June 1-5, 2020

What happened last week

Markets continued to rally with signs of an economic recovery on the horizon

With countries around the world gradually reopening their economies after weeks of lockdown, investors clutched to signs of a global economic recovery, even as U.S. civil unrest and strained relations with China loomed over the world’s largest economy.

Building on two months of steady, positive performance, global stock markets continued to show resilience through the first week of June. On Friday, all major North American stock markets closed over 40% above their 90-day lows, putting the Nasdaq within 1% of its all-time closing high.

Oil prices continued their six-week climb, with OPEC+ nations agreeing to discuss an extension of their unprecedented output cuts.

The Bank of Canada held interest rates steady and noted improved conditions

The Bank of Canada announced it will hold its policy interest rate steady and said the economic impact of COVID-19 on the world's economies "appears to have peaked." Since early March, the bank has cut its key interest rate three times – to a record low of 0.25% – and launched its first-ever large-scale bond-buying program to support financial markets through the COVID-19 crisis. The bank’s statement noted: "programs to improve market function are having their intended effect. After significant strains in March, short-term funding conditions have improved." The Bank of Canada's policy interest rate influences the mortgage and bank account rates Canadians receive from their banks.

Canadian and U.S. employment reports pointed to economic recovery

Further signs that the worst of the economic damage from COVID-19 may be behind us came on Friday with the release of positive employment data for the month of May. The U.S. Department of Labor reported the economy added over 2.5 million jobs last month, and the jobless rate dropped to 13.3% from 14.7% in April. In Canada, after shedding more than three million jobs in March and April, the economy added 290,000 jobs in May, according to Statistics Canada. It was the first monthly jobs increase since February and the largest one-month gain in 45 years. Despite the gains, Canada's unemployment rate rose from 13% in April to 13.7% in May, the highest level in decades, with more people looking for work during the month, especially students.


The stock and bond market*
INDEX CLOSE WEEK YTD
S&P/TSX Composite 15,854.07 4.35% -7.09%
Dow Jones Industrial Avg. 27,110.98 6.81% -5.00%
S&P 500 Index 3,193.93 4.91% -1.14%
NASDAQ Composite 9,814.08 3.42% 9.38%
MSCI EAFE 1,846.51 7.04% -9.35%
10-yr GoC Yield 0.73% 0.20% -0.97%
10-yr U.S. Treasury Yield 0.91% 0.26% -1.01%
WTI Crude Oil (US$/bbl) 39.55 11.44% -35.38%
Canadian Dollar US$0.7447 2.67% -3.27%
Bank of Canada Prime Rate 2.45%

*Weekly performance ending June 5, 2020. Sources: www.bloomberg.com, www.msci.com, www.bankofcanada.ca and www.treasury.gov.


What’s ahead

U.S. Federal Reserve meetings and statement: On June 10, the U.S. Federal Reserve (“the Fed”) is expected to announce it will continue to hold its policy interest rate near zero. Since March, the Fed has made three cuts to its policy rate, bringing it between 0% and 0.25%, to encourage the flow of credit to consumers and small businesses. The Fed has also launched an emergency lending facility to shore up the short-term credit market that was disrupted by the COVID-19 outbreak, as well as 11 separate lending programs to support borrowing by businesses, banks and households.

Circle these dates

  • July 6: Bank of Canada Business Outlook Survey results
  • July 15: Bank of Canada Interest-Rate Announcement and Monetary Policy Report
  • Nov. 3: U.S. presidential election

Key take-away

Don’t lose sight of your long-term goals. If you’re saving for your retirement or your children’s post-secondary education, and that date is still well ahead of you, focus on the fact that markets trend upward over the long term.


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