June 21 to 25, 2021

What happened last week

Markets rebounded on renewed optimism for an economic recovery

After suffering its worst week since October 2020, the Dow Jones Industrial Average made a quick, one-day rebound when trading opened on Monday. The benchmark index recouped most of the previous week’s losses with a 1.8% gain. The TSX – coming off a three-day slide of its own, which saw it fall below 20,000 points for the first time in two weeks – also regained ground. Canada’s main stock index closed higher by 0.78%, getting a lift from the energy sector, as oil hit US$73 per barrel for the first time in two years. The TSX was also bolstered by rising shares of Shopify, following the company’s announcement of an affiliate marketing deal with Buzzfeed that has the potential to shift business away from retail giants like Amazon and Walmart. The S&P 500 also had its best day on a percentage basis since mid-May with a 1.4% gain.

In a prepared statement released ahead of his congressional testimony set for Tuesday, Fed Chair Jerome Powell said, “We at the Fed will do everything we can to support the economy for as long as it takes to complete the recovery.” Though signs of debate have emerged from within the central bank on when they should taper their $120 billion spending on monthly bond purchases (some policymakers believe a faster withdrawal from the program could give the Fed more latitude in deciding when to raise interest rates), investors reacted optimistically to Powell’s comments.

On Tuesday, a Microsoft milestone (the company hit a market value of US$2 trillion for the first time) along with gains for Netflix, Amazon, Apple and Facebook, helped the Nasdaq reach a new closing high. Powell’s congressional testimony also pushed all four major North American indexes into positive territory. To address any lingering uncertainty about the Fed’s playbook, Powell said, “We will not raise interest rates pre-emptively because we fear the possible onset of inflation. We will wait for evidence of actual inflation or other imbalances.”

The Dow and the S&P 500 dipped on Wednesday, but the Nasdaq crept to another record. The tech-heavy index got a boost from Tesla, whose shares jumped 5.3% after the company announced the opening of a new a solar-powered charging station with on-site power storage in the Tibetan capital Lhasa, its first such facility in China.

Canadian retail sales saw steep declines during COVID’s third wave

The TSX suffered its first decline of the week on Wednesday after Statistics Canada released its retail sales report for April (and preliminary numbers for May). The report showed just how hard the pandemic hit the economy during the third wave, with sales falling 5.7%. The drop was the biggest decline on record since April 2020 during the first lockdown. Core retail sales – which excludes gas and automobiles – fell even more, down 7.6%. Preliminary numbers for May showed a further 3.2% decline from April’s low.

Biden announced an agreement on US$579 billion infrastructure deal

Equity markets returned to record highs on Thursday when U.S. President Joe Biden told a group of reporters “we have a deal” after meeting with a bipartisan group of senators on a new infrastructure deal. Though other meeting participants cautioned that the parties had only agreed to the framework of a deal, the US$579 billion potential plan represents the next phase of the U.S. economic recovery. Companies that stand to gain the most from the deal saw shares spike. Caterpillar Inc., the world’s largest manufacturer of construction equipment, led the rally.

At Friday’s close, equity stocks had logged the strongest week in months. The S&P 500 posted a second consecutive record and the TSX was one-point shy of another record. The Dow was up 3.44% for the week and the Nasdaq higher by 2.35%.

The stock and bond market*
S&P/TSX Composite 20,230.26 1.15% 16.04%
Dow Jones Industrial Avg. 34,433.84 3.44% 12.51%
S&P 500 Index 4,280.70 2.74% 13.97%
NASDAQ Composite 14,360.39 2.35% 11.42%
10-yr GoC Yield 1.45% 0.08% 0.78%
10-yr U.S. Treasury Yield 1.54% 0.09% 0.61%
WTI Crude Oil (US$/bbl) 74.00 3.29% 52.51%
Canadian Dollar US$0.8134 1.02% 3.57%
Bank of Canada Prime Rate 2.45%

*Weekly performance ending June 25, 2021. Sources: www.bloomberg.com, www.bankofcanada.ca and www.treasury.gov.

What’s ahead

  • Canada Day: Canadian markets will be closed on Thursday, July 1.
  • Canadian trade data: Imports and exports were both down in April. The government said both declines were largely attributed to production shutdowns in the auto manufacturing sector due to a shortage of semiconductor chips. May’s report, scheduled for release on Friday, provides another opportunity to see how the economy is performing.

Circle these dates

  • July 5: U.S. markets closed for Independence Day
  • July 14: Bank of Canada interest-rate announcement and monetary-policy update

Key take-away

Time in the market versus timing the market: Trying to time a perfect exit and re-entry in the market is difficult – even for seasoned investment professionals. And those who manage to sidestep some of the worst days are likely to miss some of the upside. As we’ve seen over the last few weeks, declines in the market can quickly reverse. Missing even a few of the best days can impact your long-term success.

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