June 8-12, 2020
What happened last week
North American market rally hit a wall after weeks of steady gains
Propelled by gains in large-cap tech stocks, the Nasdaq stood out as the lone bright spot last week, hitting a historic milestone on Wednesday when it closed over 10,000 points. The tech-heavy composite (up 12% year-to-date) was led by Apple, Amazon, Microsoft and Tesla stocks that each reached record highs of their own.
The competing stock exchanges didn’t fare nearly as well and suffered their worst declines since March. During a three-day slide that started Tuesday, Canada’s S&P/TSX Composite fell over 5%, the S&P 500 dropped 7%, and the Dow Jones Industrial Average plunged 9%. The Dow and TSX have struggled the most to recoup losses from their March lows. They’re each down 11% on a year-to-date basis.
Bleak economic reports and renewed pandemic fear strained investor optimism
The Organization for Economic Co-operation and Development (OECD) forecasted a global economic decline of 6% (a best-case scenario). They believe that number could climb as high as 7.6% if a second wave of COVID-19 occurs. For Canada, OECD predicted an 8% economic drop (9.4% if a second wave COVID-19 factors in).
“It is probably the most uncertain and dramatic outlook since the creation of the OECD.” said Secretary General Angel Gurria.
A statement from the U.S. Federal Reserve (The Fed) projected the U.S. economy will contract by 6.5% on a year-over-year basis. The central bank reiterated “The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time.” The Fed also said it will continue to buy bonds, with a target of US$80 billion a month in Treasuries and US$40 billion a month in mortgage-backed securities. The Fed Chairman, Jerome Powell, indicated there no plans to raise interest rates anytime soon.
Adding to the grim financial reports, investors became increasingly concerned over a potential second wave of COVID-19, with Bloomberg reporting Thursday that new infections across the country had pushed past two million. Texas had over 2,500 new cases on Wednesday, and Florida had over 8,500 – concerning numbers as government officials try to reopen the economy.
Benchmark oil prices declined sharply
Benchmarks West Texas Intermediate and Brent Crude saw the price for oil take its biggest fall since April 27. Like the stock market, the decline was tied to increased concern over COVID-19 and The Fed’s economic outlook. Despite one of the industry’s biggest price rallies after OPEC+ nations cut their production, supply and demand issues continue to hamper a full recovery. Separate reports by the Energy Information Administration and the American Petroleum Institute last week showed inventories increasing in the U.S., driving down prices after several days of gains.
The stock and bond market*
|Dow Jones Industrial Avg.
|S&P 500 Index
|10-yr GoC Yield
|10-yr U.S. Treasury Yield
|WTI Crude Oil (US$/bbl)
|Bank of Canada Prime Rate 2.45%
*Weekly performance ending June 12, 2020. Sources: www.bloomberg.com, www.msci.com, www.bankofcanada.ca and www.treasury.gov.
Canadian inflation data
In April, consumer prices in Canada declined 0.2% on a year-over-year basis, after rising 0.9% in March. It was the first time consumer prices had fallen since September 2009. On Wednesday (June 17), all eyes will focus on May’s data, as we continue to gauge COVID-19’s economic impact.
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
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