June 7 to 11, 2021

What happened last week

Canada’s TSX continued its record-setting run

In a Bloomberg News interview on Sunday, June 6, U.S. Treasury Secretary Janet Yellen said, “If we ended up with a slightly higher interest-rate environment, it would actually be a plus from society’s point of view and the Fed’s point of view.” Her comments set a cautious tone for a week in which investors were already anticipating rising inflation data on a month-over-month basis for May. All three U.S. benchmarks were held between gains or losses of less than 1%, with investors seemingly caught between a risk-on and risk-off mindset for most of the week.

On Monday, the S&P 500 and Dow Jones Industrial Average (DJIA) were on pace for all-time highs before sliding into the closing bell with declines of 0.08% and 0.36%, respectively. The Nasdaq and the TSX fared better with gains of 0.49% and 0.03%. On top of inflation concerns, the biggest factor stalling market momentum was an agreement by the Group of Seven (G7) advanced economies to back a minimum global corporate tax rate of at least 15%. If passed, the agreement would allow governments to tax corporate giants like Amazon and Facebook anywhere they make more than 10% profit on sales.

Investors remained in wait-and-see mode Tuesday. The U.S. Bureau of Labor Statistics reported that job openings climbed to 9 million in April, but the news was largely overlooked. The DJIA fell 0.1%, while the S&P 500 and Nasdaq eked out minor gains of 0.74% and 0.3%, respectively. In Canada, the TSX hit a second consecutive closing high; a result of broad gains for crude oil prices, which reached US$70 per barrel for the first time since October 2018. The story continued Wednesday, as the DJIA fell for a third day. The S&P 500, Nasdaq and the TSX also forfeited gains made earlier in the week to close in negative territory.

U.S. consumer prices accelerated at the fastest pace since 2008

Following a rise of 0.8% in April, the price for goods in the U.S. jumped another 0.6% last month according to the Labor Department’s latest Consumer Price Index (CPI) report. Released Thursday, the May reading came in higher than economists had expected and saw increases across a broad spectrum that included household furnishings, food, airfare, and used vehicles (up 29.7% over the last 12 months). The data seemed to support the Fed’s opinion that inflation will be transitory – mainly affecting areas related to the economic reopening. This news helped the S&P 500 reach a record high, closing at 4239.18 (up 0.5%). The DJIA turned positive with a gain of 0.6%, the Nasdaq rose 0.8% and the TSX saw a 0.24% gain. The momentum carried over into Friday with all four major North American indexes making gains. The S&P 500 and the TSX hit new closing highs again.

The Bank of Canada held its key interest rate steady, once again

Canada’s central bank, led by Governor Tiff Macklem, held its key overnight rate at 0.25%. The bank plans to maintain the historically low rates until the economy has sufficiently recovered from the impacts of COVID-19. In its statement from Ottawa on Wednesday, the bank also confirmed it will maintain the current pace of its government bond purchasing program – $3 billion per week – while reiterating, “Decisions regarding adjustments to the pace of net bond purchases will be guided by Governing Council’s ongoing assessment of the strength and durability of the recovery.”

The stock and bond market*
S&P/TSX Composite 20,138.35 0.55% 15.52%
Dow Jones Industrial Avg. 34,479.60 -0.80% 12.65%
S&P 500 Index 4,247.44 0.41% 13.08%
NASDAQ Composite 14,069.42 1.85% 9.16%
10-yr GoC Yield 1.38% -0.08% 0.71%
10-yr U.S. Treasury Yield 1.47% -0.09% 0.54%
WTI Crude Oil (US$/bbl) 70.78 1.67% 45.88%
Canadian Dollar US$0.8232 -0.52% 4.81%
Bank of Canada Prime Rate 2.45%

*Weekly performance ending June 11, 2021. Sources: www.bloomberg.com, www.bankofcanada.ca and www.treasury.gov.

What’s ahead

U.S. Federal Open Market Committee meetings and statement (June 15 to 16): Following the latest CPI report that saw inflation spike in May, investors will closely watch the Fed’s remarks on the state of the U.S. economy.

Circle these dates

  • July 1: Canadian markets closed for Canada Day
  • July 5: U.S. markets closed for Independence Day

Key take-away

Be informed (not influenced) by the news. When the market falls, headlines can lead to stress and anxiety. Remember, media and news reports can be informative and beneficial, but they shouldn’t be a driving force in your decision-making.

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