April 19 to 23, 2021

What happened last week

Markets pulled back from record highs, as global cases of COVID-19 surged

Concern over rising COVID-19 infections around the world, and uncertainty around the pace of economic recovery, weighed on investor sentiment. Financial markets fluctuated, with mixed economic reports coming out of the U.S., and with the federal budget and monetary-policy updates making headlines in Canada.

Energy prices struggled for direction throughout the week: West Texas Intermediate crude futures flipped between modest gains and losses, as the world’s third-largest oil importer, India, battled a spike in coronavirus cases. The country of 1.3 billion people posted the world’s largest one-day jump for infections, with 314,644 new COVID-19 cases on Wednesday, according to Johns Hopkins University.

Despite a rally on Wednesday that saw modest gains for all four North American benchmark indexes, equity markets lost some momentum early Thursday as mixed economic data was reported in the U.S. A better-than-expected decline in weekly jobless claims was offset by data showing that March sales of previously owned U.S. homes slipped to a seven-month low.

Stock markets lost more ground on Thursday afternoon, following headlines that the Biden administration might double the capital-gains tax for those earning US$1 million or more. Friday brought a modest rebound in equity markets on the strength of positive manufacturing and new-home sales data out of the U.S.

The federal budget outlined historic spending levels to spark economic recovery

On Monday, Finance Minister Chrystia Freeland presented the Canadian government’s first budget in two years. It was aimed at defeating COVID-19, recovering lost jobs, and transitioning to a greener, more-resilient economy. The document outlines the largest peace-time government-spending plan in Canadian history, projecting a $354.2-billion deficit for 2020-21, followed by a $154.7-billion shortfall in the next fiscal year. To help pay for this, the budget proposes luxury-tax measures, starting January 1, 2022, that are expected to raise billions of dollars in revenue from: a 3% tax on the revenues of large digital companies, a 10-to-20% tax on luxury cars and personal aircraft with sale prices of $100,000 or more, and personal-use boats with price tags of more than $250,000. Read our Federal Budget 2021 report to learn more on what the budget means for Canadians.

As part of the government’s debt-management strategy to lock in debt at current rates, the budget also included plans to issue a record amount of long-term debt in 2021. The government plans to issue $121 billion in bonds that mature in 10 years or later. This is up from $107 billion in the fiscal year that ended March 31. Yields on longer-term government bonds rose, as investors anticipated the new supply; the 10-year benchmark yield reached its highest level in two weeks, following the release of the budget details. According to the budget: “The government will closely monitor financial markets and may issue more long-term debt if market conditions are favourable.”

The Bank of Canada announced a tapering of emergency monetary support

In its latest monetary-policy update, on Wednesday, the Bank of Canada announced that it would reduce its government-debt purchases by 25% to $3 billion and move up timing for a possible interest-rate increase. The bank’s forecast for the Canadian economy’s return to pre-pandemic conditions is ahead of central banks in other major economies, including the U.S. The Bank of Canada reiterated its guidance that it won’t raise its benchmark interest rate, currently at 0.25%, until the recovery is complete and until inflation is sustainable at 2%. But it now projects that to happen sooner. The bank revised its growth estimate to be higher for 2021, by more than two percentage points, to 6.5%. It noted in its report: “Based on the Bank’s latest projection, this is now expected to happen sometime in the second half of 2022.” The Canadian dollar rose to its highest level since January, following the update.

The stock and bond market*
S&P/TSX Composite 19,102.33 -1.29% 9.57%
Dow Jones Industrial Avg. 34,043.49 -0.46% 11.23%
S&P 500 Index 4,180.17 -0.13% 11.29%
Nasdaq Composite 14,016.81 -0.25% 8.76%
10-yr GoC Yield 1.51% -0.02% 0.84%
10-yr U.S. Treasury Yield 1.58% -0.01% 0.65%
WTI Crude Oil (US$/bbl) 62.14 -1.57% 28.07%
Canadian Dollar US$0.8007 0.11% 1.95%
Bank of Canada Prime Rate 2.45%

*Weekly performance ending April 23, 2021. Sources: www.bloomberg.com, www.bankofcanada.ca and www.treasury.gov.

What’s ahead

U.S. Federal Reserve statement on Wednesday: At the U.S. central bank’s last Federal Open Market Committee meetings, in March, policy-makers agreed to hold its key overnight interest rate at a target range of 0.25% or lower. The U.S. central bank pledged to hold that rate until 2023, while maintaining the pace of its bond-purchase program – until there is proof of “substantial further progress” on its employment and inflation goals.

Circle these dates

  • April 30: income-tax filing deadline
  • May 17: Bank of Canada Financial System Review released
  • May 24: Canada’s TSX closed for Victoria Day holiday
  • May 31: U.S. markets closed for Memorial Day holiday

Key take-away

Never try to time the market. Attempting to recoup a loss, by cashing out when the markets are down and reinvesting when they rebound, doesn’t work. Most seasoned financial professionals will recommend that you “stay the course,” keeping your end goal in mind.

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