August 10-14, 2020

What happened last week

Stock markets wavered as financial stimulus uncertainty dragged on

North American markets got off to an encouraging start on Monday, with all four major indices closing in positive territory. The day’s gains were driven, in part, by news (over the weekend) that U.S. President Donald Trump had signed four executive orders – all aimed at supporting Americans who are struggling through COVID-19 and the related fallout. The orders extended unemployment benefits, eviction protections and student loan payment deferrals, while also providing a payroll-tax “holiday” for workers. Although the move provided much-needed financial aid, it was criticized by some as an attempt by the Trump administration to circumvent Congress, where Democrats and Republicans remain locked in a stalemate over the size and scope of the next stimulus package.

These negotiations (around the stimulus package) continued to make headlines throughout the week, with investor sentiment swinging between optimism and concern from one day to the next. On Tuesday, reports that the rival political parties were still miles apart – in terms of finalizing a new package – were enough to cause a late-day slide: both the Dow Jones Industrial Average and the S&P 500 snapped a seven-day streak of gains. While the markets bounced back on Wednesday, closing with gains across the board, they dipped back into the red again on Thursday and Friday.

Despite the market’s overall choppiness, the S&P 500 had a particularly strong week, only narrowly missing its first record close since Feb. 19 (when it hit 3,386.15 points). Led by a rally in technology stocks, the S&P 500 crossed the 3,386-point threshold on both Wednesday and Thursday; each day, however, it fell back before the closing bell. Since its lowest 2020 close (2,237.40), which came on March 23, the S&P has gained 51% – largely, on the strength of consumer discretionary stocks, including companies like Amazon and Best Buy, and the material sector (e.g., gold).

Gold prices bounced back after a dramatic decline

Over the last few weeks, despite being a commodity that only fluctuates within one percentage point per day, gold has been on a relative rollercoaster. After climbing to a record high of US$2,064 an ounce earlier this month, the price plunged 5.7% on Tuesday – the biggest one-day loss in seven years. According to a report in Bloomberg, “After surging about 30% this year, gold’s rally came to a sudden halt Tuesday as U.S. bond yields rose, cutting into the negative real rates that had supported the metal.” By Wednesday, the spot metal had bounced back to US$1,936.49 per ounce.

Canadian manufacturing sales hit new record in June

According to a report by Statistics Canada, manufacturing sales jumped a record-setting 20.7% in June to $48.7 billion, led by the motor vehicle and motor vehicle parts industries. The transportation equipment industry also saw sales double to $8.8 billion as factories and production resumed to a full production schedule. Analysts had predicted an increase of 16% for the month of June.

The stock and bond market*
S&P/TSX Composite 16,514.61 -0.18% -3.22%
Dow Jones Industrial Avg. 27,931.02 1.81% -2.13%
S&P 500 Index 3,372.85 0.64% 4.40%
NASDAQ Composite 11,084.58 0.67% 23.54%
10-yr GoC Yield 0.61% 0.13% -1.09%
10-yr U.S. Treasury Yield 0.71% 0.14% -1.21%
WTI Crude Oil (US$/bbl) 42.01 1.92% -31.36%
Canadian Dollar US$0.7547 0.95% -1.97%
Bank of Canada Prime Rate 2.45%

*Weekly performance ending August 14, 2020. Source: Bloomberg.

What’s ahead

Canadian inflation rate: As the Canadian economy looks to get back on track, data, including the inflation rate, can help to identify the way it’s trending. In Canada, consumer prices rose 0.7% on a year-over-year basis in June, following a 0.4% fall in May. The inflation rate data for July 2020 is expected mid-week.

Circle these dates

  • Sept. 9: Bank of Canada interest-rate announcement
  • Sept. 15-16: U.S. Federal Reserve meetings and statement
  • Nov. 3: U.S. presidential election

Key take-away

Don’t let emotions control your investments. While market fluctuations can be unsettling, they’re inevitable. And no one can predict when they will happen. Keeping your emotions in check – and staying focused on a plan that’s geared toward your goals and risk tolerance – is essential for long-term success.

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