Feb. 8-12, 2021
What happened last week
North American stock markets hovered at record levels
Momentum from the previous week carried over, keeping North America’s benchmark stock exchanges at or near record highs throughout the week. A six-day rally for both the S&P 500 and Dow Jones Industrial Average was interrupted on Tuesday, as U.S. inflation became a hot topic and weighed on equities. On Thursday, Canada’s TSX finally took a breather – after an eight-day run of gains – as high-flying pot stocks suddenly fell. Investor optimism firmed up again on Friday, and all the major indexes closed at record levels.
Tech and pot stocks drove performance of the TSX
Shopify, which has contributed a solid one-third of the TSX’s gains this year, helped Canada’s main exchange outpace U.S. markets Monday through Wednesday. Shares of the Canadian e-commerce star climbed 6.5% on Tuesday, closing at a record high of $1,432.99. The spike followed the company’s announcement that it would be expanding its “Shop Pay” option to merchants that are selling on Facebook and Instagram in the U.S. This marks the first time that the feature will be available outside of Shopify’s platform; it positions the company to benefit from the rise in social-media-driven shopping, which has boomed during the pandemic.
Canadian cannabis companies, which have already made a significant contribution to TSX returns this year, caught the attention of retail “Reddit investors” during the early part of the week. Spurred by reports that U.S. lawmakers are planning to introduce new legislation to reform the nation’s strict cannabis laws (thus, fuelling speculation in social media), investors drove up share prices of Aphria, Aurora Cannabis, Canopy Growth, Cronos and Hexo. On Thursday, however, each of these same stocks plunged more than 20%, contributing to the stall in February’s TSX rally as reality set in and savvy investors looked more closely at each company’s fundamentals and prospects for entering the U.S. market.
Investors paused to consider the spectre of inflation in the U.S.
A report from the U.S. Labor Department, on Wednesday, showed that underlying consumer prices were unchanged throughout January – marking a second straight month. This was in line with economist expectations. But, with significant fiscal stimulus expected to arrive soon, and with an increasing percentage of the population getting vaccinated against COVID-19, a corresponding wave of consumer demand could eventually lead to rising prices. As such, investors paused to consider the impact that these changes could have on monetary policy and interest rates. Addressing the Economic Club of New York on Wednesday, U.S. Federal Reserve Chair Jerome Powell said: “As the economy reopens we may see a burst of spending ... there could be some upward pressure on prices there, again though, my expectations would be that would be neither large nor sustained.” The U.S. Federal Reserve has indicated that it is committed to a supportive monetary policy until the economic recovery is complete, and that it is willing to tolerate some inflation in the meantime.
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. 12, 2021. Sources: www.bloomberg.com, www.bankofcanada.ca and www.treasury.gov.
Canadian economic data: Several reports scheduled for release this week will offer insight into aspects of the Canadian economy, including monthly retail-sales figures and inflation.
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
This article is provided as a general source of information for a specific point in time and should not be considered solicitation to buy or sell any investment. Nothing contained in this article constitutes investment, legal, tax or other advice.
The Co-operators® is a registered trademark of The Co-operators Group Limited and is used with permission.