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Market Updates

Market Updates Source: Advisor Research Group

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

(source: Bloomberg)

What happened?

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

This Week?

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

 

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

(source: Bloomberg)

What happened?

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

This Week?

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

 

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

(source: Bloomberg)

What happened?

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

This Week?

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

 

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

(source: Bloomberg)

What happened?

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

This Week?

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

 

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

(source: Bloomberg)

What happened in May?

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

(source: Globe and Mail)

What’s ahead for June and beyond?

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

 

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

(source: Bloomberg)

What happened?

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

This Week?

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

 

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

(source: Bloomberg)

What happened?

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

This Week?

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

 

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

(source: Bloomberg)

What happened?

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

This Week?

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

 

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

(source: Bloomberg)

What happened?

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

This Week?

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

 

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

(source: Bloomberg)

What happened in April?

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

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

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

What’s ahead for May and beyond?

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

 

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

(source: Bloomberg)

What happened?

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

This Week?

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

 

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

(source: Bloomberg)

What happened?

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

This Week?

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

 

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

(source: Bloomberg)

What happened?

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

This Week?

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

 

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

(source: Bloomberg)

What happened?

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

This Week?

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

 

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

(source: Bloomberg)

What happened in March?

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

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

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

What’s ahead for April and beyond?

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

 

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

(source: Bloomberg)

What happened?

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

This Week?

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

 

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

(source: Bloomberg)

What happened?

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

This Week?

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

 

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

(source: Bloomberg)

What happened?

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

This Week?

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

 

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

(source: Bloomberg)

What happened?

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

This Week?

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

 

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

(source: Bloomberg)

What happened?

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

This Week?

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

 

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

(source: Bloomberg)

What happened in February?

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

February highlights from the markets:

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

What’s ahead for March?

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

 

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

source: (Bloomberg)

What happened?

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

This Week?

MARCH 1ST IS THE RRSP CONTRIBUTION DEADLINE!!!

 

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

(source: Bloomberg)

What happened?

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

This Week?

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

 

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

(source: Bloomberg)

What happened?

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

This Week?

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

 

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

(source: Bloomberg)

What happened?

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

What’s ahead for February and early 2017?

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

 

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

(source: Bloomberg)

What happened?

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

This Week?

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

 

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

(source: Bloomberg)

What happened?

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

This Week?

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

 

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

(source: Bloomberg)

What happened?

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

This Week?

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

 

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

(source: Bloomberg)

What happened?

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

This Week?

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

 

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

(source: Bloomberg)

What happened?

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

This Week?

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

 

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

(source: Bloomberg)

What happened?

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

What’s ahead for January and early 2017?

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

 

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

(source: Bloomberg)

What happened?

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

This Week?

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

 

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

(source: Bloomberg)

What happened?

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

This Week?

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

 

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

(source: Bloomberg)

What happened?

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

This Week?

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

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

market-update-chart-dec-5-9

(source: Bloomberg)

What happened?

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

This Week?

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

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

monthly-market-update-chart_november

(source: Bloomberg)

What happened?

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

What’s ahead for December?

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

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

market-update-nov-21-25_2016

(source: Bloomberg)

What happened?

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

This Week?

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

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

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

(source: Bloomberg)

What happened?

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

This Week: November 21 – 25, 2016

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

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

weekly-market-update_nov-14

(source: Bloomberg)

What happened?

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

This Week?

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

Time will tell if Trump policy increases inflation AND interest rates

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

monthly-market-update_october-2016

(source: Bloomberg)

What happened?

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

What’s ahead for November?

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