April 12 to 16, 2021

What happened last week

Strong economic data and corporate earnings lifted markets

Trading volume was light to kick off the week. Investors, holding in wait-and-see mode, looked forward to the release of key inflation data on Tuesday and the start of corporate earnings season on Wednesday. All four major North American indexes finished Monday with moderate losses. Some additional investor trepidation resulted from a 60 Minutes interview with U.S. Federal Reserve (The Fed) Chair Jerome Powell over the weekend. Powell once again tried to calm concerns that the central bank may raise interest rates in the near term, should an economic recovery spark inflation.

U.S. consumer prices jumped to an eight-year high

On Tuesday, a U.S. Labor Department report showed the consumer price index (CPI) climbed 0.6% in March, the largest gain since August 2012. Gas prices accounted for almost half of the overall increase, rising 9.1% over the month. For all the inflation concerns swirling over the last few weeks, investors took the news in stride. Tech stocks were back in favour, helping the S&P 500 hit an intra-day record and giving the Nasdaq a major boost. These gains came despite the FDA and the CDC suspending usage of the Johnson & Johnson vaccine. The Dow Jones Industrial Average and the TSX declined on the day.

Big banks earned major profits and retail sales soared

Corporate earnings season started Wednesday with investment bank Goldman Sachs reporting a first-quarter profit of US$6.71 billion, up from US$1.2 billion during the same period last year. JPMorgan Chase reported a profit of US$14.3 billion in Q1, though the bank had set $5.2 billion of that money aside for loan losses that never materialized. The better-than-expected corporate earnings were enough to help the S&P 500 hit another intra-day record before sliding at the closing bell. The tech stocks that helped the Nasdaq come close to its 14,000-point milestone on Tuesday weighed it down on Wednesday. The TSX also declined while the Dow posted a modest gain.

Markets surged on Thursday and Friday with the TSX, S&P 500 and the Dow all hitting record highs. The Nasdaq ended the week just shy of a new record, but topped 14,000 points for the first time since February. The biggest drivers were U.S. retail sales data for March, which reported a 10-month high, as local economies reopened, and strong economic data out of China. In the U.S., retail sales were up 9.8% after dropping by 2.7% in February. The $1,400 stimulus cheques to individuals, plus major job growth last month, likely contributed to the overall rebound. In China, first quarter GDP growth shot up 18.3% on a year-over-year basis, with retail sales climbing 34.2% in the world’s second largest economy.

The stock and bond market*
S&P/TSX Composite 19,351.32 0.64% 11.00%
Dow Jones Industrial Avg. 34,200.67 1.18% 11.74%
S&P 500 Index 4,185.47 1.37% 11.43%
NASDAQ Composite 14,052.34 1.09% 9.03%
10-yr GoC Yield 1.53% 0.03% 0.86%
10-yr U.S. Treasury Yield 1.59% -0.08% 0.66%
WTI Crude Oil (US$/bbl) 63.07 6.29% 29.99%
Canadian Dollar US$0.7998 0.33% 1.83%
Bank of Canada Prime Rate 2.45%

*Weekly performance ending April 16, 2021. Sources: www.bloomberg.com, www.bankofcanada.ca and www.treasury.gov.

What’s ahead

Canadian Federal Budget 2021 (April 19, 4 p.m. ET): The budget announcement (the first in two years) is expected to introduce a spending plan that could reach as high as C$100 billion over the next three years, as Canada moves toward economic recovery. Finance Minister Chrystia Freeland has previously stated, “We will continue to do whatever it takes to support Canadians and Canadian businesses. And we have a plan for jobs and robust growth.” After a year of unprecedented peace-time spending, with a projected deficit of $381.6 billion (17.5% of gross domestic product) in the 2020-21 fiscal year, expect international investors to closely monitor this budget moving forward. Given its minority position in parliament, the government will need at least one opposition party to support the plan. If not, it could trigger a federal election.

Circle these dates

  • April 27-28: U.S. Federal Open Market Committee meetings and statement
  • April 30: 2020 income tax filing deadline

Key take-away

There are countless factors influencing market cycles. Some are easier to see coming than others. Getting through times of uncertainty isn’t about knowing which stage we’re in, but understanding how the stages work. From there, having an investment plan geared toward your individual goals and objectives – and sticking to it – is the best defense against inevitable market downturns.

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