May 31 to June 4, 2021
What happened last week
Canada’s TSX reached record-high levels
In a holiday-shortened week for the U.S. markets, it was Canada’s TSX that made the most noise. On Tuesday, it pushed past the 20,000-point level for the first time – a milestone that marked a 76% rise from the lows of March 2020. Inflation concerns continued to weigh on U.S. stocks when trading resumed, especially within the tech sector.
Monday saw the TSX post a 3.6% return for the month of May, helping Canada’s benchmark index outpace its U.S. counterparts on a monthly and year-to-date basis. In May, the Dow Jones Industrial Average and S&P 500 returned 1.93% and 0.55%, respectively, while the Nasdaq was down 1.53%. That trend was carried into June: the TSX led the way with a 0.89% return last week, and the DJIA came in at 0.66%. The S&P 500 and Nasdaq also managed to eke out small gains of 0.61% and 0.48%. Both benchmarks were weighed down by their significant listings of technology stocks; investors remained wary of the sector, because the prospect of higher interest rates (to combat inflation) could potentially create headwinds for tech companies that have stretched valuations. Sentiment improved Friday with the release of employment data that showed the U.S. labour market continues to recover, helping tech stocks to regain some lost ground and push the U.S. benchmarks to within sight of record levels.
The TSX’s recent outperformance of the major U.S. indexes can be explained, in part, by its heavier weighting towards energy stocks, which benefited from rising oil prices. Global prices for the commodity rose for a second-straight week, with futures contracts for West Texas Intermediate crude rising above US$69 per barrel – the first time since October 2018. On Tuesday, the Organization of the Petroleum Exporting Countries and its allies (OPEC+) confirmed that it will increase its supply quota by 841,000 barrels a day in July; it cited continued improvement in demand, following increases in May and June. After July, OPEC+ is scheduled to hold its supply steady until April 2022. This is according to the terms of an agreement that was signed by producers, over a year ago, to stabilize prices. However, as post-pandemic demand for crude returns, and with sanctions on Iranian oil expected to be lifted in the coming weeks, OPEC+ will be under pressure to revisit the supply agreement.
Q1 GDP data showed Canadian economic growth for a third-straight quarter
According to a Statistics Canada report, the Canadian economy continued to recover from pandemic shocks in the first quarter. This was led by investments in housing, which ballooned to an annualized rate of 43%. Gross domestic product (GDP) expanded at a 5.6% annualized rate in Q1, building on the 9.3% pace that was posted for Q4. Notably, the growth was achieved while business activity and consumer spending were restricted by pandemic lockdowns through the winter months.
The positive GDP update came on the heels of a report from the Organization for Economic Co-operation and Development (OECD), whose forecast now has the Canadian economy growing by 6.1% in 2021 – up from its estimate of 4.7% in March. While noting that the pandemic still poses risks to economic recovery, the organization improved its outlook based on assumptions that demand for commodities, consumer spending and employment levels will continue to rise, especially with COVID-19 restrictions set to ease in the second half of 2021.
The stock and bond market*
|Dow Jones Industrial Avg.
|S&P 500 Index
|10-yr GoC Yield
|10-yr U.S. Treasury Yield
|WTI Crude Oil (US$/bbl)
|Bank of Canada Prime Rate 2.45%
*Weekly performance ending June 4, 2021. Sources: www.bloomberg.com, www.bankofcanada.ca and www.treasury.gov.
Bank of Canada interest-rate announcement on Wednesday (June 9): In April, Canada’s central bank announced that it would reduce its government-debt purchases by 25%. It also moved up its forecast for a possible interest-rate increase to the second half of 2022. The bank’s outlook for the Canadian economy’s return to pre-pandemic conditions is ahead of central banks’ forecasts in other major economies, including the U.S.
Circle these dates
- June 15 to 16: U.S. Federal Open Market Committee meetings and statement
- July 1: Canadian markets closed for Canada Day
- July 5: U.S. markets closed for Independence Day
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