September 13 to 17, 2021

What happened last week

Markets wavered, as Canadian and U.S. inflation data came into focus

With little on the economic calendar to significantly sway markets on Monday, the Dow Jones Industrial Average and the S&P 500 found room to bounce back and post a positive close for the first time in six sessions. Canada’s TSX eked out a 0.2% gain, while the Nasdaq extended its losing streak to four days.

Market participants were already looking ahead to the mid-week release of August inflation data as they look for signals on the rise of consumer prices and whether they’re truly transitory – the economic term for short-term fluctuations – as Canadian and U.S. policy makers continue to attest.

Uncertainty outweighed better-than-expected U.S. economic data

On Tuesday, the U.S. Labor Department released August inflation data. It showed a 0.3% monthly increase, down from 0.5% in July and 0.9% in June. On a year-over-year basis, prices increased 5.3% (slightly less than the 5.4% seen over the last two months of annualized readings). The report sparked an opening bell rally, but optimism faded throughout the day with investors turning their attention to U.S. President Joe Biden’s proposed US$3.5-trillion budget package, which is expected to include a corporate tax hike to 26.5% from 21%. The Dow, S&P 500 and the Nasdaq all fell over half a percentage point, sliding into the day’s close.

Retail sales increased unexpectedly in August, rising 0.7% after a decline of 1.8% in July (revised from the previously reported 1.1%). The Commerce Department report, released Thursday, showed online sales jumped 5.3% for the month, which was likely the result of back-to-school shopping. Again, the positive data failed to keep all markets afloat, as the Dow and S&P 500 dropped, while the Nasdaq squeaked out a 0.1% gain.

Canadian inflation surged with its highest reading since 2003

Statistics Canada released August inflation data on Wednesday, and – unlike the U.S. – there was no silver lining. The 4.1% rise in August on a year-over-year basis marks the fifth consecutive month Canadian inflation has come in above the Bank of Canada’s target rate of 3%. The annualized reading pushed past economists’ expectations of a 3.9% increase, with the homeowners' replacement cost index (related to the price of new homes) and gas prices the largest upside contributors. The homeowners’ cost rose 14% from the same period last year, representing the biggest increase since 1987. Gas prices jumped 32.5%.

Coincidentally, a spike in crude oil prices saved the TSX and the U.S. benchmarks from another day of losses on Wednesday. Brent crude prices climbed above US$75 a barrel for the first time since August, West Texas Intermediate came within striking distance of US$73 a barrel, and Western Canadian Select surpassed $60. Prices fell slightly by the end of the week, but, overall, it was a good performance for the energy sector.

The TSX closed the week with a 0.5% decline on Thursday and a further .05%decline on Friday, impacted by the materials sector, with gold prices falling over 2.25%.


The stock and bond market*
INDEX CLOSE WEEK YTD
S&P/TSX Composite 20,490.36 -0.69% 17.54%
Dow Jones Industrial Avg. 34,584.88 -0.07% 13.00%
S&P 500 Index 4,432.99 -0.57% 18.02%
Nasdaq Composite 15,043.97 -0.47% 16.73%
10-yr GoC Yield 1.29% 0.06% 0.62%
10-yr U.S. Treasury Yield 1.37% 0.02% 0.44%
WTI Crude Oil (US$/bbl) 71.96 3.21% 48.31%
Canadian Dollar US$0.7861 -0.71% 0.09%
Bank of Canada Prime Rate 2.45%

*Weekly performance ending September 17, 2021. Sources: www.bloomberg.com, www.bankofcanada.ca and www.treasury.gov.


What’s ahead

Canadian federal election (September 20): Looking at historical trends, there’s no clear pattern on how a change in leadership affects Canadian markets. Investors will wait for the election outcome before making any predictions about the future of the economy.

Circle these dates

  • October 11: Canadian markets closed for Thanksgiving Day
  • November 25: U.S. markets closed for Thanksgiving Day

Key take-away

Stay focused on your long-term goals. This week, investors grappled with uneven economic data directly related to the economic recovery. If you’re second-guessing your plan, it can be helpful to revisit your goals. If the only thing that’s changed is the market, try to look past short-term losses and stay focused on your long-term prospects.


This article is provided as a general source of information for a specific point in time and should not be considered solicitation to buy or sell any investment. Nothing contained in this article constitutes investment, legal, tax or other advice.

Mutual funds are offered through Co-operators Financial Investment Services Inc. Segregated funds and annuities are administered by Co-operators Life Insurance Company. Co-operators Life Insurance Company and Co-operators Financial Investment Services Inc. are committed to protecting the privacy, confidentiality, accuracy and security of the personal information that we collect, use, retain and disclose in the course of conducting our business. Please refer to our privacy policy for more information.

The Co-operators® is a registered trademark of The Co-operators Group Limited and is used with permission.