Trump-Effect is still driving the American and Canadian stock markets upward
    • The back-tracking on several of his stated policies prior to the election have given rise to the belief that his campaign promises and his actions will differ
      • Trump campaigned on a restrictive platform for immigration and trade that would cause an economic downturn, but he is now hedging
    • Additionally, the combination of a Republican President, Republican-controlled Senate and Republican-controlled House is a potent combination for the U.S. stock markets returning 13% per year when it has previously occurred
      • A Republican-controlled Congress (House and Senate together) has returned on average 15.3% per year
    • Canada’s TSX followed along, buoyed by the good news from the south, and a rise in oil prices as OPEC’s agreement to cut production is coming closer to implementation
    • Inflation in Canada is below the Bank of Canada target of 2% per year, coming in at 1.5% in October, up from 1.3% in September

This Week: November 21 – 25, 2016

  • It should be relatively quiet in the U.S. this week with Thanksgiving Day on Thursday and many Americans also taking Friday as a day off
    • Expect to see some exciting footage of shoppers in the U.S. on Friday as the holiday shopping season begins, and watch for comparisons to previous year’s spending for clues on consumer confidence and the perceived health of the economy
  • Canadian retail sales will be announced this week and will provide a benchmark for our confidence and economic health heading into the holiday season

Last Week in the Markets: November 7 – 11, 2016

weekly-market-update_nov-14

(source: Bloomberg)

What happened?

  • Equity markets around the world surged forward after Donald Trump’s surprise victory in the U.S. Presidential election
    • The Dow Jones Industrial Average (DJIA) established a new record high on November 10th, the S&P 500 nearly topped its all-time high hit in August
    • President Trump’s lone policy statement from his acceptance speech was his reiteration that American infrastructure would be rebuilt, and “be the envy of the world”
      • This government spending and stimulus under a Trump Presidency has created optimism that the U.S. economy will expand, and drag the rest of the world with it
    • Canadian stocks gained for the week based on the tag-along effect of U.S. optimism
      • If the U.S. economy grows American spending on Canadian materials, goods and services is expected to grow as well
      • Justin Trudeau in the wake of the Trump victory offered to renegotiate the North American Free Trade Act (NAFTA), which was one of Trump’s campaign promises

This Week?

  • In Canada and the U.S., inflation data will be announced through the Consumer Price Index (CPI)
    • Inflation and employment are the two major influencers of monetary policy
      • A major concern for Trump’s infrastructure spending is an increase in the rate of inflation
      • Among many other effects, increasing inflation can be tempered with interest rate increases, and keeping rates lower encourages hiring

Time will tell if Trump policy increases inflation AND interest rates

Last Month in the Markets – October 1 – 31, 2016

monthly-market-update_october-2016

(source: Bloomberg)

What happened?

  • October was not a stellar month for equity markets in Canada and the United States. The TSX in Toronto was the lone major market that finished above its September close
    • The TSX reached its highest level in nearly 18 months!
    • Canada’s economy and its major index is dominated by oil, materials and financials, and they did well last month
      • In early October OPEC producers agreed to curb production, which drives the price higher, the first plan by OPEC to do so in 8 years
      • By the last week of October doubt began to build whether or not OPEC members would adhere to their agreement, and the price per barrel fell more than $2, wiping out 3+ weeks of gain
      • Increases by major energy firms like Suncor and Canadian Natural Resources pushed the entire sector more than 2% higher
      • Energy companies dragged the entire TSX higher as well
      • Q2 results in the U.S. have been strong leading investors to believe Canadian banks will follow their lead
      • Canada’s jobs data was unexpectedly positive as part-time employment increased AND 65,000 new full-time jobs were added
  • In international news
    • In the U.S. Q3 earnings reports by corporations have, generally, been better than expected. Last week’s results were not as stellar as some of the other reports and uncertainty surrounding the election tempered stock performance
      • Despite those developments the American economy grew at an annualized rate of 2.9% in the third quarter, and more than double the GDP growth rate of Q2
      • Another development that suppressed equity markets was the rise of US federal bonds that reached a six-month high
      • Speculation that the Federal Reserve will raise interest rates continued, and the 10-year bond rates have been bid-up
    • Significant takeover and merger deals were announced last week totaling $177 billion in one week, the highest week on record, and $249 billion for the month!
    • The British Pound fell below $1.30 USD as concerns over the cost of BREXIT continue to mount. The rapid decline and loss of capital is beginning to generate a real movement to reverse, or retake the BREXIT vote.
      • The falling British pound has increased the prospects for increased exports by U.K. firms despite any trade restrictions that may be imposed.
    • China reported a steep decline in its economic situation with a 10% drop over last year, which caused equity prices to mirror slumping Chinese demand for commodities and non-Chinese goods.
    • The results were based on solid fundamentals and mostly good news:
      • Materials and energy were ‘up’ for the week
        • Oil reached its highest price in 15 months, which sent energy stocks higher.
      • A number of American firms reporting strong performance contributed to investor optimism across the globe.
        • In the U.S. approximately 205 firms have reported their earnings and the data has been almost exclusively positive.
        • Of the firms that have reported, 80% reported higher-than-expected earnings and 60% reported higher-than-expected sales

What’s ahead for November?

  • The dominating news for the next month, and beyond, will be interest rate policy from the U.S. Federal Reserve. Quarter after quarter the predictions have persisted that an interest rate rise is will occur in the near future
    • That announcement was repeated again on November 2nd as inflation stayed below 2% while the economy continued to grow at measured rates, as job creation, consumer confidence and corporate purchasing continued with positive results
    • The belief that the economy would be damaged, not improved, by an interest rate rise facilitated the “steady-as-she-goes” decision.
      • If inflation rises, then The Fed will act. Much more data will be considered, but watch for inflation to be the trigger
    • The Bank of Canada reduced its growth forecasts again to 1.1% for 2016 and 2% for 2017, and interest rates were held firm