Feb. 1-5, 2021
What happened last week
Momentum swung upward, sending stock markets to record levels
February started with a bang for North American stock markets, as Canada’s TSX regained positive territory on a year-to-date basis and established a new all-time closing high on Friday. State side, the S&P 500 and Nasdaq reached new closing records as well. The previous week’s volatility, fuelled by the speculative trading of online retail investors, subsided. Familiar themes – including hope of further fiscal stimulus for the U.S. economy, and rising optimism for a worldwide economic recovery as COVID-19 vaccinations ramp up – continued to drive market performance.
“Reddit rally” stocks crashed as investors focused on earnings and data
The market volatility sparked by the so-called “Reddit investors,” who had united on social media to drive up the price of certain heavily shorted stocks in recent weeks, began to wane. By the end of the week, shares of GameStop and AMC Entertainment had dropped dramatically from recent highs following moves by online trading platforms (like Robinhood Markets) to restrict the trading of these and other speculatively traded stocks.
Earnings reports from tech giants Alphabet (Google’s parent company) and Amazon.com late Tuesday beat analyst expectations, sending the share price of each company up during after-market trading in the U.S. Shares of United Parcel Service, Amazon’s biggest customer and fellow pandemic outperformer, also climbed as the courier reported a huge surge in profit. Canada Goose was a top performing stock on the TSX, spiking almost 30% on Thursday, after reporting sales growth driven by e-commerce and increased demand from China.
Markets got a further boost on Thursday, as a U.S. Department of Labor data report showed that jobless claims fell to the lowest level since November. This was welcome news to investors looking for signs of economic recovery. But a separate report, released Friday, showed that non-farm payrolls (i.e. jobs in manufacturing, construction and goods) increased by just 49,000 over December. Although the unemployment rate fell to 6.3% for the month, the decline fell short of projections. While the report served to weaken treasuries and the U.S. dollar, it had the opposite effect on stock markets; investors betting that these disappointing numbers will increase the possibility that Congress will pass a financial relief package soon.
January employment figures were also released by Statistics Canada on Friday, showing the country lost 212,800 jobs in the month, adding to a loss of 52,700 jobs in December. While the unemployment rate climbed to 9.4% in January, higher than forecast, the losses were confined to part-time jobs in sectors hardest hit by lockdowns (like recreation, accommodation and restaurants), leaving room for optimism that the numbers will rebound once COVID-19 when lockdowns lift.
Oil prices continued to strengthen
Global oil prices surged, aided by OPEC+ (Organization of Petroleum Exporting Countries and its allies) supply management, and growing investor optimism that demand for the commodity will increase as the pandemic subsides and economies begin to reopen. Since January, OPEC+ has been holding back over 7 million barrels of output a day (about 7% of global supply). Following an online meeting of OPEC+ nations on Wednesday, the organization announced that Saudi Arabia would restrict supplies by a further 1 million barrels per day over the next two months. The organization pledged to clear the supply left behind during the pandemic as soon as possible, noting: “The gradual rollout of vaccines around the world is a positive factor for the rest of the year, boosting the global economy and oil demand.” Futures of WTI Crude, which were trading around US$35 a barrel just over three months ago, rose over 9% through the week to reach US$56.85 a barrel on Friday, a price approaching pre-pandemic levels.
The stock and bond market*
|Dow Jones Industrial Avg.
|S&P 500 Index
|10-yr GoC Yield
|10-yr U.S. Treasury Yield
|WTI Crude Oil (US$/bbl)
|Bank of Canada Prime Rate 2.45%
*Weekly performance ending Feb. 5, 2021. Sources: www.bloomberg.com, www.bankofcanada.ca and www.treasury.gov.
U.S. economic data: Several reports will be released this week that offer insight into different aspects of the world’s largest economy, including inflation, oil and energy supply, housing and employment.
Circle these dates
- Feb 15: North American markets closed for holidays
- March 10: Bank of Canada interest-rate announcement
- March 16-17: U.S. Federal Open Market Committee meeting
- April 2: North American markets closed for Good Friday
- Apr. 30: 2020 income tax filing deadline
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