June 28 to July 2, 2021

What happened last week

Markets hovered at record levels, as sentiment remained cautiously optimistic

Performance was mixed across North America’s benchmark stock indexes through the week. While the Dow, S&P 500 and Nasdaq closed at all-time highs, returns across all the major exchanges fluctuated within a tight range for most of the week, as rising COVID-variant concerns were offset by signs of an accelerating economic recovery.

Headlines out of Europe, surrounding the more-infectious delta variant of COVID-19, weighed on global markets; Spain, Portugal and Malta imposed restrictions on travellers from the U.K., where the variant is spreading fast. On Friday, reports that Johnson & Johnson’s vaccine neutralizes the variant helped to temper investor concern.

Wednesday marked the end of June – the close of the second quarter and the halfway point of 2021. The TSX gained 7.83% in Q2, a performance that placed Canada’s benchmark index in the top third among its peers worldwide. This result was driven, in large part, by this year’s rally in global commodity prices, including precious metals, lumber and especially oil, which has seen the biggest increase in prices since 2009. The benchmark West Texas Intermediate crude gained nearly 25% in the quarter.

Crude continued to climb steadily, with the Organization of the Petroleum Exporting Countries and their allies (OPEC+) meeting on Thursday and Friday to discuss the possibility of raising supply limits in light of improving economic conditions. Consensus among the nations proved hard to reach, however, as a decision was still pending as of late Friday. This raised concern that, without increased oil production, prices would surge higher and add to inflationary pressures within the global economy.

U.S. economic data pointed to an accelerated recovery

The Conference Board announced that its U.S. consumer-confidence index rose to 127.3 points in June, its highest level since February 2020. These numbers are a strong indicator that “economic growth has strengthened further in Q2,” said Lynn Franco, senior director of economic indicators at The Conference Board. "Consumers’ short-term optimism rebounded, buoyed by expectations that business conditions and their own financial prospects will continue improving in the months ahead.”

On Friday, U.S. markets got additional lift heading into the Independence Day long weekend: a U.S. Labor Department report showed that jobs growth accelerated in June, with non-farm payrolls increasing by 850,000 last month – the most in 10 months and higher than economists expected. However, the unemployment rate edged up to 5.9%, as the labour-force participation rate remained well below pre-pandemic levels. This suggests that factors such as ongoing COVID-19 concerns and unemployment benefits are keeping many available positions unfilled, despite the recovering economy. The U.S. Federal Reserve Chair, Jerome Powell, recently noted in testimony before Congress that: “Job gains should pick up in coming months as vaccinations rise, easing some of the pandemic-related factors currently weighing them down.”

Canada’s economy showed resilience during the third wave

According to Statistics Canada, the country’s Gross Domestic Product (GDP) contracted by 0.3% in April – which was less than economists had anticipated. The data suggests that the economy held together well through the peak of the third wave, despite extensive pandemic restrictions on businesses. The data also hinted that a sharp rebound is on the way, as those restrictions continue to ease. According to Bloomberg, economists are predicting that Canada will return to pre-pandemic growth levels in the third quarter, if the reopening continues as planned.

The stock and bond market*
S&P/TSX Composite 20,226.11 -0.02% 16.02%
Dow Jones Industrial Avg. 34,786.35 1.02% 13.66%
S&P 500 Index 4,352.34 1.67% 15.87%
Nasdaq Composite 14,639.33 1.94% 13.59%
10-yr GoC Yield 1.37% -0.08% 0.70%
10-yr U.S. Treasury Yield 1.44% -0.10% 0.51%
WTI Crude Oil (US$/bbl) 75.16 1.50% 54.91%
Canadian Dollar US$0.8095 -0.48% 3.07%
Bank of Canada Prime Rate 2.45%

*Weekly performance ending July 2, 2021. Sources: www.bloomberg.com, www.bankofcanada.ca and www.treasury.gov.

What’s ahead

  • Economic reports: In the U.S., reports on service-sector activity, energy inventory, and employment are scheduled for this week. On Friday, Statistics Canada will release employment data for the month of June.

Circle these dates

  • July 14: Bank of Canada interest-rate announcement and monetary-policy update
  • July 27 to 28: U.S. Federal Reserve meetings and statement

Key take-away

Focus on the future: If your investment goals, risk tolerance and time horizon haven’t changed, you’re likely on the right track. Try to look past any short-term ups and downs, and focus on the long-term prospects. Speaking with a Co-operators financial representative can help.

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