September 20 to 24, 2021

What happened last week

Markets clawed back at early-week losses

After a dismal start, the major North American stock markets rallied to close well above the week’s lows, and long-term government-bond yields strengthened. Investor sentiment improved as uncertainty lifted over a range of concerns, including the potential failure of a Chinese real-estate giant, the Canadian federal election, and the timeline for the U.S. Federal Reserve’s (the Fed’s) removal of emergency support for the world’s largest economy.

Global markets tumbled, as China’s real-estate sector faced crisis

Financial troubles at China Evergrande Group – the nation’s largest property developer, with US$300 billion in liabilities – sparked a global market selloff on Monday. This included Canada’s TSX, which posted its worst daily loss since January. While experts cautioned against any comparisons to the 2008 global financial crisis (triggered by the fall of U.S. investment bank Lehman Brothers), the situation presented a serious threat to the world’s second-largest economy; investors scrambled to weigh the potential global implications. Markets steadied, however, following reports that the People’s Bank of China had injected an additional 90 billion yuan (approximately $17.6 billion) into the banking system – on the heels of similar actions taken Friday and Saturday, and after Evergrande saying that it would repay urgently owing interest on its local bonds. Investors closely monitored the situation throughout the week.

Canadians re-elected a Liberal minority government

Late Monday night, a degree of uncertainty was removed for Canadian markets, with Prime Minister Justin Trudeau’s Liberal party winning the federal election. While the Liberals managed to secure enough seats to form a new minority government, the election did little to change the composition of Parliament; each party continues to hold approximately the same seat count as in the previous session. In an interview with Bloomberg, Kristina Hooper, Chief Global Market Strategist at Invesco, stated: “The status quo is exactly what markets like, especially stocks. While Trudeau didn’t get what he had hoped for in calling the snap election, that means really no disruption as it relates to markets.” Canada’s TSX was up 0.5% on Tuesday, and the loonie strengthened against the U.S. greenback.

The Fed indicated that tapering of policy support could begin in November

Following the conclusion of its Federal Open Market Committee meetings on Wednesday, the Fed announced that it could begin reducing its bond purchases as soon as November, completing the process by mid-2022. The U.S. central bank also shared updated quarterly projections, which showed that half of its policy-makers now feel it would be appropriate to begin raising interest rates as soon as next year. (In June, projections indicated no rate increases until 2023.) Fed Chair Jerome Powell explained: “The timing and pace of the coming reduction in asset purchases will not be intended to carry a direct signal regarding the timing of interest rate liftoff.” He added that he didn’t expect the Fed to begin rate increases until after completing the tapering process. While the spectre of the central bank removing support from the economy has weighed on markets for weeks, these new details around timing helped to spark the biggest two-day rally for U.S. stock markets since May. As of Thursday, the benchmarks were back in positive territory where they managed to stay through Friday, even as global markets turned volatile again after news broke that China was tightening its regulation of cryptocurrency trading.


The stock and bond market*
INDEX CLOSE WEEK YTD
S&P/TSX Composite 20,402.66 -0.43% 17.03%
Dow Jones Industrial Avg. 34,798.00 0.62% 13.69%
S&P 500 Index 4,455.48 0.51% 18.62%
Nasdaq Composite 15,047.70 0.02% 16.75%
10-yr GoC Yield 1.38% 0.09% 0.71%
10-yr U.S. Treasury Yield 1.47% 0.10% 0.54%
WTI Crude Oil (US$/bbl) 73.98 2.79% 52.47%
Canadian Dollar US$0.7886 0.32% 0.41%
Bank of Canada Prime Rate 2.45%

*Weekly performance ending September 24, 2021. Sources: www.bloomberg.com, www.bankofcanada.ca and www.treasury.gov.


What’s ahead

Update on Canadian economic growth: In August, Statistics Canada reported that the country’s Gross Domestic Product (GDP) contracted by an annualized rate of 1.1% between April and June. While early estimates for July point to a further contraction of 0.4%, an official report will be available this Friday, October 1.

Circle these dates

  • October 11: Canadian markets closed for Thanksgiving Day
  • October 27: Bank of Canada monetary-policy update

Key take-away

We’re here for you. Having a solid financial roadmap is the best way to weather ever-changing market conditions. Designing that roadmap – and staying the course in stormy markets – can be a lot easier with the help of a Co-operators financial representative.


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