May 10 to 14, 2021

What happened last week

Markets plunged mid-week after inflation data rattled investors

The week got off to a promising start, as the Dow Jones Industrial Average and Canada’s TSX surged to new intra-day records Monday morning. Both indexes hit milestones, pushing past 35,000 points and 19,500 points, respectively. But by day’s end, both fell back into negative territory along with the S&P 500 and the Nasdaq. All four benchmark indexes continued to post declines over the next three days.

Tumbling tech shares factored in Monday’s losses (the tech-heavy Nasdaq fell by over 350 points), as did inflation concerns due to the ongoing boom in commodity prices. To date in 2021, lumber prices have doubled (up 250% since last spring), copper has hit a 10-year high and, on Monday, iron ore climbed to its highest price on record, followed by another record on Wednesday (US$237.57 a tonne). The reopening U.S economy, flush with money from financial stimulus and pent-up consumer spending, has created supply and demand issues for several commodities, driving prices up.

U.S. consumer prices jumped the most since 2009

Tech stocks were back in favour Tuesday, helping the Nasdaq, the S&P 500 and the TSX recoup some of Monday’s losses. But the broader market remained under pressure with investors anxiously awaiting April data from the U.S. Labor Department’s Consumer Price Index (CPI), which was set for release the following day.

On Wednesday, CPI data outpaced expectations, revealing that consumer prices increased 0.8% in April (from the month prior). The data showed gains in almost every major category, led by a 10% climb in used car and truck prices. On a yearly basis, inflation surged 4.2% through April, the highest rate since 2008. Swift market reaction saw the Dow fall close to 2%, its largest one-day loss since Jan. 29. The S&P 500 and the Nasdaq also saw losses over 2%, while the TSX fared better with a decline of only 0.86%.

Employment and retail sales data helped markets rebound

All four major North American indexes snapped their three-day losing skid Thursday, led by upbeat employment data in the U.S. and a strong performance from Canada’s financial sector benefiting the TSX. First-time jobless claims fell to a pandemic low for the week ending May 8. Released on Friday, U.S. retail sales data for April was unchanged from March (which saw a 10.7% surge), but optimism remained high with the reopening economy fueling consumer spending. All four major indexes ended Friday’s trading session in positive territory. The Nasdaq caught the highest upside, recouping over 2% from losses earlier in the week.


The stock and bond market*
INDEX CLOSE WEEK YTD
S&P/TSX Composite 19,366.69 -0.54% 11.09%
Dow Jones Industrial Avg. 34,382.13 -1.14% 12.34%
S&P 500 Index 4,173.85 -1.39% 11.12%
NASDAQ Composite 13,429.98 -2.34% 4.20%
10-yr GoC Yield 1.55% 0.06% 0.88%
10-yr U.S. Treasury Yield 1.63% 0.03% 0.70%
WTI Crude Oil (US$/bbl) 65.51 0.94% 35.02%
Canadian Dollar US$0.8258 0.39% 5.14%
Bank of Canada Prime Rate 2.45%

*Weekly performance ending May 14, 2021. Sources: www.bloomberg.com, www.bankofcanada.ca and www.treasury.gov.


What’s ahead

Canadian inflation data: The annual inflation rate in Canada rose to 2.2% in March, up from 1.1% in February. Investors will closely monitor the April reading, set for release Wednesday, who are concerned that an inflation spike could incentivize the Bank of Canada to reconsider its commitment to low interest rates and curtail its bond-buying program.

Circle these dates

  • May 24: Canada’s TSX closed for Victoria Day holiday
  • May 31: U.S. markets closed for Memorial Day holiday
  • June 9: Bank of Canada interest-rate announcement

Key take-away

All investing involves some risk. How much risk you can handle is based on your personal financial situation. That includes the stability of your income, the value of your current assets, and the total debt that you hold. Your risk capacity can change over time and, when needed, is something you can reassess with your financial representative.


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