Jan. 18-22, 2021

What happened last week

Markets welcomed a change in leadership for the U.S. economy

North American stock markets hit record highs mid-week as Joe Biden became the 46th President of the United States. The positive performance also stemmed from optimism that the new administration’s proposed US$1.9 trillion pandemic relief package will soon get congressional approval, well-received senate testimony from Treasury Secretary nominee Janet Yellen, and strong fourth quarter corporate earnings reports.

On Monday, with U.S. markets closed for Martin Luther King Jr. Day, Canada’s S&P/TSX Composite stood as the lone North American market in action, gaining 35 points on the strength of the health care and technology sectors. China’s fourth quarter economic results, which beat expectations and helped the country’s gross domestic product grow by 2.3% in 2020, also factored in Monday’s headlines. China was the only major economy to avoid contraction last year.

Pandemic relief and corporate earnings supported inauguration highs

All eyes were on Janet Yellen’s confirmation hearing before the Senate Finance Committee on Tuesday. In her testimony, the former chairperson of the U.S. Federal Reserve said, “Without further action we risk a longer, more painful recession now and longer-term scarring of the economy later.” She encouraged Senate lawmakers to “act big” on coronavirus relief plans. Yellen also downplayed concern that President Biden would raise taxes – a major criticism during his campaign. Yellen said, as Treasury Secretary, she wouldn’t pursue a complete repeal of Donald Trump’s 2017 tax cuts, but corporations and the wealthy “need to pay their fair share.” All four major North American indexes closed in positive territory.

As President Biden was sworn in on Wednesday, markets gathered steam with the Dow Jones Industrial Average and the S&P 500 both capturing their best inauguration-day gains since President Ronald Reagan took office in 1985. For the Nasdaq, it was the best inauguration-day on record, though it also received a boost from Netflix’s fourth quarter earnings report. The company, which now has over 200 million subscribers, reported enough revenue to finance its day-to-day operations without borrowing and creating debt.

Markets remained near record highs on Thursday but slipped Friday on escalating concerns related to COVID-19 and lockdown restrictions.

President Biden revoked the permit allowing the Keystone XL extension

One of President Biden’s first actions was to sign an executive order revoking the Keystone XL pipeline extension permit. The cancellation of the on-again, off-again project has implications that reach the heart of Canada’s energy sector. In a press conference, Alberta Premier Jason Kenney said, “This is a gut punch to the Alberta and Canadian economies.” Former President Donald Trump reinstated the permit in 2019 (reversing an Obama administration cancellation). The Alberta government then invested US$1.1 billion of taxpayer money into construction of the pipeline to transport up to 830,000 barrels of oil per day from Alberta to Nebraska. In a statement from Ottawa, Prime Minister Justin Trudeau said, “We are disappointed, but acknowledge the President’s decision to fulfill his election campaign promise on Keystone XL.”

The Bank of Canada held its benchmark rate at 0.25%

In the first meeting of eight planned for 2021 to set its benchmark rate, Canada’s central bank kept its benchmark rate at 0.25%, upheld the current pace of its bond-buying program at $4 billion per week, and reconfirmed the economy is on a two-year timeline to fully recovery. While the bank’s economic growth estimate for 2021 remained relatively stable, its outlook for 2022 jumped from 3.7% to 4.8%, indicating a more positive vision for next year. Access to the COVID-19 vaccine and a ramped-up timeline for inoculations were the main factors for the improved 2022 forecast. Speaking to reporters, Bank of Canada Governor, Tiff Macklem, said, “There is clear reason to be more optimistic about the direction of the economy over the medium term, but we're not there yet. The resurgence in COVID-19 cases weighs heavily on the near-term economic outlook.”

The stock and bond market*
S&P/TSX Composite 17,845.91 -0.35% 2.37%
Dow Jones Industrial Avg. 30,996.98 0.59% 1.28%
S&P 500 Index 3,841.47 1.94% 2.27%
NASDAQ Composite 13,543.06 4.19% 5.08%
10-yr GoC Yield 0.84% 0.03% 0.17%
10-yr U.S. Treasury Yield 1.10% -0.01% 0.17%
WTI Crude Oil (US$/bbl) 51.98 -0.73% 7.13%
Canadian Dollar US$0.7864 0.09% 0.13%
Bank of Canada Prime Rate 2.45%

*Weekly performance ending Jan. 22, 2021. Sources: www.bloomberg.com, www.bankofcanada.ca and www.treasury.gov.

What’s ahead

U.S. Federal Reserve meetings and statement on WednesdayFederal Reserve chairperson Jerome Powell is on record saying an interest-rate increase hike isn’t planned, nor is scaling back its bond-purchasing program. The bank’s attention now turns to working with a new administration.

An update on Canadian monetary policy Also happening on Wednesday, the Bank of Canada will announce an interest-rate decision. In its last update, the central bank held its benchmark interest rate at 0.25%, while renewing its pledge to keep rates in check until the economy has fully recovered.

Circle these dates

  • Feb 15: North American markets closed for holidays
  • 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

Key take-away

Setting goals is the foundation of a strong financial roadmap While your goals may shift as life moves forward, taking the time to define them at the beginning of your journey (and revisiting them along the way) allows you to stay focused and achieve success.

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