July 19 to 23, 2021

What happened last week

Markets recovered from a steep sell-off triggered by Delta variant concerns

U.S. and Canadian stocks finished sharply lower on Monday. The energy sector suffered the worst of the declines with crude oil prices plummeting close to 8%. Rising Delta variant infections created apprehension that governments around the world could hamper the economic recovery by reimposing pandemic restrictions. Those concerns, coupled with the Organization of the Petroleum Exporting Countries and its allies (OPEC+) agreeing to a two-million-barrel increase per day by the end of the year, wrought havoc on markets. The Dow Jones Industrial Average suffered its worst daily loss on a percentage basis (2.1%) since Oct. 28, 2020. The S&P 500 and the Nasdaq had their biggest daily drop since May (1.6% and 1.1%, respectively), and Canada’s TSX declined by 1.3%.

The OPEC+ agreement provided investors with clarity on the pace of production through May 2022, but spikes in COVID-19 cases continued to bring the threat of lockdowns. A flare up in geopolitical tensions between the U.S. and China added to Monday’s volatility. The U.S., U.K. and other allies accused the Chinese government of masterminding a series of malicious cyberattacks, including the wide-ranging Microsoft Exchange hack earlier this year.

Investors shrugged off worries to take advantage of value stocks

Equity markets bounced back on Tuesday with investors transitioning into “buy-the-dip” mode. This rebound occurred despite anxiety over the Delta variant, which the Center for Disease Control said was responsible for 80% of new cases in the U.S. (at the time of writing). Tuesday’s rally also reflected investor perception that Monday’s sell-off was an overreaction. Airline stocks, which have been particularly sensitive during the pandemic, saw the day’s biggest upswing.

Strong corporate earnings reports propelled markets

By mid-week, over 70 companies listed on the S&P 500 had reported second-quarter corporate earnings. Of those companies, 87% beat the consensus expectations. Some of the most prominent names on the list included restaurant chain Chipotle (their stock jumped 11.5% after the report), Coca Cola, IBM and Johnson & Johnson. On the negative side, Netflix’s stock price registered the biggest decline (3.3%) after its worst quarter for new subscriptions. By the close of trading on Wednesday, all four major North American benchmarks had recouped the entirety of Monday’s losses. The price of oil also stabilized with the U.S. benchmark WTI climbing back over $70 per barrel, and Western Canada Select (WCS) gaining 5.35% to reach $56.73 per barrel.

On Thursday, thousands of websites and digital service providers around the world experienced a temporary outage that cloud computing company Akamai called a “service incident.” The outage lasted long enough to briefly stall equity market momentum, but by week’s end, the dramatic turnaround was complete. The Dow hit a new milestone (35,000 points) and the S&P 500 and Nasdaq also closed with new record highs. The TSX finished strong with a 1% gain.

The stock and bond market*
S&P/TSX Composite 20,188.43 1.02% 15.80%
Dow Jones Industrial Avg. 35,061.55 1.08% 14.56%
S&P 500 Index 4,411.79 1.96% 17.46%
Nasdaq Composite 14,836.99 2.84% 15.12%
10-yr GoC Yield 1.21% -0.03% 0.54%
10-yr U.S. Treasury Yield 1.30% -0.01% 0.37%
WTI Crude Oil (US$/bbl) 72.17 1.01% 48.74%
Canadian Dollar US$0.7952 0.14% 1.25%
Bank of Canada Prime Rate 2.45%

*Weekly performance ending July 23, 2021. Sources: www.bloomberg.com, www.bankofcanada.ca and www.treasury.gov.

What’s ahead

  • Inflation data and interest rate decision: On Wednesday, Statistics Canada will release June’s inflation data. Inflation accelerated in May, hitting its highest level since 2011, with consumer prices up 3.6%. The U.S. Federal Reserve will also announce its latest interest-rate decision on Wednesday.

Circle these dates

  • August 2: TSX closed for Civic holiday
  • September 6: Canadian and U.S. markets closed for Labour Day
  • September 8: Bank of Canada interest rate announcement

Key take-away

Periods of uncertainty have happened before. Market fluctuations and volatility exist through every phase of the market cycle. But we notice it more when markets go down. Knowing and trusting that your investment plan is geared towards your individual goals is the best defence against market downturns.

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