August 30 to September 3, 2021
What happened last week
The S&P 500 and Canada’s TSX hit record highs
In a month historically regarded as slower than average for stock markets, the S&P 500 and Canada’s TSX reached surprising milestones in August. The S&P 500, along with the Nasdaq, kicked off the week with new intra-day and closing highs after investors bought back into technology and consumer discretionary stocks. Led by a 2.3% gain for Apple Inc., tech was back in favour following dovish comments from the U.S. Federal Reserve (the Fed) during the Jackson Hole Economic Symposium on August 27.
August marked seven consecutive months of gains for the S&P 500, its longest stretch since January 2018. The TSX lost ground on Monday and Tuesday, but Canada’s benchmark stock index ended August with a 1.5% gain, while also matching the S&P’s seven-month streak (climbing 18.7% over that period). Led by industrial and tech stocks, the TSX was hot to start September, notching records on Wednesday, Thursday and Friday. The S&P and the Nasdaq also hit new highs on Thursday, but disappointing U.S employment data slowed momentum on Friday.
Canada’s GDP unexpectedly contracted 1.1% in Q2
Following a 5.5% annualized growth rate in the first three months of the year, on Tuesday Statistics Canada reported that the country’s Gross Domestic Product (GDP) contracted by an annualized rate of 1.1% between April and June. The news surprised analysts, who had expected an expansion of 2.5%.
The reading marks the first decline over an entire business quarter since Q2 2020 (during the first-wave lockdown). A sharp drop in exports (15%) and declines in the housing market were significant factors. Adding to immediate concerns that the economic rebound may be stalling, an initial estimate for July showed another drop of 0.4%. With a federal election scheduled for September 20, this news is particularly troublesome for Prime Minister Justin Trudeau, as his economic track record comes under greater scrutiny.
OPEC+ moved forward with planned supply increases
The Organization of the Petroleum Exporting Countries and its allies (OPEC+) met virtually on Wednesday and quickly ratified an earlier agreement to increase supply by 400,000 barrels per day in October (after already doing so for September). In a statement, the group acknowledged it still faces obstacles, but the demand outlook remains optimistic: “While the effects of the COVID-19 pandemic continue to cast some uncertainty, market fundamentals have strengthened, and OECD stockpiles continue to fall as the recovery accelerates.” Following the news, Benchmarks West Texas Intermediate and Brent crude traded higher, near $70 per barrel, which put global oil prices on track for back-to-back weekly gains.
U.S. job growth slowed in August
A closely watched report from the U.S. Labor Department showed nonfarm payrolls increased by just 235,000 jobs in August, a sharp decline from the 1.053 million jobs created in July. The August report is the lowest increase in seven months and far below The Wall Street Journal’s forecast of 720,000 new jobs. The fast-spreading COVID-19 Delta variant likely curtailed hiring plans across the U.S.
The stock and bond market*
|Dow Jones Industrial Avg.
|S&P 500 Index
|10-yr GoC Yield
|10-yr U.S. Treasury Yield
|WTI Crude Oil (US$/bbl)
|Bank of Canada Prime Rate 2.45%
*Weekly performance ending September 3, 2021. Sources: www.bloomberg.com, www.bankofcanada.ca and www.treasury.gov.
Bank of Canada interest-rate announcement: In its last monetary-policy update on July 14, the Canadian central bank held its benchmark overnight interest rate at 0.25% and said weekly purchases of government debt would be reduced by one-third (to $2 billion). Investors will be watching closely to see if that plan remains on course.
Circle these dates
- September 20: Canadian federal election
- September 21 to 22: U.S. Federal Reserve meetings and statement
- October 11: Canadian markets closed for Thanksgiving Day
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