Oct. 5–9, 2020

What happened last week

Markets gained despite political stalemate over stimulus spending in the U.S.

North America’s benchmark stock indexes turned in gains across the board for a second straight week, and the price of oil strengthened, even as significant questions swirled around the future leadership and direction of the U.S. economy.

With U.S. President Donald Trump returning to the White House late Monday following a three-night stay in a nearby hospital for COVID-19 treatment, investors shifted their focus back to the prospects for additional government spending to support the U.S. economy.

Optimism for a deal on further spending, which has been under debate by lawmakers since late July, waxed and waned through the week. On Tuesday, President Trump sent markets tumbling into the closing bells after taking to Twitter to announce: “I have instructed my representatives to stop negotiating until after the election when, immediately after I win, we will pass a major Stimulus Bill that focuses on hardworking Americans and Small Business.” But by Wednesday, Democrats and Republicans were talking again and markets turned up. Democrats were pressing for a broad, comprehensive package estimated at US$2.2 trillion, while the President and Republicans were looking at separate measures, including US$1,200 payments directly to Americans, and aid targeted to airlines and other industries.

Central bankers weighed in on the need for fiscal stimulus

As U.S. lawmakers continued to debate the size and scope of further fiscal support for the U.S. economy, Federal Reserve Chairman Jerome Powell reinforced the need for government spending, in addition to central bank monetary policies, to spur economic recovery. “Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses,” Powell said in a virtual address to the National Association for Business Economics. “By contrast, the risks of overdoing it seem, for now, to be smaller. Even if policy actions ultimately prove to be greater than needed, they will not go to waste.”

The heads of the Canadian and European central banks seemed to echo their U.S. counterpart. Speaking to the Wall Street Journal, European Central Bank (ECB) President Christine Lagarde noted that massive government spending programs have helped support economies in the European Union through the pandemic: “We (the ECB) are not the only game in town anymore,” she said. “As opposed to what we had during the great financial crisis (of 2008-09), we have fiscal and monetary policies working hand in hand and trying to leverage from each other.” Referring to the situation in Canada, Bank of Canada Governor, Tiff Macklem, said in a speech to the Global Risk Institute that: "Without the fiscal and monetary policy actions, the economic devastation of the pandemic could have been much, much worse," but also warned: "As much as a bold policy response was needed, it will inevitably make the economy and financial system more vulnerable to economic shocks down the road."

Canada’s parliament approved the government’s economic agenda

Canada's Liberal government won a confidence vote on its recent throne speech, including economic plans to support the nation through a second wave of COVID-19. Given the Liberals do not hold a majority in Parliament, they needed the backing of at least one opposition party to avoid triggering an election. The New Democratic Party agreed to support the plan on the condition that COVID-19 unemployment benefits would be maintained at a weekly payment of $400 to $500, and access to a national paid sick leave plan would be expanded. The plan also includes longer-term, big-ticket items such as a national daycare system and environmental programs. The exact costs of the plan will not be available until the government presents a fiscal update to Parliament later this fall, which will be subject to a confidence vote.

The stock and bond market*
S&P/TSX Composite 16,562.81 2.24% -2.93%
Dow Jones Industrial Avg. 28,586.90 3.27% 0.17%
S&P 500 Index 3,477.13 3.84% 7.63%
NASDAQ Composite 11,579.94 4.56% 29.06%
10-yr GoC Yield 0.63% 0.07% -1.07%
10-yr U.S. Treasury Yield 0.79% 0.09% -1.13%
WTI Crude Oil (US$/bbl) 40.60 9.58% -33.66%
Canadian Dollar US$0.7613 1.33% -1.12%
Bank of Canada Prime Rate 2.45%

*Weekly performance ending October 9, 2020. Sources: www.bloomberg.com, www.bankofcanada.ca and www.treasury.gov.

What’s ahead

Economic data: Markets will likely react to various reports that will be released this week covering inflation, housing, oil supply, employment, manufacturing, trade and retail sales, as investors gain deeper insight into the state of economic recovery in Canada and the U.S.

Circle these dates

  • Oct. 19: Bank of Canada “business and consumer” survey results released
  • Oct. 28: Bank of Canada interest-rate announcement and monetary-policy report
  • Nov. 3: U.S. presidential election
  • Nov. 4-5: U.S. Federal Reserve meetings and statement

Key take-away

Focus on the long-term. If your investment goals, risk tolerance and time horizon haven’t changed, you’re likely on the right track. Try to look past any short-term ups or downs and focus on the long-term prospects. History continues to show us that markets rebound and trend upwards.

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