March 1 to 5, 2021

What happened last week

Investor trepidation threatened to slow March’s hot start

One week after equity markets were rocked by inflation fears and rising bond yields, March looked like it was off to strong start. Uncertainty did return mid-week, but a frenzied rally on Friday ultimately pushed markets back into positive territory. Conflicting economic data, declines in the tech sector, and lackluster comments from the U.S. Federal Reserve (the Fed) all contributed to the unpredictable week.

Prior to Monday’s opening bell, future contracts for North America’s top stock market indexes pointed toward a strong start. This came after news on Saturday, Feb. 27, that the U.S. House of Representatives had passed the Biden administration’s much-anticipated US$1.9 trillion fiscal stimulus package. The bill is expected to be signed by President Biden this week after receiving Senate approval on March 6.

Investor confidence continued to climb through the day after Johnson & Johnson announced that the FDA (U.S. Food and Drug Administration) approved their one-shot COVID-19 vaccine. Markets also reacted positively to economic data highlighting an increase in February’s U.S. manufacturing activity to a three-year high. By day’s end, the Dow Jones Industrial Average and the Nasdaq both closed with their sharpest gains in four months, the S&P 500 had its biggest daily jump since June 5, and Canada’s TSX started a two-day rally led by the energy and material sectors.

Economic indicators and comments from the Fed stymied momentum

The TSX was the only major North American index to close in positive territory on Tuesday – a relatively quiet day for markets. Sentiment shifted over the next few days with both positive and negative economic data impacting markets. First came a major tech stock selloff (the result of investors rotating assets between sectors after positive data early in the week pointed to economic recovery), along with employment data that provided an uneven outlook. A report on Wednesday showed U.S. private payrolls increased less than expected in February. On Thursday, weekly U.S. jobless claims were up slightly, but Reuters reported job cuts had fallen by 57% in February, and Fed chairman Jerome Powell told a Wall Street Journal forum that there is “good reason to expect job creation to pick up in the coming months.” On Friday, the U.S. Labor Department reported nonfarm payrolls jumped by 379,000 jobs in February, after a revised 166,000 increase in January. The positive report was enough to give the Dow, S&P 500 and the Nasdaq a boost after three consecutive days of losses. The TSX also gained 1.41% in Friday’s rally.

In response to bond yield spikes resulting from fear that rapid economic growth could fuel an increase in consumer prices, Powell said he expects the Fed to stay patient and for monetary policy to remain unchanged until the economy is “very far along the road to recovery.” The comments did little to quell investor concerns as markets fell heading into Thursday’s closing bells.

2020 was the worst year on record for Canadian economic output

Though it’s no surprise, as the pandemic forced the shut down of major components of the nation’s economy, Statistics Canada made it official last week that 2020 was the worst year on record for the Canadian economy. Gross Domestic Product (the total value of all goods and services produced) shrank by 5.4%, the steepest decline since data was first recorded in 1961. In the fourth quarter, the economy grew at an annualized rate of 9.6%, down from 40.6% in Q3, but still higher than the 7.5% growth rate analysts had expected. Following the report, Finance Minister Chrystia Freeland told reporters that she’s committed to spending to support Canada’s recovery. “Our government will continue to do whatever it takes, for as long as it takes, to help Canadians through this bleak time, to prevent economic scarring and to invest in a way that allows us all to come roaring back after COVID-19.”


The stock and bond market*
INDEX CLOSE WEEK YTD
S&P/TSX Composite 18,380.96 1.78% 5.44%
Dow Jones Industrial Avg. 31,496.30 1.82% 2.91%
S&P 500 Index 3,841.94 0.81% 2.29%
NASDAQ Composite 12,920.15 -2.06% 0.25%
10-yr GoC Yield 1.50% 0.15% 0.83%
10-yr U.S. Treasury Yield 1.56% 0.12% 0.63%
WTI Crude Oil (US$/bbl) 66.28 7.77% 36.60%
Canadian Dollar US$0.7894 0.14% 0.51%
Bank of Canada Prime Rate 2.45%

*Weekly performance ending March 5, 2021. Sources: www.bloomberg.com, www.bankofcanada.ca and www.treasury.gov.


What’s ahead

Bank of Canada interest-rate announcement: In its last decision on Jan. 20, Canada's central bank left its target overnight rate at a record low of 0.25%. The Bank is expected to maintain that rate and reaffirm its quantitative easing program at the current pace of at least $4 billion per week.

Circle these dates

  • March 16 to 17: U.S. Federal Open Market Committee meetings and statement
  • April 2: North American markets closed for Good Friday
  • April 30: 2020 income tax filing deadline

Key take-away

Over the long term, the market goes up. That’s easy to lose sight of when markets stumble, but periods of uncertainty have happened before, and history consistently shows us that they will recover. Having an investment plan that is geared towards your individual goals and objectives – and sticking to it – is the best defense against inevitable market downturns.


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