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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: November 18 – 22, 2019

(source: Bloomberg)

What happened?      

  • North American and global equities suffered from the latest round of U.S./China trade difficulties. The U.S. Senate passed legislation supporting the independence/autonomy of Hong Kong. Each year the State Department is now required to certify Hong Kong’s autonomy or lose the special trading privileges that it enjoys. The Chinese leadership has naturally concluded that the U.S. is interfering in their domestic politics and has threatened retaliation that could delay or prevent progress on trade negotiations.
    • Conflicting and contradictory comments (disappointment, optimism, retaliation, delay of tariffs, . . . ) were given by leadership from both countries of this dispute, which provided enough uncertainty to cause equities to fall.
    • Also, the U.S. House of Representatives was not able to move the USMCA (NAFTA replacement) forward and a vote in 2019 is in jeopardy.
  • At home . . .
    • CN Rail has had labour troubles resulting in a strike preventing the shipment of finished goods and raw materials across Canada, which will affect the ability of several industries to make deliveries and will affect Q4 revenues if a resolution is delayed. The minority governing Liberals announced their new Cabinet in a much more subdued manner than 5 years ago.  The first practical test for the Liberals may be this strike.  Only time, hard work and difficult decisions will resolve our domestic political issues. https://www.theglobeandmail.com/opinion/article-the-cn-strike-and-our-ensuing-winter-of-discontent/

What’s ahead for this week?

  • In Canada, two data sets will be released this week for September; wholesale trade sales (corporate revenues) and gross domestic product (overall economic performance).
  • In the U.S., it is anticipated to be a slower week for market activity with Thanksgiving on Thursday. Despite the day-off and the shopping frenzy October wholesale inventories, new home sales and durable goods orders and Q3 gross domestic product will be released.

 

Last Week in the Markets: November 11 – 15, 2019

(source: Bloomberg)

What happened?   

  • It was another “all green” week for Canadian and American equities; the fourth in a row. Last week our other indicators; the Canadian dollar, gold, oil and global equities (expressed by MSCI’s All Country World Index), also followed along, as all indicators gained. The lone “red” indicator on our grid is our dollar’s year-over-year performance, and only barely negative.
    • Perhaps it was the political distractions as Trudeau met with other leaders prior to his Throne Speech or the public and televised impeachment hearing in Washington, but it seemed to be a relatively boring week for equities and investing.
      • The TSX gained each day and the U.S. indices achieved most of the gains for the week on Friday, after a few days of treading water.
        • The most exciting news last week for Canadian investors were the results for cannabis producers who suffered major losses on low sales results; particularly in Ontario where retail outlets lag other provinces.
      • Quarterly corporate results wrapped up the most recent reporting season with mildly positive results in general.
      • Trade talks between the U.S. and China had mildly negative news as the phase I agreement proceeds and the deadline for planned U.S. tariffs on European automobiles passed without any announcement.
      • Brexit is awaiting the results of the British election and has, therefore, gone into early hibernation or hiding.

What’s ahead for this week?

  • In Canada, it will be a mixture of indicators being released; September’s manufacturing sales and retail sales will provide insight into commercial and consumer confidence in the economy, and the Consumer Price Index (CPI) will quantify October’s inflation.
  • In the U.S., housing data will dominate the release with housing starts, building permits and existing home sales for October scheduled for release.

 

Last Week in the Markets: November 4 – 8, 2019

(source: Bloomberg)

What happened?  

  • Last week several positive factors emerged for equities.
    • The easing of trade tensions between the American and Chinese governments created positive momentum for equities around the world.
      • The feared global slowdown in economic growth would be less likely if these two economies were able to trade freely, without the restrictions and tariffs that have already been put in place, and without another round of tit-for-tat retaliation. It appears that the first phase of an agreement could be reached in November according to the U.S. Commerce Secretary Wilbur Ross.
    • Positive corporate results also boosted equity values. The TSX approached its all-time high from late summer as it climbed nearly 2% last week, outpacing the results of the major U.S. indices.
      • The positive results in Canada can be attributed to strong results in the Energy sector as the price of oil rose by nearly 2%. Strong corporate earnings and the positive influence of rising interest rates on the financial services laden TSX pushed values upward.
      • The increase of the All Country World Index (ACWI) showed that positive equity results were not confined solely to North America.
    • Last week the lone declining indicator on our grid was gold. As trade tensions eased, the safe haven of gold lost its luster, declining over 3%.

What’s ahead for this week?

  • In Canada, the week ahead, that begins with Remembrance Day, focuses on housing data with September’s housing price index and October’s existing home sales.
  • In the U.S., Veteran’s Day starts the week that includes the release of October’s inflation with Consumer and Producer Price indices, import and export price indices, industrial production and capacity utilization and retail sales.

 

Last Month in the Markets: October 1 – 31, 2019

(source: Bloomberg)

What happened in October?

Time frames for analysis are important. The grid above is based on market activity for the calendar month of October, while the chart below shows October plus November 1st.

Each of the equity indices had extremely strong days on November 1st. The TSX erased most of its October loss and the S&P 500, the Dow and the NASDAQ each added another percentage point to their gains for the month.

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

Longer time frames tend to make the equity markets appear more positive. This long-term positivity, shown by historical data over decades, is one of the reasons investors purchase company shares. It is important to manage results over the long-term to determine if the investment plan is on-track rather than focusing on the results of any single day – even if that single day is extremely positive.

One of the most important days for our parliamentary democracy occurred on October 21st when the Liberals had their majority in the House of Commons reduced to a minority. Next week, negotiations will begin with the leaders of the Bloc Quebecois and NDP to formally or informally form a coalition.

The results of the election have demonstrated the divide between the east and west in Canada, and the economic and ecological prospects for each region heavily influenced the results.  Based on the strength of a coalition, measures could be taken to drive economic growth in the west, which could spur overall growth for Canada.

What’s ahead for November and beyond?

November begins with many factors and events that could significantly affect markets:

  • The U.S./China trade negotiations which were expected to progress at the meetings for Asia-Pacific Economic Cooperation (APEC) have been stalled by the event’s cancellation. President Trump and Chairman Xi were scheduled to meet and conclude the first round of a series of agreements. The mood seems to be turning pessimistic without this face-to-face meeting of the leaders of these two countries to move matters forward.
  • Monetary policy, as always, will inform investment decisions and values, but the upcoming few months seem to be more influential than similar periods in the past.
    • The Bank of Canada, led by Stephen Poloz, has resisted pressure to lower Canadian rates that would stimulate borrowing and additional economic activity. Our economy is stubbornly clinging to economic growth, inflation and employment that is barely good enough to prevent an interest rate adjustment.
    • Jerome Powell, Federal Reserve Chairman, has signaled that additional downward adjustments could occur if the American economy continues its trajectory or conditions don’t improve. Powell is concerned by the global slowdown in GDP growth, continuing trade difficulties with China and lack of legislative progress on NAFTA’s replacement, the USMCA.
      • A significant threat to economic performance could cause either or both central banks to take swift action to lower rates.
    • In Europe, the October 31st deadline for a negotiated Brexit has been postponed again to January 31st. A general election is scheduled for December 12th and will likely be decided by the Brexit issue.  Prime Minister Boris Johnson is seeking a majority government and mandate to leave the European Union, while Labour leader Jeremy Corbyn would like to focus on economic issues and proceed with a second referendum if elected.
    • The Democrats in the House of Representatives used their majority to win a vote to proceed with impeachment investigations of Trump. The process itself will likely not affect markets, but the distraction and desire to distract could.

Each of these situations could negatively or positively affect markets in the short-term and continue to reinforce the principles of long-term investing.

 

Last Week in the Markets: October 28 – November 1, 2019

(source: Bloomberg)

What happened?    

  • On Wednesday the Bank of Canada kept its benchmark interest rate at 1.75%. Although our Gross Domestic Product (GDP) growth is below expectations, it is improving, employment remains positive and inflation is at the target rate of 2%. A one-minute video explaining the central bank’s rationale can be found at https://www.bankofcanada.ca/2019/10/mpr-2019-10-30/
  • In the U.S. on Wednesday the Federal Reserve lowered its Federal Funds rate by ¼ of a percentage point, this is the third rate cut this year. This action was taken to “keep the U.S. economy strong in the face of global developments and provide some insurance from on-going risks” as Chairman Powell outlined in his remarks at the FOMC press conference https://www.federalreserve.gov/default.htm
    • The Bank of Canada and the Fed vaguely signaled that new/additional rate cuts could be coming in their announcements (linked above). Global economic growth which prefers free and open trade continues to be threatened by U.S./China trade tensions, an overall economic slowdown and Brexit.
  • Brexit becomes Brelection! British Prime Minister Boris Johnson negotiated an extension for a negotiated departure from the European Union (EU), moving the date from October 31st to January 31st. There will also be a general election in the U.K. in mid-December to elect new parliamentarians and Prime Minister. The election will likely be an endorsement for Johnson and the Tories to leave the EU or an invitation for the Labour Party led by Jeremy Corbin to form a new government and conduct another Brexit referendum.

What’s ahead for this week?

  • In Canada, international trade numbers and building permits for September, along with housing starts and the employment report for October are scheduled for release
  • In the U.S., September’s durable goods orders, trade balance and wholesale inventories will be announced. The Institute for Supply Management (ISM) will release its non-manufacturing index, an important indicator of American services industries.

 

Last Week in the Markets: October 21 – 25, 2019

(source: Bloomberg)

What happened?   

  • Last week began with the Federal election that saw the Liberals achieve a minority government. The Liberals, Conservatives, and NDP all returned with fewer seats, while the Bloc Quebecois and Green Party increased their seat count. The meaning of the result and its effect on the economy and financial markets is being hotly debated in the press and contains significant regional themes.
    • Despite a clear mandate for any party, our grid returned its first “all green” week since June. Additionally, all of the indicators are approaching their 52-week highs, and some are approaching their all-time highs again.
  • Much of last week’s optimism for equities was based on the belief that the U.S. Federal Reserve will cut its benchmark lending rate to stimulate the economy. The Fed is attempting to address the effects of the U.S./China trade dispute and a slowing global economy. https://www.ft.com/content/ac6ede72-f765-11e9-9ef3-eca8fc8f2d65
  • The positivity at home for the TSX was muted because most believe that the Bank of Canada will hold steady. The economic indicators like GDP growth, employment and inflation are at or near targets making a change unnecessary, especially when there appears to be progress between the U.S. and China as they work to resolve their trade issues. https://www.theglobeandmail.com/business/article-bank-of-canada-expected-to-hold-line-on-interest-rates-again-but-how/

What’s ahead for this week?

  • In Canada, the Bank of Canada will announce its latest interest rate decision and publish its quarterly Monetary Policy Report. Details will be available Wednesday at 10 am EST https://www.bankofcanada.ca. The information found in the upcoming release of our Gross Domestic Product (GDP) has already influenced our central bank’s decision.
  • In the U.S., the Federal Reserve will also announce its interest rate decision on Wednesday. The Federal Open Market Committee will release its decision at 4:15 pm on October 30th. https://www.federalreserve.gov/default.htm.

 

Last Week in the Markets: October 14 – 18, 2019

(source: Bloomberg)

What happened?    

  • The week began with positive trade news in the U.S. and Europe that positioned equities for a positive move by reducing threats of a global economic slowdown and political turmoil.
    • The Americans and Chinese negotiators decided that rounds of agreements, each with a limited number of issues and areas, would be a more attainable treaty system than a single large agreement. This was announced along with the first small agreement and delays to impending restrictive moves on both sides.
    • British Prime Minister Boris Johnson successfully negotiated a Brexit deal with the European Union’s leadership in Brussels.
  • By the end of the week and weekend much had changed to reverse or dampen the positive progress these two major agreements provided:
    • Trump’s decision to remove troops from northern Syria prompted a Turkish invasion with devastating effects on the Kurdish population and to international diplomacy. Impeachment inquiry progress continued with a wider net being cast to gather information and now involves those within Trump’s inner circle.
    • Johnson was unsuccessful back at home with his own Parliament and with the Democratic Unionist Party in Northern Ireland, and it appears that he must return to the EU to ask for another extension, past the October 31st

What’s ahead for this week?

  • In Canada, it is a light week for economic releases with only retail sales and wholesale trade sales for August scheduled for release.
    • Most importantly, Monday, October 21st is election day. The results of the election and who forms the next government by majority, by minority or by coalition could guide economic and fiscal policy for the next five years.
  • In the U.S., it isn’t much busier with housing numbers (existing home sales and new home sales) and durable goods orders for September to be released.

 

Last Week in the Markets: October 7 – 11, 2019

(source: Bloomberg)

What happened last week?  

  • American equities benefited from the increasing optimism of U.S./China trade negotiations, Canada’s TSX lagged its peers south of the border by about 1% as it lost ground while they gained.
    • On Friday President Trump announced that a Phase 1 deal had been reached. The fine details will be written over the next few weeks and signing is anticipated for November.
      • Increased sales of American agricultural products and protections of intellectual property have been granted by the Chinese in exchange for a delay/elimination of tariffs on Chinese imports that were planned for October 15th.
      • This success followed conflicting news throughout the week that U.S. pension funds might invest in Chinese firms. Chinese firms were blocked from business dealings in the U.S., linking trade deals to human rights abuses by Chinese leadership, allowing Huawei to deal with American firms, China narrowing the scope of negotiations, China buying soybeans, . . . .
    • In other trade news, the Irish Prime Minister feels Brexit issues can be solved by the October 31st deadline further adding to less uncertainty and positive trade news.

What’s ahead for this week?

  • In Canada, it is a light week for economic releases with domestic markets closed for the Thanksgiving holiday. August Manufacturing sales and inflation (Consumer Price Index) for September are scheduled.
  • In the U.S., with only celebrations, not work holidays on Columbus Day in many states, the data release calendar is more robust. September information for retail sales, housing starts, building permits, capacity utilization, and industrial production are planned.

 

Last Week in the Markets: September 30 – October 4, 2019

(source: Bloomberg)

What happened?    

  • It was a difficult week for Canadian equity investors. The TSX, S&P 500 and Dow all lost ground while the tech-heavy NASDAQ was the lone index in our grid to gain last week. Unlike other weeks when political turmoil (impeachment, Brexit, trade wars) dominated the news and stock market influence, last week showed that more direct information has an effect, too.
  • Last week’s performance reflected new data emanating from the Institute for Supply Management (ISM). The ISM releases monthly reports on the forward-looking opinion of the purchasing manager in the U.S. to gauge future economic performance.
  • Global markets also felt the strain as the ACWI (MSCI’s All Country World Index) in our grid fell nearly 1% as European markets reacted to the World Trade Organization’s ruling against the European Union’s support of Airbus. The U.S. is introducing new tariffs on EU goods as an offset and will effectively raise prices that temper demand and reduce overall trade levels.

What’s ahead for this week?

  • In Canada, economic data will focus on housing and employment with building permits for August and housing starts and the employment report for September scheduled for release
  • In the U.S., wholesale inventories for August will accompany inflation data with the price indices for Consumers, Producers, Imports and Exports for September this week.

 

Last Month in the Markets: September 1 – 30, 2019

(source: Bloomberg)

What happened in September?

Over the course of the last month equity markets in North America managed to move ahead well, with the NASDAQ acting out of character as the laggard. The NASDAQ still leads the pack with a gain of nearly 21% for 2019, but trails the TSX, S&P 500 and Dow over the past year with a loss while the others have gained 2-4%.

(source: ARG analysis and Bloomberg)      

Several positive political developments that began in early September positively influenced equities throughout the month.

  • The United States and China announced plans for renewed negotiations scheduled to begin in October.
  • Hong Kong leadership withdrew the bill allowing the extradition of its citizen-residents that caused months of increasingly violent protests.
  • The U.K. Parliament passed legislation meant to prevent a no-deal Brexit that prevents an enhanced level of uncertainty across the entire continent.

Early on September 13th, the TSX achieved a new all-time high. With its heavy weighting (36% of the index), the Financial sector led the way in Toronto. The index peaked one week later before settling back down by the end of September.  https://web.tmxmoney.com/indices.php?section=tsx&index=^TSX#indexInfo

On September 18th the Federal Reserve in the U.S. cut its benchmark overnight rate by 25 basis points (¼ of one percent).  https://www.federalreserve.gov/newsevents/pressreleases/monetary20190918a.htm    https://www.federalreserve.gov/monetarypolicy/fomcpresconf20190918.htm

Political turmoil swirled in many countries important to domestic investors, including Canada.

The Federal election campaign continued in earnest and it appears that each party has different ways of spending our tax dollars, even the ones that haven’t been collected.  https://www.theglobeandmail.com/politics/article-deficit-plans-take-backseat-as-federal-parties-seek-to-spend-more/

What’s ahead for October and beyond?

Two major themes will continue to affect markets as we move into the fourth quarter of 2019; trade tensions and political instability.

  • The U.S./China trade negotiations are set to begin, again, in early October, but a resolution seems unlikely with all the tit-for-tat retaliation that has already occurred. The Vice-Premier Lui is scheduled to visit Washington to conduct high-level talks with his American counterparts, which is an extremely positive sign. It is hoped that continued political unrest in Hong Kong will not derail progress to a negotiated trade deal.
  • In Europe, the October 31st deadline for a negotiated Brexit is less than one month away and it is difficult to identify recent progress, or on what topics the next advances will occur.
  • The U.K. parliament passed a bill prohibiting a no-deal Brexit, which effectively forces Prime Minister Boris Johnson to continue negotiating with the European Union for terms of separation.
  • In the United States, Congress has opened an impeachment investigation against President Trump. The House of Representatives could order the Senate to conduct a trial, that could remove Trump from office if two-thirds of senators vote for that action.

The mounting concern is that these issues, especially the impeachment process, could further distract U.S. lawmakers from economic matters, and slow Gross Domestic Product and trade growth globally. We may see the Bank of Canada take interest rate action at its next opportunity to do so, October 30th; should our economic indicators and global conditions warrant it.

About one week prior to the Bank of Canada’s next interest rate announcement Canadians will announce their choice for their Member of Parliament and Prime Minister. The campaign has reached its midway point, and each of the major parties has announced their platforms and spending priorities to garner voter support.

Each of these matters will follow its own path and timeline as we proceed to the end of 2019 and will demand close scrutiny for investors in Canada and elsewhere.

 

Last Week in the Markets: September 23 – 27, 2019

(source: Bloomberg)

What happened last week?   

  • Political turmoil swirled in many countries important to domestic investors, including Canada.
    • The Federal election campaign continued in earnest with the leaders continuing to share their messages and plans. It appears that each party has different ways of spending our tax dollars, even the ones that haven’t been collected. https://www.theglobeandmail.com/politics/article-deficit-plans-take-backseat-as-federal-parties-seek-to-spend-more/
    • Nancy Pelosi, Speaker of the House of Representatives in the U.S. Congress, has launched an impeachment inquiry after President Trump used the withholding of aid money destined for the Ukraine to encourage an investigation of the Democrats’ front-runner, Joe Biden.
      • The political pressure that is about to be applied to the American president will not affect corporate performance in the short term but could cause changes to the legislative agenda. NAFTA’s replacement, the US-Mexico-Canada tripartite agreement is scheduled for discussion in Congress and could be delayed or discouraged.
    • Boris Johnson, U.K. Prime Minister, had his action to pirogue Parliament nullified by their Supreme Court forcing MPs back to Westminster and back to bargaining over the terms of Brexit as the deadline of October 31st
    • High level trade talks between the U.S. and China are scheduled for early October with the Chinese Vice-Premier visiting Washington, D.C.

What’s ahead for this week?

  • In Canada, a balanced week of economic indicator releases is planned with July’s Gross Domestic Product (GDP), and industrial products and raw materials price indices and international merchandise trade for August on the calendar.
  • In the U.S., August data for the trade balance, construction spending, factory and durable goods orders, and the employment reports for September are all planned for release.

 

Last Week in the Markets: September 16 – 20, 2019

(source: Bloomberg)

What happened last week?   

  • The big news last week, or as it turned out “non news”, was the Federal Reserve in the U.S. cutting its benchmark overnight rate by 25 basis points (¼ of one percent). The cut had been widely anticipated and priced into the price of shares and bonds so its arrival had already affected values in the weeks and days prior to its announcement. https://www.federalreserve.gov/newsevents/pressreleases/monetary20190918a.htm    https://www.federalreserve.gov/monetarypolicy/fomcpresconf20190918.htm
  • The TSX was the lone equity index among those on our grid (above) on the rise last week thanks to the rising price of oil and gold. Middle East tensions surrounding the attack by Iran on Saudi oil installations boosted the price of oil again and drove investments to safe haven investing. The energy and materials sectors led the way within the TSX, while the U.S. indices with less reliance on these sectors lost ground. Tempering some of the response was the Saudi announcement that production would be back to pre-attack levels within weeks and the U.S. promise to release strategic oil reserves, if necessary.
    • The TSX now leads the race in year-over-year returns of more than 4% while the rest languish at 1 or 2% ahead of last September’s levels.
  • Although it didn’t result in gains in American equity indices, last week saw a truce in the U.S./China trade war with little chatter in the press or on social media.
  • Back at home, the Canadian Federal election draws closer to its conclusion in October. The Prime Minister had his electioneering distracted by scandal as campaigns began in earnest.

What’s ahead for this week?

  • In Canada, it’s an extremely light economic reporting week with only wholesale trade sales for July scheduled to be announced.
  • In the U.S., August data for new home sales, durable goods orders, wholesale inventories and personal income and spending are anticipated along with revised Gross Domestic Product (GDP) for the second quarter of 2019.

 

Last Week in the Markets: September 9 – 13, 2019

(source: Bloomberg)

What happened last week?   

  • Late Friday morning, before retreating for the rest of the day, the TSX achieved a new all-time high. As usual and mathematically necessary with its heavy weighting (36% of the index), the Financial sector led the way in Toronto. The new record high occurred despite a drop in the price of oil, even as the Energy sector comprises nearly 17% of the index. https://web.tmxmoney.com/indices.php?section=tsx&index=^TSX#indexInfo
  • Most of the “credit” for the increase in Canadian and American equities can be attributed to the warming relationship between the U.S. and China over their seemingly endless trade disputes, tit-for-tat retaliations and public proclamations.
    • It appears that China’s strategy of penalizing agricultural products emanating from Trump strong-hold states has caused the president to become more conciliatory.
    • China and the U.S. have reduced the number of products that are subject to trade restrictions and delayed implementing new tariffs, respectively, as they look to forge a new deal. The U.S. is even contemplating an interim agreement in the short term.
  • The easing of trade tensions hurt the price of gold, as it fell by more than 1% last week when the need for safe-haven and politically neutral investments lessened.
  • Despite the new high for the TSX the Canadian dollar fell by almost the same percentage as the TSX gained (-0.87% vs +0.89%). Since most Canadians spend most of their investments and investment gains locally, the impact of the loss in dollar value is muted.

What’s ahead for this week?

  • In Canada, it will be a balanced view of our economy with just three major indicators to be released; July’s manufacturing sales and retail sales and August’s Consumer Price Index (CPI).
  • In the U.S., the most influential economic development will be the Federal Reserve’s interest rate decision. Almost as important as the decision, the comments released with the decision will influence equity and bond markets. Also, August figures for existing home sales, housing starts and building permits, and industrial production and capacity utilization will be released.

 

Last Week in the Markets: September 2 – 6, 2019

(source: Bloomberg)

What happened?    

  • A number of positive political developments contributed to a favorable week for most Canadian investors focused on North American equities.
    • The United States and China announced plans for renewed negotiations scheduled to begin in October.
    • Hong Kong leadership withdrew the bill allowing extradition of its citizen-residents that caused months of increasingly violent protests.
    • The U.K. Parliament passed legislation meant to prevent a no-deal Brexit that prevents an enhanced level of uncertainty across the entire continent.
    • The seemingly unimportant attitude toward the European Union from Italy is improving as a new coalition in government has been formed.
  • Locally, the Bank of Canada kept its benchmark with an overnight lending rate unchanged allowing our economy to perform under current conditions without a monetary policy boost.
    • The next opportunity for an interest rate change is October 30th, but it appears that the appetite to reduce rates in the future is lessening. The Bank of Canada reported that “CPI inflation in July was stronger than expected, largely because of temporary factors. These include higher prices for air travel, mobile phones, and some food items, which are offsetting the effects of lower gasoline prices; Governing Council will pay particular attention to global developments and their impact on the outlook for Canadian growth and inflation”. Temporary factors are improving, which could reduce the need for the Bank of Canada to act on interest rates. https://www.bankofcanada.ca/2019/09/fad-press-release-2019-09-04/

What’s ahead for this week?

  • In Canada, the economic data releases will focus on the housing market. The numbers for July building permits and new housing price index and August housing starts will be announced.
  • In the U.S., a more balanced release schedule is planned for the upcoming week with July’s wholesale inventories, as well as import and export price indices. For August, retail sales and Consumer and Producer Price Indices will be released.

 

Last Month in the Markets: August 1 – 31, 2019

(source: Bloomberg)

What happened in August?

Summer has ended, and for equity investors the hope is that the volatility and uncertainty that has been experienced over the last few months (and as far back as January 2017 when Donald Trump became president) will reduce in both size and frequency. However, the figure below shows that August was not the first month to demonstrate a calmer equity environment.

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

The catalysts for the up-and-down roller coaster August are not new, and they will continue to influence September and beyond. Since most Canadians invest their retirement savings domestically and in the U.S. some of the issues affecting us most are:

  • The U.S./China trade war that continues to ebb and flow. The rhetoric over the last month ended on an upswing after Trump indicated that negotiations would resume. This was following tit-for-tat actions of restrictive tariffs and threats from both sides.
  • The global economic slow-down, its timing and its depth as countries like Germany experience a manufacturing slump led by lower automobile sales.
  • The Federal Reserve will respond to these two situations (above) to protect the U.S. economy’s growth, employment levels and inflation rate. Recently President Trump criticized the Fed Chair, Jerome Powell, insisting he was incompetent and causing damage to their economy. Ironically, Mr. Powell was appointed to his post by Mr. Trump.
  • The Bank of Canada’s response to our own economic performance and any actions by the Federal Reserve will influence our equity markets.
  • The approaching deadline of October 31st for a negotiated settlement of Brexit will affect the growth of European economies.

What’s ahead for September and beyond?

For many Canadians, September signals the beginning, not the end, of the year. The vacation-heavy summer, when it is often difficult to get projects accomplished at work or at home, has passed, students are returning to a fresh year of studies, and the fall leaves signal the start of a new cycle of renewal.

Autumn 2019 brings several items forward that will shape the remainder of this year and, perhaps, many years to come. The trade war between the United States and China will continue, and its ebbs and flows will cause volatility to continue. Brexit will have Europe in turmoil, mostly the U.K., until the current deadline of October 31st for a negotiated departure. China will face internal struggles with Hong Kong. Argentina and Venezuela, and now Brazil, will keep South America in the news for its political and economic instability and natural disasters. Middle East tensions, rarely quiet, will not abate. Global economic growth rates, along with inflation and employment, will guide monetary policy around the world, but most importantly in the U.S.

Lastly, after the summer recess American legislators will begin debating the merits of the U.S. – Mexico – Canada trade agreement. It is unclear whether Democratic lawmakers are willing to approve this trade in the House of Representatives and provide their rival, President Trump, with a “win” as the next election approaches in November 2020.

It will be a busy time for all, and investing in a robust, long-range plan and monitoring process is as important as it’s ever been.

 

Last Week in the Markets: August 26 – 30, 2019

(source: Bloomberg)

What happened?  

  • The most influential economic factor of late, the trade war between China and the United States, played a lead role again last week. Thankfully, it was positive news as the leaders on both sides of the disagreement toned down their rhetoric and presented a more cooperative stance.
    • The progress was not without some controversy. There are conflicting views about who called whom, and when. It appears that some of the previously announced actions by each side would be delayed so that negotiations could and would resume without additional, new animosity intruding into the process.
    • The TSX trailed the S&P 500, the Dow and the NASDAQ last week while still gaining more than 2½% after the Canadian economy posted stronger than expected second quarter Gross Domestic Product gains.
    • Each of the North American major indices have rebounded strongly in 2019, posting returns of 13 – 20% year-to-date. Unfortunately, this progress followed an almost equal decline in the second half of 2018. The year-over-year results are between minus 2% and plus 2% for the indices.
  • Gold lost ground last week due in-part to the positive trade news between China and the U.S. after gaining more than $100 USD/ounce since it had its last weekly loss back in early July.
  • More uncertainty emanated from the U.K. as Prime Minister Johnson suspended Parliament in advance of the October 31st

What’s ahead for this week?

  • In Canada, two related economic releases are scheduled for the shortened Labour Day week; the Bank of Canada will have an interest rate decision that will rely on several factors including the employment report for August.

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

 

Last Week in the Markets: August 19 – 23, 2019

(source: Bloomberg)

What happened last week?   

  • Economic and political news dominated the equity markets again last week.
    • The U.S./China trade war reached a new level of antagonism with China’s intent to impose tariffs on over 5,000 American import products and President Trump instructing American companies to look for alternatives to China for their exports.
      • China plans to introduce the latest tariffs in two waves; September and December and includes a 25% tariff on U.S. automobiles.
      • All of this rhetoric and threatening announcements caused a reasonably strong week for equity investors to finish the week in negative territory. Over the course of this month, August, the TSX and the S&P 500 in the U.S. have fallen from record or near-record highs in July back to the levels of early June.
      • Also, with last week’s results, especially on Friday, all of the equity indices in our grid (above) are in negative territory compared with one-year ago.
    • Chair Jerome Powell of the Federal Reserve indicated that they would “act as appropriate” to manage the U.S. economy’s health with interest rate changes in light of the global economy and difficulties with China. For his efforts, he received biting criticism from Trump for not cutting rates already. Trump acted like he forgotten that Powell was appointed to the role by him. Source
    • The G7 meeting over the weekend provided hope for global collaboration, specifically on the Amazon rain forest fires, but true economic cooperation will wait, for now.

What’s ahead for this week?

  • In Canada, as we approach the end of summer 2019, the only significant release will be economic output for the second quarter expressed as Gross Domestic Product (GDP).
  • In the U.S., the same second quarter GDP numbers will be released along with durable goods order and consumer confidence.

 

Last Week in the Markets: August 12 – 16, 2019

(source: Bloomberg)

What happened last week?   

  • The heavy influence of political issues, threats of a global recession and yield rates on the performance of equity markets continued last week. The number of issues, the number of countries involved, and the strength and uncertainty of each issue changes daily.
  • All of the uncertainty has raised the value of traditional safe-haven investments. Gold has risen again this week and is up nearly 19% in 2019 and more than 6% in August alone.

What’s ahead for this week?

  • In Canada, we will receive the latest inflation numbers with the release of July’s Consumer Price Index (CPI), along with manufacturing and retail sales, both for June.
  • In the U.S., it is an uncharacteristic week with only existing home sales and new home sales for July planned for announcement.

 

Last Week in the Markets: August 5 – 9, 2019

(source: Bloomberg)

What happened last week?   

  • During Ontario’s Civic Holiday, which closed the TSX to trading, the U.S. indices began reacting to the latest trade rumours and threats between China and U.S.
    • The introduction of an additional tariff of 10% on $300 Billion of Chinese imports effective Sept 1st sparked an exchange rate retaliation by China. By allowing the yuan to fall in value beyond the 7 yuan per dollar level, China indicated its intention to move past tariffs and restrictions to measures that would include more than just the U.S. This would make Chinese imports cheaper and reduce effects of tariffs. The U.S. labelled China a “currency manipulator”, a charge the People’s Bank of China (PBOC) denied, and the U.S. government was not able to convincingly defend. The hope for a resolution quickly, or even in 2019, has faded dramatically by this latest action and reaction. https://www.economist.com/finance-and-economics/2019/08/06/the-trump-administration-labels-china-a-currency-manipulator
    • According to the World Bank, in the last full-year of data (2017) Chinese imports to the U.S. totalled $430 Billion and represented 19% of all Chinese exports. For comparison, China imports $154 Billion of U.S. goods. https://wits.worldbank.org/CountryProfile/en/Country/CHN/Year/LTST/TradeFlow/Export/Partner/all/
    • The effects to-date of the trade war have been shared unequally. Many elements contribute to an economy’s health, but after a year China’s economy grew by three times the U.S. rate in the second quarter (6.2% to 2.1%) and the trade surplus between the two nations is in China’s favour by $168 Billion. https://www.ft.com/content/4f5cb6de-ba91-11e9-96bd-8e884d3ea203

What’s ahead for this week?

  • In Canada, existing home sales for July is the only economic indicator of significance to be released. It will provide some insight into the consumer income and confidence.
  • In the U.S., July figures for inflation (Consumer Price Index, import and export price indices), retail sales, housing starts and building permits and industrial production and capacity utilizations will be announced.

 

Last Month in the Markets: July 1 – 31, 2019

(source: Bloomberg)

What happened in July?

The first month of the second half of 2019 started out blandly enough. Canada and the United States each celebrated the anniversary of their nationhood during the first short trading week. Soon afterward the North American indices responded positively, and then even more positively the next week, and then again during week 3. Consequently, new highs were established for the U.S. indices before falling back at the close of the month.

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

The TSX had a muted response compared to American indices posting a barely positive return in July compared with 1-2% south of our border. Global returns equalled Canadian performance.

July concluded with the Federal Reserve cutting its benchmark rate by 25 basis points, the first reduction in more than a decade. Typically, a monetary policy move like this would cause an increase in equity values, however the opposite occurred. The sentiment was that the July cut was certain, and equity prices already reflected this eventuality. Any uptick from lower interest rates had occurred. The Federal Reserve hinted that future cuts later in 2019 and into 2020 might not be as certain as first thought. This negative news caused equities to fall at the end of July. Luckily, the U.S. indices had done extremely well during the first 3+ weeks of the month. https://www.federalreserve.gov/newsevents/pressreleases/monetary20190731a.htm

Timeframes are always important when considering performance. For example; consider the last week of July vs the entire month of July. Negative results for one week didn’t eliminate a generally positive month. For an even longer time frame, the indices have returned 14-23% in 2019, but much less over the last year. The range is minus 0.2% to 6½%.

The graphic below shows the year-to-date (YTD) and 1-year returns. The discrepancy is attributed to the significant drop in December 2018, which allowed 2019 to move upward from this most recent dip.

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

As a general rule; as the time frame lengthens, the effects of short-term peaks and valleys lessens, making gains (and often losses) less extreme. Canadians who are investing their savings for retirement should monitor returns and volatility relative to their goals but should focus on long-term results by making well researched investment decision that are aligned to their needs to manage risk, volatility and returns.

What’s ahead for August and beyond?

Similar to July, two major influences will guide equity values in North American where most Canadians have their investments; monetary policy and trade tensions.

The Bank of Canada (BoC) will have a qualitative explanation to the Federal Reserve’s move to raise rates and may provide a quantitative response with its own increase. Until this occurs, Stephen Poloz, Governor BoC, will continue to shroud his actions. If the Fed delivers on further rate reductions, this may force Poloz’s hand, but, again, not until it occurs, and don’t expect clear communication from Fed Chair Powell.

Also, the trade tensions between the U.S. and China will likely continue. It appears, like many international negotiations, that this situation will ebb and flow, but not be resolved. There is too much political risk in the U.S. and too much economic loss for China to end the stalemate quickly or easily. https://www.bloomberg.com/news/articles/2019-08-01/trump-ratchets-up-trade-war-with-new-tariffs-on-chinese-imports

 

Last Week in the Markets: July 22 – 26, 2019

(source: Bloomberg)

What happened last week?

  • With our dollar as the lone exception, it was an all-green week. Since most Canadian investors have their sharpest focus on the performance on equities, last week did not disappoint, unless you were also only focused on Canadian stocks.
    • Renewed efforts to end the U.S./China trade disputes have provided optimism that economic activity between the two nations would resume its former healthy levels.
    • The corporate earnings season, particularly in the U.S., has proved to be better-than-expected. Nearly half the firms in the S&P 500 have reported, and 77% of them have beat profit expectations, and their stock prices reflect this performance. Google led the way with a 10% price increase after their earnings announcement. https://www.barrons.com/articles/earnings-season-so-far-revenue-beats-meet-low-expectations-51564196201
    • American GDP results show that their economy was performing better than thought, but not so well to change the anticipated rate cut by the Federal Reserve. A rate cut this week will make borrowing cheaper for all firms, and it is expected to lead to economic expansion, higher profits and, ultimately, greater equity values. https://www.theglobeandmail.com/business/article-us-federal-reserve-interest-rate-cut-over-rising-trade-war-risks/
    • Last week here at home, the TSX continued its slow, steady upward climb, approximating the results of the Dow, but not nearly as impressive as the S&P 500’s new record high, and the NASDAQ staying very close to its all-time high. The TSX was helped along by the price of oil, and the consumer staples and technology sectors.

What’s ahead for this week?

  • In Canada, the results of our economic health and growth will be released through May’s Gross Domestic Product (GDP), and June’s international trade, numbers.
  • In the U.S., the long-awaited Federal Reserve interest rate decision will finally occur on Wednesday at 2 pm Eastern. Also, personal income and spending, construction spending, durable goods orders, trade balance for June and the employment report for July will be released.

 

Last Week in the Markets: July 15 – 19, 2019

(source: Bloomberg)

What happened last week?

  • It was a difficult week for equities in North America. Although the three major American indices touched new all-time highs, equity indices and the Canadian dollar finished lower.
    • The price of oil suffered a one-week drop of nearly 8%, due to higher U.S. reserves and increased Russian production levels. Despite the heavy loss last week of $4.50/barrel for West Texas Intermediate, the price of oil has surged over 22% in 2019. Only the NASDAQ has performed better this year.
      • The Energy sector of the TSX dragged the overall index downward. Thankfully, the overall loss was negligible at one-hundredth of a percent, far less than the losses suffered in the U.S.
    • President Trump continued to threaten the hoped-for trade deal between the U.S. and China, and his remarks reduced the optimism for a conclusion to the dispute.
    • Two additional contributors to the U.S. stock market decline are the diminished corporate results that are beginning to be reported for the most recent quarter and some new doubt that the Federal Reserve may not cut its benchmark rate in July. https://www.wsj.com/articles/why-weak-corporate-earnings-dont-signal-a-weak-economy-11563631200
  • Recent volatility from political tensions, dubious corporate performance, monetary policy and strengthening economic growth should remind all investors to keep index performance in perspective. The value, predictability, liquidity and risk levels of an individual’s portfolio are far more important than the overall market or any index’s short-term gain or loss.

What’s ahead for this week?

  • In Canada, it will be a light week for economic releases as the quarterly earnings season builds on both sides of the border. Wholesale trade figures for May will be the sole indicator of note scheduled for release.
  • In the U.S., new and existing home sales and durable goods orders for June will be released along with quarterly results for almost 150 firms in the S&P 500 and 10 of the Dow’s 30 firms.

 

Last Week in the Markets: July 8 – 12, 2019

(source: Bloomberg)

What happened last week?

  • The TSX lost one-third of a percentage point while the three major U.S. indices all hit new all-time highs. The Dow and the S&P 500 cleared two milestones, 27,000 and 3,000 points, respectively for the first time. Although the TSX is only 1% below its own record high, the success of equities south of the border casts a shadow over the 15% gain for the TSX in 2019.
  • Most of the increase for the American indices is being attributed to monetary policy. The Federal Reserve (Fed) Chair, Jerome Powell, reiterated his position that the Fed could counteract the negative effects of trade tensions in his semi-annual testimony before Congress. The Fed “strongly supports the goals of maximum employment and price stability (inflation)”. Currently, inflation is below their target of 2%, therefore an opportunity exists to cut rates to drive economic growth and increase employment should the uncertainty in global economics and politics continue. https://www.federalreserve.gov/newsevents/testimony/powell20190710a.htm
  • Here at home, the Bank of Canada (BoC) kept its key interest rate unchanged at 1.75% in its announcement on Wednesday. Although global trade tensions have lowered predictions for Canadian economic growth, our economy has rebounded slightly, employment and wage gains are positive, and prices are aligned with our central bank’s goals. A short video presentation is available for viewing at https://www.bankofcanada.ca/2019/07/mpr-2019-07-10/
  • Three weeks ago, the Fed made the same decision to maintain their benchmark interest rate, but the allusions of a rate cut by Powell have driven their equity markets to new heights.

What’s ahead for this week?

  • In Canada, manufacturing and retail sales figures for May along with June inflation, through the Consumer Price Index (CPI) will be released.
  • In the U.S., a more robust and balanced week for economic news awaits with June’s import and export price indices, housing starts and building permits, retail sales and industrial production and capacity utilization scheduled for announcement.

 

Last Week in the Markets: July 1 – 5, 2019

(source: Bloomberg)

What happened last week?

  • Now that we’ve moved past Canada Day and Independence Day, the 1st and the 4th, respectively, some interesting and purely coincidental numbers have emerged:
    • Both the TSX and the Dow have gained exactly the same amount at 15.41% year-to-date;
    • The Canadian dollar’s gain this year when added to the TSX advance (4.24% + 15.41%) is almost equal to the S&P 500’s increase of 19.29%;
    • Last week gold lost exactly the same amount, $13.60, that it gained the preceding week;
    • Lastly, the S&P 500 and the Dow hit new highs at 2,996 and 26,966. The NASDAQ also reached a new high, peaking at 8,176.
  • The TSX delivered a solid 1% gain last week, led by technology and industrial sectors. The drop in the price of oil didn’t help as the Energy sector prefers rising prices.
  • The MSCI All Country World Index (ACWI) turned in a similarly strong performance last week by moving ahead over 1%, and over 16% for this year. The developed markets have gained more than 17% and emerging markets have gained just under 10% in 2019. Both are very strong performances despite 10% seeming lacklustre (source: https://www.msci.com/end-of-day-data-search).

What’s ahead for this week?

  • In Canada, the Bank of Canada will release its latest interest rate decision. A recent rise in Gross Domestic Product growth in Canada has reduced the need for a rate cut. It has not been typical for our central bank to adjust interest rates ahead of changes from the Fed in the U.S. Thankfully we will only have to wait until Wednesday to know our latest monetary policy moves.  (source: https://www.theguardian.pe.ca/business/panel-of-economists-believe-bank-of-canada-will-hold-its-overnight-rate-330391/)  Additionally, housing information will be announced with May’s building permits and new housing price index and June’s housing starts.
  • In the U.S., inflation numbers will dominate the economic news with both the Consumer Price Index (CPI) and the Producer Price Index (PPI) being released along with May’s wholesale inventory numbers.

 

Last Month in the Markets: June 3 – 28, 2019

(source: Bloomberg)

What happened in June and the first half of 2019?

The first half of the year (H1) was one of the best for equities since major indices were established and tracked. The YTD, Year-to-Date, numbers in the table above outlines the tremendous gains achieved so far in 2019.

The technology-heavy NASDAQ has moved ahead over 20% since the New Year, and the broad-based S&P500 and the TSX have gained more than 17% and 14%, respectively. The Dow Jones Industrial Average, which is comprised of 30 large U.S. corporations is also up over 14%. A vast majority, 26 of 30 firms, are in positive territory for 2019, which is a major accomplishment with the pressures of competition and on-going trade issues between the U.S. and China. (source: https://money.cnn.com/data/dow30/)

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

Each of the major North American indices achieved their peaks after a little more than four months, by early May.

Over the past five years of first halves, 2019 is the best 6-month period to start any of those years. The height of the shaded boxes, above right, show the spike in share prices that have occurred. 2019’s gain followed a steep decline in H2 2018.

The results of the last 8 weeks are similar to the last 12 months. In both cases, the first half of the period showed a decline followed by a recovery that eliminated those losses. For the last year, and in the U.S., the recovery has added 7-10% to the value of the index. In Canada the TSX has gained less than 1% over the same period.

Thankfully, the last month showed great returns for equity owners, especially those concentrating on the U.S. where about 7% was added to the indices (S&P 500, Dow, NASDAQ).  The influences for equity gains were predictable:

  • On-going trade disputes between the U.S. and China threaten global economic growth as the two largest economies fight to “protect” themselves
    • However, the Federal Reserve in the U.S. has indicated a willingness to cut interest rates to counteract any losses from the trade war with China.
  • Low interest rates, and the potential for a reduction in July, make consumer purchases and corporate expansion less costly
  • Jobs, employment and wages gains continue to fuel economic growth in the U.S.

Canada, whose largest trading partner is the U.S., continues to benefit from their expansion, but in a muted and delayed fashion. The Canadian economy, like the Bank of Canada, continues to operate in a wait-and-see mode. Our economy is driven largely by the health of the U.S. economy. The prices of commodities (oil, minerals, materials) is driven by global demand, and, again, by our largest trading partner and global economic leader, the U.S.

In the parlance of economics there are market-makers and market-takers. Canada is very much a “taker” meaning that we’ll take what others will give us. That is, the demand generated by our economy and the size of our output does not have much influence on global prices and markets.  We will continue to rely on other economies and be subject to the domestic effects of their international actions.

What’s ahead for July and the second half of 2019?

Trade-trouble, or diplomatic progress, will drive equity markets and monetary policy in the short term.

Following the G20 Summit in Osaka, Japan, the likelihood of a rate cut in July by the U.S. Federal Reserve has not changed much. The relationship between the U.S. and China on the trade issue that drives the potential rate cut has also not changed. The U.S. is still imposing tariffs on $250 Billion in Chinese imports, and China is responding with tariffs and restrictions to match American efforts. However, there is a renewed commitment to reach a solution.

Now that the outlook with China appears to be brightening, President Trump seems to be taking aim at the European Union and threatening restrictive action. Europe will face additional trade pressure as the U.K. is getting closer to selecting a new Conservative leader, who will become Prime Minister. Either Boris Johnson or Jeremy Hunt will lead them through the final stages of Brexit to the October 31st deadline.

 

Last Week in the Markets: June 24 – 28, 2019

(source: Bloomberg)

What happened last week?

  • Compared with many recent 5-day sessions, the performance of equities last week seemed tame. The North American indices were all down, but less than 1% in all cases. The last time that these four indices moved in the same direction and all gained or lost less than 1% was during the first week of February. Many events occurred last week as we enter into a slower period when Canada and the U.S. each celebrate the anniversaries of their independence.
    • The factors contributing to this mild loss, like the mild gain in February, were competing good and bad news, and a level of uncertainty of the effect or likelihood of the news.
      • The G20 meeting in Osaka gave Presidents Trump and Xi an opportunity to discuss their continuing trade war, but it was only beginning week’s end. Markets relied on rumour and speculation regarding progress. No new tariffs were announced, but by the end of the summit existing tariffs remained in-place.
      • With the trade dispute possibly defusing between the U.S. and China, July’s anticipated rate cut by the Federal Reserve may be smaller than first predicted.
      • The U.S. imposed sanctions on Iran, raising tensions across the oil-producing Middle East causing the price of oil to rise. The increase in the price of oil allowed the Energy sectors of indices to gain, while over-all they fell.
      • The TSX, which has a heavy weighting of its Energy sector did not benefit in this way. All TSX sectors except Healthcare fell last week on less than stellar economic and corporate performance news.

What’s ahead for this week?

  • In Canada, the shortened week with Canada Day on Monday has a light release of economic data scheduled; May’s international trade and June’s employment report.
  • In the U.S., Thursday’s Independence Day celebration has our American neighbors releasing a similarly short list of indicators; May’s trade balance, durable goods orders and construction spending, along with June’s employment report.

 

Last Week in the Markets: June 17 – 21, 2019

(source: Bloomberg)

What happened last week?

  • The results were all-green last week as monetary policy, diplomacy and government actions worked together.
    • Much of the gains in value of North American equities can be attributed to the U.S. Federal Reserve, which did not cut its benchmark interest rate as some had hoped, more than hinted that near term cuts were still a strong possibility.
      • Chairman Powell has communicated the Federal Open Market Committee’s (FOMC) concern that slowing global economic growth and trade concerns could cause the U.S. economy’s growth rate to slow. If and when this occurs, the Fed will fulfill its mandate to protect Americans against inflation and unemployment through monetary actions. In the orbit of monetary policy announcements this is strong, indicative language and the markets reacted accordingly.
      • More information can be found on the Fed’s website, which includes articles, announcements and the video of last week’s press conference at: https://www.federalreserve.gov/newsevents.htm
    • On the diplomatic front it appears that President Trump and China’s Chairman Xi will meet to discuss trade at the G20 conference later this week in Osaka, Japan.
    • Locally the TSX’s Energy sector received long awaited good news as the Canadian government approved the Trans Mountain pipeline expansion. Expect more political wrangling and legal action before the project begins.

What’s ahead for this week?

  • In Canada, adding to last week’s Consumer Price Index (CPI), which tracks inflation, this week the Gross Domestic Product (GDP) for April will be released. After these two indicators we’ll know about prices and how much the economy is growing.
  • In the U.S., a number of indicators for May will be announced; new and pending home sales, wholesale inventories and durable goods orders, and personal income and spending.

 

Last Week in the Markets: June 10 – 14, 2019

(source: Bloomberg)

What happened last week?

  • From a results perspective, equities returned to normal, reasonable levels with each of the North American indices returning about one-half of one percent last week. The weeks of 2, 3 and 4% gains seem wonderful at the time, but are usually surrounded by weeks with losses of 2, 3 and 4%. Four of the last six weeks saw significant losses for the indices tracked in the grid (above), and each index is below its most recent high of May 3rd.
    • These large swings have been difficult to avoid, especially when the world’s two largest economies, China and the United States, are engaging in a trade dispute filled with threats and retaliation. Solid planning with vigilant monitoring is still the best option.
    • The growing belief that a rate-cut by the Federal Reserve has tempered the effects of the trade rhetoric, at least temporarily. “The fed fund futures market now show traders see a 72% chance of a rate cut at the Fed’s July 31 meeting, and an around 23% probability of a rate cut in the June 19 meeting.” (Source:
    • https://www.marketwatch.com/story/traders-now-see-75-chance-of-fed-rate-cut-in-july-2019-06-05)
    • The prospect of a rate-cut has equity investors maintaining a more optimistic than pessimistic view. Especially when, many indicators like slowing inflation, increasing job openings and decreasing unemployment show that the American economy is performing well. Without the spectre of a trade war it is unlikely that a rate-cut would be needed. If cooperative treaties are signed by the U.S. a decrease to the Federal Funds rate will disappear along with the trade tensions.

What’s ahead for this week?

  • In Canada, the Consumer Price Index (CPI) for May will be released indicating our most recent inflation for households, along with April’s retail sales numbers.
  • In the U.S., the Federal Reserve will announce an interest rate decision which will either confirm or deny the recent rumours of a cut. Also, May’s housing starts, building permits and existing home sales will be released.

 

Last Week in the Markets: June 3 – 7, 2019

(source: Bloomberg)

What happened?  

  • It was a volatile week for equities, but by week’s end major gains had been made that were able to eliminate or well surpass the losses from the previous week. Again, trade rhetoric dominated the news and provided the most significant influence to the financial markets
    • The Chinese government announced that they would proceed with additional tariffs on two-thirds of American imports in retaliation to President Trump’s actions.
    • The Federal Reserve indicated publicly through Chairman Jerome Powell that interest rates could and would be used to protect the U.S. economy as trade difficulties escalated with China and elsewhere. The increasing expectation that this could mean a rate-cut to generate economic growth may be a significant influence next week since it could maintain the corporate performance that drives the equity markets.
    • At the end of the week the threatened tariffs against Mexico, which could have started at 5% and risen to 25% had been cancelled. It appears the “new” agreement that prompted the cancelation of the tariffs is based on pledges already made by Mexico to slow the flow of migrants to the U.S. southern border (source: https://www.nytimes.com/2019/06/08/us/politics/trump-mexico-deal-tariffs.html). It seems that President Trump created and inflated a problem that had already been solved and put all those who have invested in the markets through a wringer unnecessarily.

What’s ahead for this week?

  • In Canada, the economic releases will be dominated by housing statistics with the latest building permits and new housing price index being released.
  • In the U.S., two major indices will be released; the Consumer Price Index (CPI) and the Consumer Confidence Index (CCI). The CPI will describe the recent inflation numbers for individuals and families, while the CCI will define their view of the economy and how it affects them personally in the short-term.

 

Last Month in the Markets: May 1 – 31, 2019

(source: Bloomberg)

What happened in May? 

Equity markets suffered badly from the restrictive trade actions, comments and threats that dominated the news again last month. President Trump was a major contributor as he used tariffs as a cure-all for American economic and personal political ailments.

The ongoing dispute between the world’s two largest economies, U.S. and China, has trade restrictions negatively affecting global stock markets. That is, the restrictive trade actions between these two countries will slow economic growth for them and for other economies that buy or sell goods and services directly or indirectly with them. This dispute makes ‘the pie smaller’ for everyone and everyone’s slice smaller, too.

As May concluded, President Trump announced a 5% tariff on all imports from Mexico as motivation to stop the flow of migrants into the U.S. This punitive measure is set to increase by 5% each month to a maximum of 25% until the flow of migrants ceases. In 2018 imports from Mexico were $346 Billion, and at the maximum 25% tariff level an additional $87 Billion in tariffs/costs would be generated. (source: https://www.census.gov/foreign-trade/balance/c2010.html)

President Trump doesn’t understand, or doesn’t want to admit, that tariffs increase costs and the price to purchasers of imported goods.  He wants to focus on the funds that are generated for the U.S. Treasury without admitting that his tariffs amount to an import tax for the buyers. https://twitter.com/realdonaldtrump/status/1069970500535902208

Ironically, Trump simultaneously stated that he wants the USMCA (U.S. Mexico Canada Agreement) trade treaty to be approved and implemented in Congress. It seems unlikely that free-trade legislation could pass while a restrictive Executive Order is in-place against one of the treaty partners. For a more in-depth understanding, John Cassidy’s recent New Yorker article provides excellent background at https://www.newyorker.com/news/our-columnists/trumps-crazy-mexico-tariff-is-stoking-a-meltdown-on-wall-street

The U.S. and China aren’t the only two countries who are contributing to the recent stock market losses through their international trade actions. The continued, unsuccessful effort to reach an agreement in Parliament caused Prime Minister Theresa May to tender her resignation. Once a new leader is chosen, she will step-down. In the short term the prospect of a no-deal Brexit continues to loom, which could cause additional trade turmoil.

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

Many other economic and political events occurred last month; interest rate announcements, European Parliament elections, OPEC meetings, a Robert Mueller press conference, growing sentiment toward impeachment, and yet the capital markets honed-in on and reflected the news and events that most directly will affect the performance of individual firms and the global economy – trade. If nothing else, the efficiency of these markets has been proven again with the rapid reactions to rhetoric. Unfortunately, the negative messages also prove that disruptions to international trade damages both individual economies (like the U.S., China and the U.K.) and global economic activity.

What’s ahead for June and beyond?

After a tumultuous May, making predictions for June and the summer of 2019 seem less and less savoury. Certainly, trade tensions will continue as political leaders, especially President Trump, will attempt to sway voters to the opinion that protecting American workers and farmers with tariffs provides real benefits beyond patriotism.

Summer has traditionally seen lower trading volumes as traders and investors take well deserved vacations, which may mute some of the effects of international trade disputes.

 

Last Week in the Markets: May 27 – 31, 2019

(source: Bloomberg)

What happened last week?

  • Trade talks, threats and rhetoric featured prominently in the news last week and had a devastating effect for investors in the short term. The TSX was the leader with a drop of ‘only’ 1%, while the U.S. indices approached or exceeded a 3% fall.
    • Trump and his administration indicated that they were not ready to conclude talks and arrive at a trade treaty with China, and further threatened Chinese interests with more punitive trade actions, particularly technology firms, who were accused of spying.
    • China responded more subtly with their leader visiting rare earth mineral deposits which are necessary for the manufacture of mobile phones to make a veiled threat that these necessary factors of production would be withheld.
    • While touting the benefits of NAFTA’s replacement Trump announced a new tariff on all goods from Mexico unless the flow of migrants stops. The tariff will start at 5% and increase by 5% monthly to a maximum of 25% unless the flow of migrants ceases.
      • Trump believes, or at least states, that the collected tariffs flow to the U.S. Treasury without stating that it is U.S. companies and consumers are the ones who actually make those payments in the form of higher prices.
    • The drop in the indices was broadly delivered. All sectors in the S&P 500 lost ground last week, Canada’s TSX had major losses in the energy, healthcare, consumer discretionary, financial sectors.

What’s ahead for this week?

  • In Canada, it will be a light week for economic reporting with the employment report for May being the only data release of note.
  • In the U.S., May’s employment data will also be released along with April’s factory and durable goods orders, construction spending, wholesale inventories and, finally, the trade balance. The trade balance numbers could provide some insight into the motivation for past and future trade rhetoric from President Trump.

 

Last Week in the Markets: May 20 – 24, 2019

(source: Bloomberg)

What happened last week?

  • Seemingly, the only positive news coming out of Toronto in the past week was the Raptors’ victory over the Milwaukee Bucks. The NBA and Stanley Cup finals begin tonight and could provide a diversion for those who have been disappointed by their equity portfolios recently.
    • The TSX, like the S&P 500 and Dow, lost 1% last week, mirroring the loss globally as expressed by the MSCI All Country World Index. The NASDAQ dropped more than 2%!
    • The financial losses in Toronto are mostly attributable to the energy, materials, industrials and health care sectors. The banking sector who are reporting second quarter results performed better than the rest of the TSX by dropping one-third of a percent (0.0037%) for the week.
    • China and the U.S. continued their trade war, and any impending resolution seems much more unlikely on Friday than it has in weeks. The accusations, denials and comments escalated as last week passed, and appear to be driven by the U.S. president.
    • K. Prime Minister Theresa May tendered her resignation over the lack of progress in parliament for Brexit plans. She will remain in her role until a successor is named, but “changing horses midstream” makes the possibility of a no-deal Brexit more possible, as well as remaining in the European Union. Whichever solution ultimately occurs May’s resignation has increased the level of uncertainty.

What’s ahead for this week?

  • In Canada, the number of economic releases is small, but the they are significant. The Bank of Canada (BoC) will announce an interest rate decision, and Gross Domestic Product (GDP) for March will be released. The GDP numbers will have influenced the BoC’s rate decision.
  • In the U.S., markets will be closed Memorial Day on May 27th. First Quarter GDP, and April’s wholesale inventories and personal income and spending will be released later in the week.

 

Last Week in the Markets: May 13 – 17, 2019

(source: Bloomberg)

What happened last week?

  • It was a wild week for North American equities as the trade-war rhetoric between China and the U.S. continued with alternating positive and negative statements.
    • On Monday China announced retaliatory measures on the importation of U.S. goods to Trump’s announcement to increase tariffs from 10% to 25% late the previous week.
    • For the next two days, as equity markets tumbled negotiators and leaders from both countries hinted at more negotiations and progress toward reaching a new agreement.
    • A threat to subject Chinese telecommunications manufacturer, Huawei, to U.S. tariffs drove markets down since any disruption to the $11 Billion of trade would be notable.
    • The week concluded with the U.S. ending the steel and aluminum tariffs and Canada and Mexico cancelling their retaliatory actions. All legal actions by the three countries at the World Trade Organization (WTO) have also ended.
      • The next focus for the Trudeau government in this area will be to get the replacement for NAFTA, the “USMCA”, passed by American legislators.
    • In other encouraging news the first quarter earnings season has nearly concluded with more than half of companies reporting stronger results than the same period last year.

What’s ahead for this week?

  • In Canada, after Monday’s close for the Victoria Day holiday retail sales and wholesale sales will be released.
  • In the U.S., it will be a similarly light week for economic announcements as they prepare for their upcoming Memorial Day weekend. Existing home sales and durable goods orders will be announced along with the Federal Reserve’s Open Market Committee’s minutes.

 

Last Week in the Markets: May 6 – 10, 2019

(source: Bloomberg)

What happened?   

  • It is often difficult to attribute the performance of individual stocks or entire equity indices to specific economic influences. Each day and week many leading and lagging indicators represent conflicting and contradictory situations, often leaving investors scratching their heads. Market analysts sift through the array of information and make investment decisions; switching between equities, moving capital in and out of asset classes. Last week there was no question what the news was that drove North American and global equities downward.
    • Trump announced the tariffs on $200 Billion of Chinese imports would increase from 10% to 25%, and another $325 Billion of imports would also be subjected to the same 25% tariff. In an expected and natural reaction China promised tit-for-tat trade action by promising their own set of trade restrictions.
    • Restrictive trade measures cause the size of the pie to shrink more than any piece can get bigger.
      • As a result, the equity markets retreated significantly since the opportunity for firms to buy and sell with China became more expensive and would diminish or eliminate profits on that trade.
      • This trade action by Trump seems to fulfill only one objective; it appeals to his grass-roots political base.
    • Thankfully, the TSX where most Canadians have their retirement savings invested performed better than almost all other regions, and certainly much better than the U.S. major indices.

What’s ahead for this week?

  • In Canada, the major news will be inflation with the release of April’s Consumer Price Index (CPI) along with existing home sales for the same period and March’s manufacturing data.
  • In the U.S., a varied set of information will be announced; April’s import and export price indices, industrial production and capacity utilization and housing starts and building permits.

 

Last Week in the Markets: April 29 – May 3, 2019

(source: Bloomberg)

What happened?    

  • The news last week was a mixture of both good and bad. Consequently, the performance of North American equities was also mixed, with the TSX declining and U.S. indices flat overall.
    • The Bank of Canada (BoC) Chair Stephen Poloz suggested to a Senate committee that a rate hike could be possible if some of the impediments to economic growth are removed, like trade tensions between Canada, the U.S., and China.
    • Canadian Gross Domestic Product (GDP) shrank in February (source: https://www150.statcan.gc.ca/n1/daily-quotidien/190430/dq190430a-eng.htm).
    • The U.S. Federal Reserve has indicated that the next interest rate adjustment will not be a reduction, as some investors had hoped. This patient approach is aligned with their earlier statements and matches the desire to slowly normalize rates (move to more traditional and familiar levels), not contribute to slowing economic growth, and to keep inflation low.
    • In the U.S. 263,000 jobs were added in April and unemployment fell to its lowest level in nearly five decades (source: https://www.bbc.com/news/business-48145563). Manufacturing productivity, consumer confidence and spending are rising, as inflation holds low and steady.
    • The uptick at the week’s end in equities relied upon the continued strong profits as first quarter reporting neared its completion.
      • This short summary of last week’s mixed news and results demonstrate the varied influences and effects that can result.

What’s ahead for this week?

  • In Canada, several housing indicators will be released with new housing prices and building permits for March, and April’s housing starts. Additionally, the employment report for April will be announced, during the week following a surprisingly positive U.S. jobs report.

 

Last Week in the Markets: April 15 – 19, 2019

(source: Bloomberg)

What happened last week?

  • The TSX reached a new all-time high last week as a great Thursday preceded Good Friday. After gaining nearly 16% this year it has eclipsed its previous maximum achieved in mid-July 2018.
    • The result of the provincial election in Alberta, and the continued combative relationship between Ontario and Ottawa, should produce lots of news, but hopefully will not cause a reversal of recent success in our domestic equity market.
  • Last week’s gain in equity prices occurred as the quarterly earnings season began. Corporations in Canada and the U.S. will continue to deliver their results throughout this week, with many of the biggest corporate names announcing the latest quarter’s results. Their success against expected results will fuel gains or losses for U.S. equities.
    • Those firms reporting could see their share prices react quickly to missed or exceeded expectations. It should be an interesting week.
    • Expectations have been cautious, but after a few days the results are on the positive-side of expectations, not slowing as much as had been anticipated, and have driven up share prices accordingly.

What’s ahead for this week?

  • In Canada, on Wednesday we will receive the Bank of Canada’s latest interest rate decision on heels of last week’s inflation numbers of 1.9%, which is just below the target of 2% (source: bankofcanada.ca). Also, February’s wholesale trade sales will be announced.
  • In the U.S., housing data will dominate the news with March’s new and existing home sales, housing starts and building permits being released. First quarter Gross Domestic Product (GDP) will show the growth rate of the American economy in 2019.

 

Last Week in the Markets: April 8 – 12, 2019

(source: Bloomberg)

What happened?    

  • The International Monetary Fund (IMF) downgraded their forecast for 2019 global growth from 3.7% to 3.3%, and 2020 has been trimmed by 0.1% to 3.6%. The IMF warned that forecasts could be cut further based on trade tensions, shocks to the European economy from Brexit and effectiveness of China’s stimulus actions.
  • British PM Theresa May negotiated a new Brexit deadline of October 31st with the 27 other EU members. This extension provides more opportunity to achieve a deal, and could provide a calming influence over European stock volatility over the next few months.
  • An additional calming, and positive, influence for equities is the optimistic outlook for U.S./China trade negotiations. Of course, it has been tempered by a new EU/U.S. dispute over aircraft manufacturing subsidies and tax breaks with both sides claiming injury
  • The price of oil reached a 5-month high, but it is still $12/barrel and about 20% below last October’s peak. The upward price pressure of an OPEC production cut and political problems in Libya and Venezuela has beaten back the negative effects of the predicted economic slowdown.
  • The Ontario PCs are pursuing increased austerity in their budget to reduce the debt-to-GDP ratio. The Health and Education ministries that comprise about 60% of provincial spending and will be relied upon to achieve fiscal goals. A more comprehensive summary can be found at: https://www.theglobeandmail.com/canada/article-ontario-budget-2019-what-you-need-to-know-about-doug-fords-spending/

What’s ahead for this week?

  • In Canada, February’s retail and manufacturing sales will be released along with March’s inflation through the Consumer Price Index (CPI).
  • In the U.S., the trade balance for February will be released, and retail sales, housing starts, industrial production, capacity utilization for March.
    • Earnings season for the more recent quarter began last week, and continues this week, with corporate performance predicted to be lower than the same period last year. It will be a bumpy week for North American equities if performance is below expectations.

 

Last Week in the Markets: April 1 – 5, 2019

(source: Bloomberg)

What happened?    

  • North American indices had another stellar week – all rose by nearly 2% or more. The major indices set fresh year-to-date highs and are nearing the highs of last summer and fall.
    • The TSX relied heavily on the Financial and Energy sectors for the gain as both interest rates and oil prices continue to creep higher. These two sectors comprise a little more than half the weight of the overall benchmark, with four of the major Canadian banks, Enbridge, Suncor and TransCanada in the list of top ten constituents.
    • American economic data are indicating that recent recession fears were either ill-timed or unnecessary. The bond yield curve has regained its normal shape after a short period when short term rates are higher than long term rates. This “inverted curve” has signalled that an economic recession is about to begin.
      • Additionally, optimism is growing that the China/U.S. trade negotiations might achieve the long-promised treaty that will deliver more recession-abating economic activity between the two countries and beyond.
    • Brexit negotiations may continue even longer as British Prime Minister Theresa May seeks to extend the deadline to June 30th from its already extended end of April 12th. French President Emmanuel Macron is taking the hardest negotiating stance to prevent repeated extensions for the U.K. as they attempt to withdraw from the European Union with a negotiated exit.
      • This uncertainty did not dampen global or European markets last week, and the current Friday deadline should cause some movement as a deadline is set or not.

What’s ahead for this week?

  • In Canada, housing data will dominate this week’s economic releases with February’s new house price index and building permits and March’s housing starts on the schedule.
  • In the U.S., the major announcements will be March’s Consumer and Producer Prices Indices (CPI and PPI, respectively). Price stability in the form of low and predictable inflation, along with employment, is a major goal of the Federal Reserve and both guide monetary policy.

 

Last Month in the Markets: March 1 – 31, 2019

(source: Bloomberg)

What happened in March?

The most recent month for equities was more volatile than the entire first quarter of 2019.  Although one quarter (3 months) is still a short time horizon, the differences shown in the two charts below demonstrates the necessary focus on longer-term results for retirement savings.

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

Some of the factors contributing the first quarter and March were:

  • On March 6th the Bank of Canada (BoC) continued to hold its benchmark lending rate unchanged. The rate has been at 1.75% since October 31st of last year and will be held at this level until at least late April when the next interest rate decision will be announced.
  • During the first full week of the month, a poor U.S. jobs reports that fell far below expectations indicated the continued slowing of the American economy. Only 20,000 non-farm jobs were created in February.
  • March 11th to 15th was another “all green” week, perhaps in honour of St. Patrick’s Day, or more likely based more on Jerome Powell U.S. Federal Reserve Chair, continuing to indicate that their central bank is not planning on increasing interest rates in the near future.
  • European economic production was above expectations, even in the U.K. where Brexit results remain heavily in-doubt. During debate in the House of Commons British Prime Minister, Theresa May, lost her voice and a Brexit vote by a margin of 149 MPs. It is a significant improvement from her 230-vote defeat in January, but it was still a significant shortfall. A third vote was held, and again it was closer than the previous tally, but still fell well short of the majority approval needed to achieve a negotiated Brexit. The April 12th deadline approaches!
  • On March 19th, Canada’s Minister of Finance, Bill Morneau, released his latest and last budget before the next federal election that will occur no later than October 2019. The budget, entitled “Investing in the Middle Class”, included additional investment and income opportunities through the use of annuities in retirement, and a new Minister for Seniors to “help the Government better understand the needs of Canadian seniors”, set up further implementation actions for a national “pharmacare” (prescription drug) program, among other items.
  • The next day the Federal Reserve confirmed its earlier indications by holding its benchmark lending rate, the federal funds rate, unchanged at 2¼ to 2½%. The announcement was published online at https://www.federalreserve.gov/newsevents/pressreleases/monetary20190320a.htm
  • Politically and legally a summary of the “Russia investigation” stated that no collusion occurred between the Russian government and the Trump presidential campaign. More details and debate will occur, but this development may allow the U.S. government to focus on the economy (not political infighting), which would be good news for investors.
  • The SNC-Lavalin affair continues to grind its way through the House of Commons, subcommittees, and the popular press. The Liberals and Prime Minister Trudeau have taken serious criticism from almost all quarters as the next election continues to loom.

What’s ahead for April and beyond?

The most significant financial event for Canadians will occur with the personal income tax deadline of April 30th unless you qualify for an exemption. Consult your tax specialist in all cases.

 

Last Week in the Markets: March 25 – 29, 2019

(source: Bloomberg)

What happened last week?

  • The major North American indices finished higher than they started on Monday. The TSX barely achieved this goal, while the U.S. indices had very healthy weekly total returns. The effect of domestic and international political influences on the market were continuous last week.
    • The SNC-Lavalin affair continues to grind its way through the House of Commons, subcommittees and the popular press. The Liberals and Prime Minister Trudeau have taken serious criticism from almost all quarters as the next election continues to loom.
    • Although much more is still to be discussed regarding Robert Mueller’s finding that Trump’s campaign did not collude with Russia, the report provided optimism that the U.S. government could begin to focus on boosting their economy, such as; growing the American economy through international trade by replacing NAFTA, removing steel and aluminum tariffs and negotiating a trade deal with China.
    • British Prime Minister Theresa May suffered a third defeat (344 votes to 286) on her Brexit plan as the April 12th deadline approaches. May is attempting to follow the mandate of the people, while the MPs are dissatisfied with the terms of her exit plans. It is possible that a general election may be called to overcome this impasse.
    • International and domestic bond yields continued to dance-around and confuse the likelihood of a recession in Canada and globally, which will be decided over time.

What’s ahead for this week?

  • In Canada, the most important data release for this week is March’s employment report. Watch for the number of new jobs added and the proportion which are full-time to provide insight into our economy’s health.
  • In the U.S., the same employment report for March will be released for their economy. The last report for February was disappointing, a similar report will fuel speculation that the economy is slowing further, a pleasing report will reverse the trend. Employment data will be taken in context of February’s construction spending, durable goods orders and retail sales.

 

Last Week in the Markets: March 18 – 22, 2019

(source: Bloomberg)

What happened?   

  • Bill Morneau, Minister of Finance, released the latest and last budget before the next federal election that will occur no later than October. The budget is entitled “Investing in the Middle Class”. Highlights include:
    • Additional investment and income opportunities through the use of annuities in retirement have been created, and a new Minister for Seniors has been established to “help the Government better understand the needs of Canadian seniors”.
    • Implementation of a national “pharmacare” (prescription drug) program to remove financial hardship for sick Canadians is moving closer to reality.
    • First time home buyers could achieve lower payments with a new arrangement through the Canada Mortgage and Housing Corporation (CMHC).
    • On Wednesday the Federal Reserve announced that it was holding its benchmark lending rate, the federal funds rate, unchanged at 2¼% to 2½%. The announcement was published online at https://www.federalreserve.gov/newsevents/pressreleases/monetary20190320a.htm
    • Politically and legally a summary of the “Russia investigation” stated that no collusion occurred between the Russian government and the Trump presidential campaign. More details will surely follow but this development may focus the U.S. government on the economy which could be good news in the short term for investors.

What’s ahead for this week?

  • In Canada, the strength of the economy will be released through Gross Domestic Product (GDP) data for January. The rate of GDP growth is a major indicator of economic health and delivers significant influence over our stock market.
  • In the U.S., February’s housing starts and building permits, personal income and spending, new home sales and January’s trade balance will be released. Each of these indicators’ health will eventually manifest themselves in U.S. GDP numbers.

 

Last Week in the Markets: March 11 – 15, 2019

(source: Bloomberg)

What happened?   

  • It was another “all green” week, perhaps in honour of St. Patrick’s Day, celebrated yesterday, or more likely based on the following influences:
    • Jerome Powell, U.S. Federal Reserve Chair, continued to indicate that their central bank is not planning on increasing interest rates in the near future, based on the U.S. and global economic growth slowdown.
    • The uncertainty of trade treaty negotiation and implementation (between the U.S. and China, and NAFTA’s replacement) is delaying economic benefits and the central bank is unlikely to raise rates with these downward pressures looming.
    • European economic production was above expectations, even in the U.K. where Brexit results remain heavily in-doubt. During debate in the House of Commons British Prime Minister, Theresa May, lost her voice and the most recent Brexit vote by a margin of 149 MPs. It is a significant improvement from her 230-vote defeat in January but is still a significant shortfall to receive domestic approval for the current negotiated deal.  Another vote is planned this week to request an extension with the European Union.

What’s ahead for this week?

  • In Canada, consumer confidence will be reflected in January’s retail sales numbers, and inflation for February will be released with the Consumer Price Index (CPI).
    • On March 19th Finance Minister, Bill Morneau, will deliver the sitting Liberal’s budget in the run-up to the next federal election that will occur on or before October 21, 2019.
  • In the U.S., January’s wholesale inventories and durable goods orders and February’s existing home sales will be released. The Federal Reserve will announce an interest rate decision on Wednesday, widely expected to hold interest rates at their current level. Details on the Fed’s bond strategy are also expected to be released this week.

 

Last Week in the Markets: March 4 – 8, 2019

(source: Bloomberg)

What happened?    

  • On Wednesday the Bank of Canada (BoC) continued to hold its benchmark lending rate unchanged. The rate has been at 1.75% since October 31st of last year and will be held at this level until at least late April when the next interest rate decision will be announced.
    • Future BoC action would be taken to stimulate our economy in the face of uncertainty from Canada/U.S./Mexico Agreement that replaces NAFTA and the removal of steel and aluminum tariffs by the U.S., Brexit, U.S./China trade talks.
    • Immediately the Canadian dollar dropped by more than a half-cent on Wednesday in response to this interest rate hold and the underlying conditions that made it occur.
  • Equities around the world had a very difficult week. The TSX lost almost ½% of its value, while the major American indices lost over 2% for the week. The conditions that drove the BoC’s interest rate decision (listed above) and a pessimistic report on economic growth from the Organization for Economic Cooperation and Development (OECD) also damaged stock prices.
    • More directly, a poor jobs reports that fell far below expectations indicated the continued slowing of the U.S. economy. Only 20,000 non-farm jobs were created in February. The report from the Bureau of Labor Statistics at the U.S. Department of labour can be found at: https://www.bls.gov/news.release/empsit.nr0.htm
      • The data contained in the first few paragraphs illustrate the level of analysis that is undertaken and analyzed by economists, and advisors on your behalf.

What’s ahead for this week?

  • In Canada, it will be a light week for economic data releases with January’s new housing price index and manufacturing sales announced.
  • In the U.S., a busier and broader array of data will be released than in Canada. By week’s end we will see January’s new home sales, retail sales, durable goods orders and construction spending. Inflation numbers will arrive with February’s Consumer Price Index (CPI) and the Producer Price Index (PPI), which are two important economic indicators.

 

Last Month in the Markets: February 1 – 28, 2019

(source: Bloomberg)

What happened in February?

It was an “up-and-down and up-and-down” month for North American equities over the length of February. Despite a late month dip, the major indices that matter the most to the most Canadian investors all posted strong gains during the month; between 3 and 4% for the TSX, S&P 500, the Dow and the NASDAQ.

Locally, the rise in the price of oil and the force of the Energy Sector on the TSX index was a major contributor to the overall gains. The sector with the largest contribution to the overall TSX is Financials, which is led by our major banks. Things were moving nicely until the last week of the month when disappointing results surfaced; the TSX and the banks suffered an end-of-month dip, with only Bank of Montreal (BMO) closing February well above its mid-month level.

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

Many Canadian investors own significant amounts of bank stocks, both directly and through mutual and exchange traded funds. The share price adjustments at the end of the month, mostly negative, may explain a flattening of your overall portfolio value compared to mid-month values.

Just before February began, the U.S. Federal Reserve decided to hold interest rates steady. Later in the month their rationale was explained when their meeting minutes were released. The appetite to raise rates is waning and a period of pause has begun.

Keeping rates unchanged enabled much of the activity and positive performance for the four indices most important for most Canadian investors; for the most of February.

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

Of course, more than U.S. monetary policy contributed to last month’s market reactions. U.S. legislators and President Trump were able to negotiate an end to the partial government shutdown and avoid another disruption by agreeing to another deal before the February 25th deadline. The government will remain open and shocks to the economy from the shut-down should cease. Politically, the President countered with an Executive Order to finance his physical barrier on the border with Mexico; which was the sticking point that caused the shut-down initially.

Additionally, the trade talks between China and the United States progressed rapidly during February with President Trump declaring on February 25th that the next meeting between Chinese and American representatives would include a “signing summit” to conclude negotiations with an agreed trade treaty.

However, diplomacy in Vietnam between the United States and North Korea came to an abrupt end as Trump and the American delegation departed prematurely. Details are not fully understood or described at this point but it appears that North Korea wanted all sanctions lifted which is not acceptable to their negotiating adversary.

The sound-bites centred around “no deal is better than a bad deal”. Hopefully, the same sentiment will prevail between the U.S. and China regarding trade, but with the opposite result.

The on-going “isn’t it over by now” Brexit process continued to unfold between the U.K. and the balance of the European Union. As February progressed, the possibility of a No-Deal Brexit became increasingly likely. A No-Deal Brexit would mean that the free and open trade between the U.K. and European countries (either individually or collectively) would end. This would end labour and capital mobility as well as the free flow of goods and services.

The U.K. has many foreign workers contributing to its economy and repatriating some of their earnings back to family members in their home countries. Allowing cheap labour into the U.K. has bolstered them, while allowing monies to flow back home has supported other economies like Poland, Belgium, and the Netherlands. Ending this arrangement without another plan in-place will surely cause damage across several countries and Europe as a whole.

Canada was not without political controversy of its own. The resignation from Cabinet by Jody Wilson-Raybould has created the largest scandal of Justin Trudeau’s government. Wilson-Raybould, the former Attorney General, felt that she had been subjected to political interference by Trudeau and veiled threats by others in his inner circle over the SNC-Lavalin case.

The event is playing out currently and will be the subject of many hearings and testimony and rulings over the next days, weeks and months. At issue is whether the Prime Minister and the Prime Minister’s Office (PMO) attempted to inappropriately influence the Ministry of Justice. It appears that the Prime Minister would prefer an out-of-court settlement rather than a trial, since a costly trial could affect SNC-Lavalin’s employees/voters.

What’s ahead for March and beyond?

As mentioned above, U.S. monetary policy will influence equity markets for Canadian investors.  The prevailing sentiment, and as stated in the Federal Reserve’s own meeting minutes, is that interest rates will increase in the short-term, and maybe not for several more months. This would continue to be good-news for corporations that require capital, which is most, especially those in capital intensive industries (e.g. utilities) or those looking to expand.

The political climate will influence markets since politics affects international trade, sourcing of raw materials, off-shore manufacturing and servicing of global customers. Expect the trade talks between the U.S. and China, in particular, to affect equity values in North America and Brexit to impact European firms.

 

Last Week in the Markets: February 25 – March 1, 2019

(source: Bloomberg)

What happened?    

  • The growth of the economies in Canada and the United States has slowed. Canadian Gross Domestic Product (GDP) grew at an annualized rate of just 0.1% in December. The U.S. GDP expanded by a significantly more robust 2.6% annualized rate but was still shrinking.
    • Both the GDP growth rate and its slowing, in both countries, will influence the Bank of Canada’s interest rate announcement this week.
    • Also contributing to the idea of an interest rate “hold”, is Canada’s low inflation rate for January of 1.4% on the coattails of lower gas and oil prices.
  • The MSCI All Country World Index (ACWI) in our grid moved ahead for the week by 0.3%; even though the emerging markets side of this developed/emerging balanced index fell by 0.7%.
    • Investors often use developed markets’ stability to take larger risks with greater volatility in emerging markets. Last week provided a prime example of this strategy where the emerging-side’s volatility undid a solid positive gain on the “developed” side.
  • The U.S. and China continued to negotiate on trade with their last formal talks on Friday. A mutually beneficial deal would be good for both of their economies and for Canada. Despite several points still to negotiate, the deal could be finalized in late March after Chinese President Xi concludes a European trip with a stop in Washington before returning home.
    • Unfortunately, the benefits from a trade deal that expands the Chinese and American economies could be muted here. The diplomatic fall-out from the arrest of a Chinese executive on behalf of the U.S. has strained relations between Bejing and Ottawa.

What’s ahead for this week?

  • In Canada, Wednesday will bring a Bank of Canada interest rate announcement and by week’s end we will receive the latest data for building permits, housing starts and employment.
  • In the U.S., employment data will also be released along with new home sales and factory orders. These numbers will likely be boring compared to the current information that will emanate out of the White House and Congress, and the courtroom.

 

Last Week in the Markets: February 18 – 22, 2019

(source: Bloomberg)

What happened last week?

  • It was a second, consecutive “all green” week for our grid despite the four-day week for North American equity markets. They were closed on Monday for various provincial holidays (Family Day in Ontario closed the TSX) and President’s Day in the United States.
    • The four major indices are over 11% ahead of where they began in 2019. All are above their levels from one year ago. The TSX has risen eight weeks in a row and led the North American indices by gaining over 1% over the short week.
    • These advances are being propelled by a few influences like:
      • The U.S. Federal Reserve revealed through their latest meeting’s minutes that they have settled on waiting/pausing before raising interest rates again.
      • The U.S./China trade talks continue to provide positive news and the likelihood of achieving a mutually beneficial agreement remains high.
        • An agreement on currency issues didn’t occur during the week but its announcement late Friday is more evidence that the optimism is justified.
      • In Asia and Europe, equities gained as well on less than positive news:
        • Trade tensions among European Union (EU) members is increasing as a “no deal Brexit” is more likely after three members of Theresa May’s party resigned.
        • Economic news from Germany and France is turning toward the negative side.
          • Despite these setbacks overseas, equity markets moved ahead generally based on the optimism that interest rate steadiness and Chinese economic stimuli caused economic growth for its economy and others.

What’s ahead for this week?

  • In Canada, important economic data will be released; January’s Consumer Price Index and Industrial Products and Raw Materials Price Index and December’s Gross Domestic Product.
  • In the U.S.; December’s wholesale inventories, housing starts, building permits, factory and durable goods orders, and January’s personal income and spending will be released.

 

Last Week in the Markets: February 11 – 15, 2019

(source: Bloomberg)

What happened?   

  • It was a strong week for North American and global equities. The TSX trailed the other equity indices in our grid above, yet still delivered a more than respectable 1.3% gain for the week.
    • The rise at the TSX was led by the Energy sector as oil advanced nearly 5½% last week and more than 22% in 2019.
    • A budget deal in the U.S. along with positive news emanating from the U.S./China trade negotiations lifted markets south of the border.
      • In response President Trump declared a National Emergency, signing an Executive Order to secure funding for his border wall. The Executive and Legislative branches of the U.S. government continue to be embroiled in this dispute and will likely involve the Judicial branch soon.
      • On the negative side, U.S. retail sales in December were lower than expected (perhaps suffering the effects of the government shut-down) and unemployment claims grew, while job openings and real wages continue to rise.
        • The economic news is gradually turning from “all-positive” to “mixed” as some indicators either slow their rise or dip into negative territory. The next few months, and the reactions of central bankers, will require additional monitoring of investment portfolios.

What’s ahead for this week?

  • Canadian and American markets closed on Monday for holidays, making it a short trading week.
  • In Canada, the progress during December of two economic indicators will be reported upon; wholesale trade sales and retail sales. Retail sales is an indicator of the amount of consumer confidence in an economy.
  • In the U.S., it is a relatively light week for economic data; December’s durable goods orders, January’s existing home sales and the release of the meeting minutes from the Federal Reserve’s Federal Open Market Committee (FOMC) held on January 30th.

 

Last Week in the Markets: February 4 – 8, 2019

(source: Bloomberg)

What happened last week?

  • The TSX led North American indices again this week and would have led all of them in YTD except for the tech-heavy NASDAQ which has returned just shy of 10% in 5½ weeks of trading.
    • The TSX earned “only” just over 9% during the same time period.
    • The year-over-year (1Yr+/-) numbers for the four major North American indices are back into positive territory. Sadly, it’s not based solely on the strong performance of 2019, but relies heavily on a steep drop that occurred one year ago in February 2018.
  • Much of the recent gains for our region are based on the Federal Reserve’s position of delaying interest rate increases, the Bank of Canada’s similar wait-and-see position, and continued strong corporate performance matched with healthy employment and wage data.
    • Global growth is slowing along with Canada and the U.S., so central bankers are reluctant to further contribute to any slow-down through higher rates.
    • Concerns over the negotiated, or perhaps no-deal, BREXIT has created additional uncertainty for the global economy that has stalled the willingness to raise interest rates until the actual effects have taken place.
      • Optimistic comments regarding a negotiated settlement of U.S./China trade relations continues to drive sentiment and markets upward.
      • Additional U.S. news centred around their budget negotiations and its entanglement with border/national security desire to build a physical barrier on the southern border with Mexico.

What’s ahead for this week?

  • In Canada, December data for manufacturing sales, international merchandise trade, new housing price index and January’s National Bank Home Price Index will be released.
  • In the U.S., December’s retail sales, always an important indicator of consumer confidence and their economy’s strength will be announced. The Consumer Price Index, Import and Export Price indices for January will provide insight on inflation.

 

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

(source: Bloomberg)

What happened in January? 

For North American, and global equities January was a wonderful month. The TSX was the laggard among the local indices, and it still delivered nearly 5% gains overall. As usual the tech-heavy NASDAQ led the pack with nearly 10% returns for the first month of 2019.

This month the MSCI All Country World Index (ACWI) has been added to our summary grid.  MSCI has been providing investment research, indices and insights since 1969. Their All Country World Index includes 23 developed markets (Canada, U.S., Western Europe, Australia, Japan, etc) and 24 emerging markets (Brazil, Middle East, China, India, Indonesia, etc). More information on this indicator can be found at https://www.msci.com/acwi.

Including this global index provides a quick snapshot of global equity performance. Most investors have holdings, directly or indirectly, outside of North America. In January, global equities, as represented by the ACWI, also performed well.

A number of interesting, not-so-interesting, new, old and contradictory factors influenced the price of equities in January:

  • The U.S. government shut-down caused the slowing U.S. economy to slow even further as 800,000 workers went without pay, some even got time away from work while not being paid. After much political positioning by Republicans, Democrats and the President government operations resumed after the longest budgetary interruption in U.S. history.
    • The shut-down occurred after President Trump attached billions in funding for a physical barrier (i.e. wall) on its southern border to the usual budget bill. Politically and in the short-term, at least, Trump did not have the backing of his party, or his base of support, to shutter the government over the issue of border security. The budget bill provides for three weeks of relief, and a shut-down may recur on February 25th.
  • Corporations continued to deliver strong earnings. The growth of earnings is slowing, but still remains strong.
  • Internationally, Brexit continues to muddle along without true resolution.

What’s ahead for February and beyond?

It was a tumultuous year for North American focused investors. A number of factors contributed to the across-the-board losses in our grid.

  • Market volatility, which had been low, continued to increase.
    • The Chicago Board of Options Exchange (CBOE) publishes a volatility index, the VIX, and after a relatively calm 2016 and 2017, the VIX spiked in February and December of 2018, with most of 2018 higher than the previous two years.
    • Should this increased level of volatility continue, the fluctuations of individual share prices and the value of market indices will rise and fall more rapidly.

 

Last Week in the Markets: January 28 – February 1, 2019

(source: Bloomberg)

What happened?   

  • The New England Patriots won SuperBowl LIII over the Los Angeles Rams. CNN called it the most boring SuperBowl ever. ‘Boring’ is bad for football games; great for investors.
  • Last week was positive with equities, the Canadian dollar, gold and oil all gaining based on the following factors:
    • Last Wednesday the Federal Reserve held its benchmark lending rate steady and indicated that patience was required until some of the uncertainty regarding China/U.S. trade negotiations, BREXIT and government budgetary legislation reduced.
      • Based on Chairman Powell’s announcement it appears that the Fed is becoming more cautious about further increases in interest rates, and the formerly anticipated increases in 2019 may be delayed.
    • The end of the partial government shut-down sending 800,000 federal employees back to work, or back to being paid until February 25th, at least.
    • Continuing strong corporate performance in the U.S.
  • A new indicator appears in the centre of our grid (above); the MSCI All Country World Index (ACWI) representing 23 developed markets and 24 emerging markets in a single index. This provides a snapshot of global equity performance since many Canadians invest overseas. MSCI has been providing investment indices and insight since 1969. Additional information on the ACWI can be found on their website at https://www.msci.com/acwi

What’s ahead for this week?

  • In Canada, the planned economic releases provide a balanced view with December’s building permits and January’s housing starts and employment report.
  • In the U.S., the releases should conform more to plan than recent weeks since the government shutdown is another week in the past. Planned announcements are November’s trade balance, December’s building permits, housing starts, new home sales and personal income and spending, and Q4 Gross Domestic Product (GDP).

 

Last Week in the Markets: January 21 – 25, 2019

(source: Bloomberg)

What happened?

  • The partial shut-down of the U.S. government that directly affected 800,000 federal workers has ended. Government employees will return to work today, and those who continued to work without pay during the shut-down will now be compensated after missing two pay checks.
    • The funding included in the bill that pays for government activities will be consumed by February 15th. Unless Congressional Republicans and Democrats, and the President, agree on border security spending and actions, the money will run out in three weeks, and another shut-down will occur.
    • Ironically and coincidentally, the loss of services and pay checks cost the U.S. economy $6 billion, almost the same amount Trump was seeking to build a wall on the Mexican border. https://www.cnn.com/2019/01/27/politics/government-effects-daily-life/index.html
  • For the week, which doesn’t reflect the temporary U.S. budget resolution, equity markets were relatively flat. The TSX had the largest change of less than ½ percentage point. Gold and oil traded directions from last week with gold gaining nicely, while oil slipped back slightly.
  • Political tensions involving oil-exporter Venezuela had little effect on spot oil prices last week. That could change as the legitimacy of their sitting government is scrutinized further.

What’s ahead for this week?

  • In Canada, the health of our economy will be announced through the release of November’s Gross Domestic Product data. It is unlikely that Canada will be spared in the global economic growth slowdown, especially when U.S. and China have been affected. Chinese Vice-Premier Lui will participate in the next round of trade negotiations with the U.S. later this week.
  • In the U.S., the end of the government shutdown may cause a torrent of information to be released in the coming days and weeks. The following releases scheduled for this week may continue to be delayed: Federal Reserve interest rate decision, employment reports for January and December’s personal income and spending, construction spending and wholesale inventories.

 

Last Week in the Markets: January 14 – 18, 2019

(source: Bloomberg)

What happened?   

  • North American equities had another strong week; gains were two-and-a-half and three per cent for the major indices. In year-to-date performance the TSX is solidly in second-place, with the Dow and S&P 500 trailing it, while the NASDAQ leads the way at nearly 8% for 2019.
    • This strong performance prevailed despite the on-going U.S. government shutdown. The shutdown has slowed the release of economic data and it appears that “no news is good news”. Investors have had less information to base decisions upon and they don’t seem bothered at this point by their ignorance.
      • American banks released strong corporate results leading the S&P 500 higher and, by extension, the largest sector of the TSX (finance) lead the TSX higher as well.
    • Another seemingly negative influence was the heavy defeat of Theresa May’s Brexit plan in the British House of Commons as twice as many MPs voted against it than voted for it. Preventing even further turmoil, May and her government survived a non-confidence vote which would have triggered an election.
    • Disappointing economic growth in China, its lowest in a decade, is being countered by tax cuts and government spending.
  • All of this international turmoil didn’t support the price of gold as a safe haven, and oil continued to regain some of its value bolstering the Energy sector of indices.

What’s ahead for this week?

  • In Canada, retail and wholesale trade sales for November will be released.
  • In the U.S., the release of economic indicators has been slowed by the government shutdown. Typically, at this time of January, new and existing home sales and durable goods orders are announced for December but may not be until federal workers are back at work. With a lack of competing government news, corporate results will dominate investor decision-making.  American markets are closed on Monday, January 21st for Martin Luther King, Jr. Day.

 

Last Week in the Markets: January 7 – 11, 2019

(source: Bloomberg)

What happened?

  • Finally, the first full week comprised of five trading days, occurred for North American markets, and the results were very strong for equities, the Canadian dollar, and gold and oil.
    • Since its Christmas Eve close at 13,780 the TSX has gained during 10 of 11 trading days, and now sits 1,159 points higher, and has gained 8.4%. Some of this gain can be attributed to the Bank of Canada holding interest rates steady, at least until its next scheduled opportunity on March 6th.
    • S. major indices performed almost as well as the TSX last week, despite the longest government shutdown in history (more than 23 days as of Monday morning).
      • The political rhetoric, positioning and grandstanding has reached new levels (or depths depending on your perspective). In the short term those directly affected as employees or recipients of services will feel the pain of missed paydays or shuttered agencies. Eventually, the economy will reflect the loss of employee wages and the reduction of government purchases.
        • Releases of economic data have been either delayed or postponed because of the government shutdown. This may recur this week.
      • A major positive influence were the positive comments from both sides of Chinese/American trade talks.

What’s ahead for this week?

  • In Canada, the largest economic release for the coming week is inflation information based on December’s Consumer Price Index (CPI).
  • In the U.S., a much larger number of indicators are scheduled to be announced; November’s trade balance, construction spending, new home sales and durable goods orders and December’s Producer Price Index (PPI), industrial production and capacity utilization, retail sales, housing starts and building permits.

 

Last Week in the Markets: December 31 – January 4, 2019

(source: Bloomberg)

What happened last week?

  • After another short week, this time for the New Year’s celebration, the result was an all-green week. North American equities began 2019 on the positive side despite mixed news.
    • Trade disputes between the U.S. and China, which were created anew in 2018, appear headed to some type of resolution as negotiations are scheduled, with non-specific, yet optimistic, comments by President Trump that a solution was being created.
    • The growth rate of China’s economy, measured in Gross Domestic Product (GDP), has slowed, but is being addressed by actions by their central bank to reinvigorate growth.
    • In the U.S. the Federal Reserve seems poised to keep interest rates unchanged for a much longer time than the brief pause that was predicted as recently as December. A slowing of increasing rates maintains lower borrowing costs for corporates and consumers.
    • On the political front the U.S. President continued to operate with a business-as-usual approach by attacking opponents, like the Fed and its leader.
    • The partial shut-down of the U.S. government continued into its third week harming the U.S. economy with the rhetoric and threats escalating on all sides and could lead to a constitutional dispute based on executive powers.
  • Despite these negative, external influences, which also included a jump in crude price to fuel gains on the Energy-rich TSX index, Canadian equities delivered a positive week along with a gain by our dollar compared to the U.S. Expect more volatility at-home and in the U.S. during the coming weeks.

What’s ahead for this week?

  • In Canada, The Bank of Canada will release an interest rate decision. Also, housing data for November (building permits and prices) and December (housing starts) will be announced.
  • In the U.S., inflation numbers for December through the Consumer Price Index and November’s new home sales, wholesale inventories and durable goods order will be released.

 

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

(source: Bloomberg)

What happened in December and the rest of 2018? 

It was a tumultuous year for North American focused investors.  Numerous factors contributed to the across-the-board losses in the above grid.

  • Market volatility, which had been low, continued to increase
    • The Chicago Board of Options Exchange (CBOE) publishes a volatility index, the VIX, and after a relatively calm 2016 and 2017, the VIX spiked in February and December of 2018, with most of 2018 higher than the previous two years.
    • Should this increased level of volatility continue, the fluctuations of individual share prices and the value of market indices will rise and fall more rapidly.
  • Central banks raised interest rates to more traditional levels as inflation and employment remained strong
    • Canada started the year with its benchmark interest rate at 1%, and it rose three times by ¼% (25 basis points) each time to 1.75%. The U.S. Federal Reserve raised its rates similarly.
    • Each of these increases provides additional cost to businesses that finance expansions, especially capital-intensive industries like utilities. The increased costs will naturally and eventually reduce corporate earnings, and their stock prices reflect this anticipated performance impact.
  • Economic growth, globally and locally, began to slow
    • Canada’s Gross Domestic Product (GDP) will have grown by about 2% in 2018 compared with about 3.5% for global GDP. This is a significant drop from 2017 when GDP growth was 3%, its highest since 2011.
  • Trade “difficulties” between the U.S. and its friends, neighbours and enemies brought uncertainty to capital markets
    • The U.S. focused much of its international activity on initiating a trade dispute with China, but also included deliberately increasing tensions with Western European allies to further the President’s America-First agenda.
  • Political uncertainty in and around the U.S. and President Trump, which affected trade among nations, and caused a Federal Government shut-down provided a negative outlook for the U.S. economy and corporate results.
  • Overall the price of oil fell 25% in 2018. The drop threatened the viability of investments in the Energy sector as delaying or cancelling capital projects were contemplated. Also, introducing production cuts in Alberta and by OPEC were discussed, especially when the price was down nearly 40% from its recent high in early October. The slight upturn at the end of 2018 and into the first week of 2019 has eased these concerns, but only slightly.

Since the Energy sector comprises a significantly larger proportion of the TSX than U.S. indices, the volatility and losses affected our Canadian index more negatively.

The compound average annual return for the TSX from 1977 to 2018 was 8.7%. (according to research provided by Morningstar). Therefore 2018 performance was about 17.6% below its average (losing 8.9% instead of gaining 8.7%). The last time the TSX delivered a more negative result was 2008 during the world financial crisis when the TSX lost more than one-third of its value.

The two graphics below show that the TSX Composite Index ended 2018 2% below where it ended 2014 (14,333 vs. 14,632).

(source: Bloomberg  https://www.bloomberg.com/markets and Advisor Research Group, Inc)                       

The graphic on the right (above), entitled “Stock Indices 2018” shows that TSX spent much of last year in negative territory. Each of the major U.S. indices gave back all more than their previous gains for the year in the last quarter of 2018.

These results provide continued proof that diversifying countries and regions, industries and sectors, along with goal-setting and results-monitoring remain as important as ever.

 

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

(source: Bloomberg)

What happened?   

  • After last week, all of the indicators in the grid, above, are in negative territory for year-to-date and one-year ago, including the NASDAQ. A number of factors and events conspired to cause equity markets to suffer again this week. A Fed rate hike and its attitude toward future hikes, the continuing decline in crude oil prices, and unresolved negotiations for a U.S. spending bill.
    • On Wednesday the Federal Reserve raised its benchmark lending rate by ¼ point (25 basis points) to a range of 2.25 – 2.50%. This was the fourth increase in 2018 and the eighth time the Fed has raised rates over the past 3 years.
    • Crude prices fell sharply again this week, and the Energy sector on major indices lead the decline. Crude has lost over $30/barrel and 40% of its value since the recent peak in early October.
    • The inability of Congress and the President to reach a budget deal as Trump remains resolute over his border wall funding caused the feared shutdown to occur over the weekend and could persist into January.

What’s ahead for this week?

  • In Canada, it will be a light week for reporting with December’s employment report being the lone release of note.
  • In the U.S., it will also be a slow week for economic releases, but slightly busier than Canada with November data for new and pending home sales, wholesale inventories and construction spending. Also, December’s employment report will also be released.

 

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

(source: Bloomberg)

What happened?   

  • Despite some very volatile and negative trading sessions recently last week as the first “all-red” week since Labour Day, where all indicators on our grid lost value. A few of the culprits are responsible for this poor performance are:
    • Political disputes in the U.S. between President Trump and Democrat house leaders were on full display during a meeting/press conference in the Oval Office. Trump declared that he would be happy to shut down the U.S. government to protect the border and funding for his wall. Previous shutdowns have caused equity markets to lose ground, and a shutdown now would produce the same result in all likelihood.
    • China/U.S. trade talks continued to meander. Thanks in part to the arrest in Canada of prominent Chinese business executive, Meng Wanzhou of Huawei and Trump’s statements that he would intervene in our sovereign nation’s legal system, while we uphold international treaties preventing firms from dealing with unjust regimes.
    • Political and legal activities in or close to the White House caused investors to worry as the Chief of Staff, John Kelly, is leaving and his replacement was not immediately apparent. Michael Cohen, Trump’s former “fixer”, was sentenced to 3 years in prison as those close to the President see their legal troubles deepen.
  •   After all this turmoil, the NASDAQ remains in positive territory, but only slightly.

What’s ahead for this week?

  • In Canada, retail sales and Gross Domestic Product (GDP) for October and November’s Consumer Price Index (CPI) will be released. The first two will show the economy’s health performing, and the CPI will show if households are facing increasing levels of inflation.
  • In the U.S., the Federal Reserve will make an interest rate decision as Chair Powell has alluded to a temporary delay in rate increases. Also, November’s personal income and spending, durable goods orders, housing starts, building permits and home sales will be released.

 

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

(source: Bloomberg)

What happened last week?

  • In what is continuing to emerge as a trend, equities had a volatile week in North America and around the world. The American major indices gave back all of last week’s gains, while the TSX gave back more than twice as last week.
    • Fueling much of the drop were some details and reality setting-in on the U.S./China trade talks. After some positive signs at the G20 meetings in Argentina, President Trump tweeted that agreements had been reached when, in fact, negotiations are on-going.
      • If the U.S. and Chinese governments can agree, it will spur additional economic growth in each country and with their major trading partners. At the moment equity volatility is reflecting the uncertainty surrounding the trade talks.
    • The Bank of Canada (BoC) left its benchmark interest rate unchanged in its Wednesday announcement. The BoC stated that a driver behind this decision was the low price of oil and the effect of lower prices on energy sector capital investment. OPEC countries, Russia and Saudi Arabia, agreed to a production cut that prompted a surge in oil prices on Friday, after Wednesday’s interest rate announcement.

What’s ahead for this week?

  • In Canada, housing data will dominate this week’s economic data releases; building permits and new housing price index (October), housing starts (November), along with capacity utilization for the third quarter.
  • In the U.S., a more balanced release of November data is scheduled, including the consumer and industrial inflation with the Consumer Price Index (CPI) and the Producer Price Index (PPI), Import Price Index, retail sales and industrial production and capacity utilization.

 

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

(source: Bloomberg)

What happened in November? 

It was a month that tested investors’ resolve and discipline.

November started well, with a gain for the TSX, the Dow, S&P500 and the NASDAQ in the first few days of the month. For the next two weeks the major indices dropped dramatically, triggering the use of “correction”, “bear market” and other pessimistic terminology. However, during the last week of the month, a rally occurred bringing all four major equity indices back into positive territory for the month. What was once dire, became positive, although doubts remain.

(Source: Advisor Research Group Inc. and data supplied by https://www.bloomberg.com/markets/stocks)

After all of the turmoil and angst in equity markets during November, each index delivered a respectable return. The NASDAQ, which had lost the most at the mid-month mark didn’t do as well as the other indices, but still managed to rally back to positive territory.

After all of this stress and anxiety it might be healthy to discuss the lessons from November:

  • Time frame matters
    • If every investor examined their portfolio’s value every minute or hourly they wouldn’t have time to do anything else. It is important to monitor the value, but it is crucial to understand that valuation only matters if it is when you intend to sell a particular security. That is, the stock you bought at $100, may be valued at $50 or $200, but it only really matters on the day that you sell it.
  • Company fundamentals matter
    • The stock (or equity fund), above, was purchased because its predicted business results would drive the value of its shares upward. If it pays a dividend, its strong performance would also permit the uninterrupted payment to shareholders. Regardless of the effect on markets of interest rates, trade treaties, or political unrest it is better to own companies that deliver strong fiscal results, than not.
  • Overall market and economics matter
    • The phrase “a rising tide lifts all boats”, which has been attributed to President Kennedy relies on the principle that favourable economic conditions will benefit everyone. Of course, the opposite is also true.
  • Planning matters
    • Setting goals and determining whether the securities in your portfolio are making a positive contribution to their attainment is crucial. Christopher Columbus may have discovered North America by accident as he tried to sail to India, but he did have a plan, and he adjusted it as time passed, and new information emerged.

Therefore, the overall message is “build a strong plan, monitor its performance based on overall market conditions, always assessing whether your securities contribute positively to your plan and decide if you should consolidate losses, realize gains or allow your plan to continue to run.”

What’s ahead for December and beyond?

The emerging consensus is that interest rate increases in the U.S. and Canada will slow as the economic expansion begins to slow.  Recent data for Gross Domestic Product, inflation and employment is suggesting that increases in 2018 and early 2019 are less likely than thought just a few months ago.

Any slowdown in rate increases could be reversed by improved trade relations between China and United States and increases to inflation if OPEC is able to successfully defend and increase the price of oil.

Lastly, the upcoming holiday shopping season will provide insight into consumer confidence, and future company performance.

 

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

(source: Bloomberg)

What happened last week?

  • The major North American equities indices all moved ahead last week, along with gold and oil. The Canadian dollar was the only negative performer in our grid driven by less than impressive GDP numbers, and the resulting demand for Canadian dollars.
    • The U.S. dollar relied on a rumoured improvement in trade relations with China, which occurred this weekend at the G20 meeting with a 90-day negotiation window.
  • The gains for equities were ‘healthy’, erasing much of the losses experienced in the last few weeks. Gold and oil, however, barely made it into positive territory, with their gains being modest in absolute or percentage terms.
    • Overnight (Sunday to Monday) oil jumped 5% on overseas markets as OPEC indicated a production cut, along with Alberta, and the U.S./China trade tension truce.
    • The feeling that the Federal Reserve (the Fed) will delay further interest rate increases is growing. The need to limit inflation has lessened due to the impact of falling oil prices, and its down-stream effect on consumer prices.
      • As a simplification, the Fed uses interest rate actions to increase employment and to lower inflation. Rates are held steady or lowered to maintain or increase employment and raised to slow the economy’s growth and inflation. At this time, it appears that neither employment or inflation needs specific attention, expect the rates to maintain their current levels in the near term.

What’s ahead for this week?

  • In Canada, it’s time again for a Bank of Canada interest rate decision. Worries of a growing global slow-down, and rumours that other countries may delay hikes will influence our Bank’s monetary actions on Wednesday. Also, November’s employment report will be released.
  • In the U.S., construction spending, trade balance, durable goods orders for October will be released along with November’s employment report.

 

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

(source: Bloomberg)

  • The difficulties for North American equities continued last week. Thankfully it was a shortened and light trading week in the U.S. for their Thanksgiving holiday. Undoubtedly, many family gatherings experienced distracted participants as U.S. indices all fell by 4% for the week.
    • Only the NASDAQ remains in positive territory for 2018 among the U.S. major indices. It had spent the summer and early autumn with YTD gains in double digits. These former gains relied heavily on the FAANG stocks (Facebook, Apple, Amazon, Netflix and Google). Facebook, Apple and Netflix have lost 26%, 24% and 37% of their value, respectively since their peaks this autumn and summer, dragging the NASDAQ down with them.
    • Oil also continued its drop, closing Friday off 34% since its recent peak of nearly $77 on October 3rd. Perhaps Alberta’s oil-patch will gain some solace from the Calgary Stampeders 27-16 win over Ottawa RedBlacks in the 106th Grey Cup.                      (https://www.cfl.ca/2018/11/25/red-redemption-stamps-race-grey-cup-victory/)
  • Some positive news is emerging from the U.S. Federal Reserve. Its plan to continue raising interest rates back to more traditional levels may be pushed into a holding pattern temporarily. The growth of the American economy may be slowing based on leading indicators, and the Fed may respond. Corporate results, which drive equity values, would benefit from lower borrowing costs, especially for capital intensive industries and those looking to expand operations.

What’s ahead for this week?

  • In Canada, economic growth will be announced through September’s Gross Domestic Product (GDP) data. As always GDP growth, along with inflation and employment numbers will determine Bank of Canada interest rate actions.
  • In the U.S., it is a slightly more robust week for announcements with wholesale inventories, new home sales and personal income and spending for October being released. American GDP will have its revised third-quarter released.

 

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

(source: Bloomberg)

What happened?   

  • Oil dropped again this week, the sixth consecutive weekly loss, and a total loss of $17.88 per barrel over this period. The Energy sectors on the TSX and S&P500 lead their respective indices’ decline. Since its 2018 high of $76.72 on October 3rd, oil has lost 26%. Late in the week, OPEC indicated that it would slow output to mirror falling global demand, providing price-support.
    • Many other negative factors have played into the overall drop in equities.
      • The political battle over Brexit, Italy’s budget deficit impasse with the European Union. Brexit is scheduled to be concluded this month, while Italy’s situation has no timetable for resolution.
      • The U.S. Mexico Canada Agreement (USMCA) had its implementation in the U.S. placed into doubt due to political battles south of our border. This could be a result of the recent mid-term elections where Democrats gained control of Congress, and USMCA may become a bargaining-chip for other legislation.
      • The on-going China/U.S. trade dispute moved back toward a more acrimonious state after U.S. Vice-President Mike Pence indicated that American tariffs would remain in-place until China changed its approach.
    • The Canadian dollar held up well against its American cousin, gaining 1/3 of a cent, which is welcome news after its own six-week wavering loss, especially as Snowbird season approaches.

What’s ahead for this week?

  • In Canada, inflation numbers will be released through the Consumer Price Index (CPI) for October, along with wholesale and retail sales for September. Increasing or stable inflation could foreshadow upcoming Bank of Canada interest rate moves.
  • In the U.S., housing starts, building permits and existing home sales for October will provide insight into both consumer confidence and upcoming construction spending. Durable goods orders for the same period will also reinforce confidence opinions based on spending patterns.

 

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

(source: Bloomberg)

What happened?   

  • Last week’s midterm elections and Federal Reserve’s (in)action provided the conditions for a lift in equities that reversed pre-election uncertainty.
    • The U.S. Congress is split between a Republican-controlled Senate and a Democratic-controlled House of Representatives. This predicted ‘split’ had brought concern that legislative gridlock would be the result. This is now being viewed as a positive influence since already instituted changes, like lower corporate taxes, will not be reversed.
    • The Federal Reserve did not raise interest rates and reaffirmed that their stated policy to increase rates over time was still in place. This intention has been priced-in to the markets and confirming it allows equity markets to avoid negative news, providing a lift.
    • Nearly all of the S&P 500 firms have reported their earnings, and nearly two-thirds have beaten sales or earnings estimates (Bloomberg News). Also, the quarter following a midterm election has traditionally seen strong gains for equities. https://www.nytimes.com/2018/11/02/business/stock-market-rises-midterm-elections.html
  • The TSX followed the American lead last week, again in a more tempered way, as our oil-heavy index suffered from a continuing trend of lower oil prices. Additionally, the strengthening U.S. dollar has provided foreign exchange losses to further exacerbate the TSX’s lagging results.

What’s ahead for this week?

  • In Canada, it will be a quiet week for economic data releases; manufacturing sales for September and October’s home price index will be announced.
  • In the U.S., it will be similarly light, as well. However, the releases are of more significance. October data will be released for the Consumer Price Index (CPI), retail sales, import and export price indices and industrial production and capacity utilization. The CPI and retail sales will provide insight into inflation and consumer confidence, respectively, two important indicators of an economy’s direction.

 

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

(source: Bloomberg)

What happened in October? 

It was a difficult month for equities in October, for some bringing forth memories of former Octobers like 1929 and 1989. However, the circumstances of loss in stock values today are much simpler, and predictable:

  • The losses from decades ago occurred almost instantly and without warning. In October 2018 the losses can be attributed to several, well understood conditions.
    • The long-term U.S. bond rate, and short-term interest rates there and in Canada are on the rise. Previously the lack of returns on interest-bearing instruments pushed many to pursue gains in equities. Now that interest rates are rising, money is leaving equities to pursue interest income and to rebalance portfolios.
    • There are several political situations that could affect markets overall. This has facilitated a flight for some to safe-haven investments like gold and U.S. dollars. Gold was the lone advancing position on the grid (above), and since our grid represents a falling Canadian dollar, it means that the U.S. dollar rose against ours.
  • The losses of 6½%, 7%, 5% and 9% for the TSX, S&P 500, Dow and NASDAQ, respectively, are the largest monthly declines in several years. In January 2016, the losses were similar, but not quite as large, and only for the U.S. indices. October 2018 was a month when equities lost significant value.
  • Notwithstanding these losses, American corporations and their reported earnings have shown growth. Although, the size of the growth may be slowing, earnings are still increasing. Additionally, the employment reports have also been favourable.
    • The losses in the equity markets appear to have been tempered by this positive news. The losses and the presence of positive news demonstrate the strength of the magnetic pull for capital toward rising interest rates and bond yields.

Below the major North American indices are graphically represented, first as the month of October and then Year-to-Date 2018.

  • The NASDAQ was the big loser for October, losing value from the beginning of the month, and ending off by 9.20%
  • The TSX fulfilled its typical role as a tempered index compared to the U.S. by finishing in the “middle of the pack”.
  • A slight uptick at the end of the month prevented an even more dire set of results from occurring.
  • Despite its October losses the NASDAQ leads North American indices with YTD returns of nearly 6%, and 1-year returns of 8½%.
  • For 2018 the TSX (black line in adjacent graph) has been middle of the pack in the middle of the year, beginning and ending YTD far behind its American cousins.

(Source: Advisor Research Group Inc. and data supplied by Bloomberg)

What’s ahead for November and beyond?

Expect three influences to affect markets over the short-term; the results of the U.S. midterm elections that could change the balance of power in Congress, interest rate and bond yield increases that would lower equities values should they occur (and all else remains static), and political intrigues particularly with the U.S. and its trade actions, dealings with Saudi Arabia and European

 

Last Week in the Markets: October 29 – November 2, 2018

(source: Bloomberg)

What happened?

  • It was another exciting week for equities, as volatility continues at a higher than normal level. Thankfully, the major North American indices moved higher for the week. October 2018 was the worst month for equities since 2011, and if stocks hadn’t rallied over the last three business days of October, it would have been the worst month since the financial crisis of 2008.
    • A number of opposing economic forces (i.e. positive and negative for equities) continue to drive volatility, as well as gains and losses:
      • The U.S. bond yields have risen recently, up from 2.8% to 3.2% since August, drawing investment to fixed income from equities, and pressuring equity values.
      • Corporate earnings, which are being reported currently, are about 25% ahead of the same period last year. Without this positive news the losses in October would have been magnified.
      • Optimistic news that U.S./China trade difficulties are headed to a positive conclusion continues to be generated by both sides.
      • The unpredictable U.S. midterm elections on November 6th have created market uncertainty in the markets. However, the period immediately following midterm elections since WWII have been very good for U.S. equities according to many sources like the NY Times. https://www.nytimes.com/2018/11/02/business/stock-market-rises-midterm-elections.html

What’s ahead for this week?

  • In Canada, housing data will dominate the economic news with building permits and new housing price index for September being released, along with October’s housing starts.
  • In the U.S., and just after an interest rate increase by the Bank of Canada the Federal Reserve has their own interest rate decision to make. Also, the producer price index for October and wholesale inventories for September are scheduled for release. On Tuesday the mid-term elections occur, which typically serves as an evaluation of the President’s performance.

 

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

(source: Bloomberg)

What happened last week?

  • It was an extremely difficult week for North American equity markets last week. Although the week’s end showed signs of promise, overall the losses were 3 – 4% for last week and there are now a lot of ‘red numbers’ in our grid (above) that weren’t there previously.
    • All four major indices have negative returns for year-to-date 2018
    • The TSX is the only index with negative 1-year returns, but the S&P 500 and the Dow are much closer to neutral than they were one month ago (17% and 20%, respectively)
    • These losses occurred while corporate earnings reports showed positive growth year-over-year. The growing geo-political tensions, based in-part on Middle East developments, created a move toward safe-haven investments like gold and U.S. dollars.
  • The Bank of Canada (BoC) raised its benchmark rate by one-quarter percent (25 basis points) to 1.75% last Wednesday indicating that the Canadian economy is strong enough to withstand some slowing through increased interest rate policy.
    • The high rate of consumer borrowing is an area of concern should rates continue to rise and be passed along to retail borrowers (credit card, lines of credit, mortgage interest rates). Increased interest payments leave less income available for other purchases, so consumer confidence and spending is closely monitored by the BoC.

What’s ahead for this week?

  • In Canada, August’s Gross Domestic Product (GDP), which measures our economy’s overall health and its ability to grow, will be released along with October’s employment report. These two indicators are very important to determining the economic situation (the other top-tier indicator would be inflation). Expect this news to have some limited effect on markets.
  • In the U.S., it will be a more balanced and plentiful release of economic data with personal income and spending, construction spending and factory and durable goods orders, all for September and October’s employment reports scheduled for announcement during the week.

 

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

(source: Bloomberg)

What happened last week?

  • On Thursday Canada became the second country in the world to legalize the recreational use of marijuana nationally. Uruguay was the first and only other country to do so.
    • Many marijuana company stocks took an immediate price hit, as the anticipation became reality.
  • Despite the growing turmoil from U.S./Saudi relations regarding the disappearance, denials, then acknowledged death, and finally admitted murder of journalist Jamal Khashoggi, it was a relatively uneventful week for North American equities indices.
    • The tension between the U.S. leadership and the Saudi royal family could ultimately affect the flow of Saudi oil to the U.S. and other developed economies, and its price.
      • Oil finished the week by dropping back below $70, after peaking in early October at $76, its highest price since November 2014.
    • Of more immediate effect, U.S. 10-year bond yields eased slightly after peaking on October 5th at 3.25%, allowing equities some breathing room as sell-offs eased.
      • All major North American indices were flat for the week plus/minus less than 1%
      • The tech-heavy NASDAQ was the only index with a loss last week.

What’s ahead for this week?

  • In Canada, it’s time for another interest rate decision from the Bank of Canada. Wednesday’s announcement will signal our central bank’s position on inflation, production and employment trends. In the U.S. the Federal Reserve’s meeting minutes show that the Governors believe their economy is robust enough to withstand additional interest rate increases. Also, wholesale trade sales for the month of August will be released.
  • In the U.S., September data new home sales, pending home sales, wholesale inventories, durable goods order will be announced. Gross Domestic Product (GDP) data will be released on the 3rd quarter of 2018.

 

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

(source: Bloomberg)

What happened last week?

  • The effect of interest rates on equity markets shouldn’t be underestimated. U.S. 10-year treasury notes rose above 3¼ %, sparking concern that rising interest rates would begin to slow corporate borrowing, corporate growth, and the U.S. economy.
    • As a result, last week the Dow suffered its third-largest single day drop in its history, and the NASDAQ had its largest single-day drop in 7 years.
    • The TSX had its worst one-day loss in 3 years, yet had the smallest percentage loss for the week among North American indices.
    • The Dow and NASDAQ’s returns remain in double-digit territory over the past year, while the S&P 500 is at 8½% over the same time period. It is only the TSX that has negative returns over the past year and year-to-date.
    • A number of encouraging events could influence Canadian and U.S. equities;
      • The new trade deal, known as USMCA, removes uncertainty for Canadian exporters and is proceeding to Congress after the November mid-term elections.
      • The upcoming legalization of marijuana has the TSX’s health care sector soaring,
      • Rising interest rates tend to help financial firms (banks and insurance), and the Financial sector is more than one-third of the TSX.,
      • S. inflation concerns lessened along with U.S./China trade tensions prompting a lift south of the border last Friday.

What’s ahead for this week?

  • In Canada, August data for manufacturing and retail sales will be released. The more important information will revolve around the Consumer Price Index (CPI), which will announce the most recent inflation rates, and could lead to Bank of Canada action.
  • In the U.S., September data for retail sales, existing home sales, housing starts and building permits, and industrial production and capacity utilization will be announced.

 

Last Week in the Markets: October 1 – 5, 2018

(source: Bloomberg)

What happened?  

  • Last Sunday the new trilateral trade deal, the US-Mexico-Canada Agreement (USMCA) was announced, and all seemed right with the world.
    • The Canadian dollar jumped to a 4-month high on the optimistic news.
    • North American equity markets reacted favourably, posting early week gains.
      • However, by the end of the week the effects on the Canadian economy didn’t deliver positive gains for equities or our dollar.
    • StatsCan announced the unemployment rate had fallen further to 5.9% based on a significant rise in part-time employment. In the U.S. the unemployment rate fell to 3.7%, its lowest level in almost 50 years.
      • The low unemployment rate is sparking inflation concerns in both countries, that could lead to further interest rate increases, to slow economic growth.
        • Rising rates will dampen corporate results as central banks attempt to slow the economy, and this fear caused the equity markets to fall for the week. The Dow ended the week where it started, down only very slightly. The other North American indices dropped close to 1%, with the NASDAQ taking a massive drop of over 3%.

What’s ahead for this week?

  • In Canada, the light, four-day trading week will be reflecting in sparse economic releases with building permits as the only significant release.
  • In the U.S., they will celebrate Columbus Day on Monday and enjoy a similarly light week with jobless claims and inflation data released.

 

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

(source: Bloomberg)

What happened in September and Q3? 

The third quarter and September ended far more optimistically than it began. In fact, the trade uncertainties surrounding NAFTA negotiations, the pessimism and angst driven by protectionist trade actions from the United States began in mid-2017.

On September 30th, close to midnight an agreement was reached among the U.S., Mexico and Canada. The new trade treaty is called, naturally, the US-Mexico-Canada Agreement and will be abbreviated as USMC, or USMCA. The ink is still wet, and many details will surface and be analyzed in the coming days and weeks, including its nickname.

The highlights of the agreement include:

  • The dispute resolution process from NAFTA has been brought forward. This was the major Canadian demand during negotiations. If a fair and open mechanism for complaints does not exist, the existence of the entire treaty could become meaningless.
  • The supply-management system for dairy products will be modified. In simple terms, the milk quota, which limits production by dairy farmers that promotes higher prices must change. U.S. dairy producers will gain access to Canadian markets, as will Canadians access the U.S. market. The Federal government has promised to compensate dairy producers for this concession; expect more details, confusion and discrepancies as this program is rolled out.
  • Automobiles and light truck production, which had been targeted (perhaps only as threats and negotiating stances), are protected from the Canadian standpoint. Threatened tariffs will not be levied.  As a sign of solidarity among the three countries, the level of North American content required to remain exempt from duties has been raised.  Additionally, to qualify for this exemption the wage rate earned on those products must be at least $15/hour.  This action is aimed at the low wage environment in Mexico, and is meant to protect Canadian and American jobs, and increase wages in Mexico.
  • As a significant open-issue; the steel and aluminum tariffs imposed by the U.S. have not been removed. President Trump has stated that they will remain in place, and that their existence was the impetus to spur negotiations and drive to a settlement.
  • The USMCA must now be passed by the U.S. Congress to be implemented. The vote is expected in late 2018 or early 2019, which are both after November’s mid-term elections.  The Republican-controlled presidency, Senate and House of Representatives are a formidable voting block (not nearly as predictable as a parliamentary democracy), but the results of the mid-term elections could cause majorities and power to shift.

Regardless of our status as a sovereign nation, membership in the G7, NATO and other organizations the Canadian population and economy is small compared to the United States.  Many individual states rely on exports to Canada, but nationally the economy of Canada to the U.S. is roughly equal to California.  We are important, at times, but not crucial to Americans.

Over the next few weeks the USMCA will be analyzed and second-guessed by many, but Canada needs access to the U.S. market for our goods and services, and USMCA preserves access, at what appears to be a reasonable cost.

The effect of the USMCA on markets will be tracked, as well.  Its finalization late-Sunday, outside trading hours and on the final day of a month and quarter will facilitate before-and-after comparisons, making them much easier to identify and calculate.

Looking back to the third quarter the TSX lost 1 ¼ percent, falling 200 points in three months.  The American indices surged ahead with the S&P 500, Dow and NASDAQ growing by 7.2%, 9.0% and 7.1%, respectively, over the same period.  Both the S&P 500 and the NASDAQ reached new, historic highs during September and during Q3.

(Source: Advisor Research Group Inc. and data supplied by Bloomberg)

Over the course of the 2018, and especially during the third quarter the American indices paralleled one another, while the TSX mirrored some gains and losses in a more tempered manner.  The TSX is the only major North American index with a negative return in 2018.  With the large gains across the board in the U.S. it often feels like the Canadian market is tremendously underperforming it American counterpart.

A few points to ponder:

  • Generally, more Canadian firms deliver dividends and the dividend yields are usually higher than those delivered by American firms. The market returns reflect capital gains and do not include any dividends.
  • The tempered losses are often quickly forgotten when the gains do not materialize. Maintaining, or losing, is not part of a long-term retirement investment strategy, nor is high volatility and risk.
    • For most investors these stated numbers feel worse than actually are. We should focus on your portfolio’s return relative to your goals and risk tolerance to determine if its performance is in-line with your expectations.

What’s ahead for October and beyond?

As stated earlier, much of October and the rest of 2018 will be concerned with the passing and implementation of the USMCA.

The U.S. Federal Reserve along with the Bank of Canada could make additional interest rate moves before the end of the year.  This could be driven by the optimism and effects of the new trade agreement, and its likelihood of passing the U.S. Congress.

In Canada the uncertainty of NAFTA’s future reduced the willingness by Stephen Poloz, Governor, Bank of Canada, to raise rates.  He did not want to slow our economy’s growth, and then have to reinvigorate it should the negotiations have failed.