Feb. 15-19, 2021

What happened last week

Disappointing economic data derailed market momentum

In a holiday-shortened week for both Canadian and U.S. investors, when trading resumed on Tuesday, markets looked poised for a seamless continuation of the 2021 equity-market rally. Canada’s TSX hit a new record as energy stocks soared on the back of rising oil prices, and the Dow Jones Industrial Average also eked out a new record. The Nasdaq and the S&P 500 both hit intraday milestones before closing off their daily highs. Despite these records, trepidation began to creep into investor sentiment as they considered the impact a possible central bank interest rate hike could have on stock valuations as the global economy recovers over the long term. This strengthened bond yields, with the benchmark U.S. 10-year Treasury note hitting its highest point since February 2020.

With the exception of the Dow, Wednesday was a negative day across the board, with the TSX giving back some of Tuesday’s gains, and the S&P 500 and the Nasdaq faltering for a second day in a row. Technology stocks continued to slide as investors returned to more cyclical areas of the market that stand to gain the most from economies reopening. A report from the Commerce Department showed retail sales surged 5.3% in January, a positive sign for the U.S. economy. But the news had a dual impact, sparking early concern that inflation could rise too high, too quickly, which could open the door for the U.S. Federal Reserve to reassess its near-zero interest-rate stance.

Market declines carried over into Thursday and Friday with North American investors digesting disappointing labour data. At home, payroll service provider ADP reported that Canada lost 231,200 jobs in January. With the slower-than-expected vaccine rollout across the country, the spike in job losses only heightened unease about the pace of our economic recovery. In the U.S., 861,000 jobless claims stood as the highest number in the last four weeks. The U.S. market also received discouraging manufacturing data, but these stories paled in comparison to the unexpected cold weather that gripped Texas throughout the week.

Oil prices scaled to a 13-month high, supported by the Texas deep freeze

On Tuesday, both crude oil benchmarks West Texas Intermediate (WTI) and Brent crude hit their highest price since January 2020. With unprecedented cold weather across several southern U.S. states, knocking oil refineries offline and freezing wells, WTI prices rose to US$60.05 per barrel on Tuesday, while Brent hit US$63.35 (briefly reaching as high as US$65 on Thursday). The weather impeded production of crude oil by up to four million barrels per day (40% of U.S. production). The situation had a ripple effect on a global oil market still recovering from supply and demand issues related to COVID-19. With the situation in the U.S. dragging on longer than expected, the value of crude barrels in other parts of the world surged as the global market looked to replace the lost production.

The stock and bond market*
S&P/TSX Composite 18,384.27 -0.41% 5.45%
Dow Jones Industrial Avg. 31,494.32 0.11% 2.90%
S&P 500 Index 3,906.71 0.71% 4.01%
NASDAQ Composite 13,874.46 -1.57% 7.65%
10-yr GoC Yield 1.21% 0.18% 0.54%
10-yr U.S. Treasury Yield 1.34% 0.14% 0.41%
WTI Crude Oil (US$/bbl) 59.01 -0.77% 21.62%
Canadian Dollar US$0.7928 0.51% 0.17%
Bank of Canada Prime Rate 2.45%

*Weekly performance ending Feb. 19, 2021. Sources: www.bloomberg.com, www.bankofcanada.ca and www.treasury.gov.

What’s ahead

Bank of Canada speech: On Tuesday, Tiff Macklem, Governor of the Bank of Canada will speak by video conference to the Edmonton Chamber of Commerce and the Calgary Chamber of Commerce about the labour market and sectoral impacts of COVID-19.

Circle these dates

  • Mar. 10: Bank of Canada interest-rate announcement
  • Mar. 16-17: U.S. Federal Open Market Committee meetings and statement
  • Apr. 2: North American markets closed for Good Friday
  • Apr. 30: 2020 income-tax filing deadline

Key take-away

Don’t try and time the market. History shows that markets tend to bounce back quickly after major events, which means that – like downturns – market gains come equally fast and unexpectedly. In short, missing even a few of the best days in the market can impact your long-term success.

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