Sept. 8–11, 2020

What happened last week

Stock markets continued to fall from recent highs

Following the holiday long weekend in Canada and the U.S., stock markets opened in negative territory as a selloff in technology stocks carried over from the previous week. By Tuesday’s close, U.S. tech giants Apple, Amazon, Facebook, Google, Microsoft and Netflix had lost over US$ 1 trillion in combined market capitalization through the last three trading sessions. Wednesday saw markets bounce back, with all the major North American exchanges closing in positive territory, and the Nasdaq posting its best performance since April – just one day after being down 10% from its most recent peak. But by Thursday afternoon investors were back in self-off mode, moving money out of equities and into safe havens like bonds and gold.

This volatility was fueled by investor uncertainty on several points related to the U.S. economy, not the least of which being what to expect following the presidential election. Along with concerns over progress towards a COVID-19 vaccine, trade conflicts with China, and signs the U.S. economic recovery may be stalling as an anticipated financial aid package is held up in Congress, investors had plenty of reason to pause and consider the sustainability of the five-month stock market rally, and the valuations of the companies behind its surge. Kristina Hooper, Invesco’s chief global market strategist, told CNBC: “I think of this rout not so much as a correction, but as a digestion given that the Nasdaq Composite rose more than 60% from its March bottom in the course of less than six months. All in all, I think this is a healthy period of consolidation after a dramatic run-up.”

Bank of Canada held interest rates near zero and committed to provide stimulus

On Wednesday, the Bank of Canada announced it was holding its benchmark rate at 0.25% and confirmed its commitment to keep it there until the economy stabilizes. The bank said it will also continue to buy government bonds at the current pace and maintain extraordinary monetary policy stimulus to help pull Canada out of the deepest downturn since the Great Depression. In remarks delivered to an online meeting of the Canadian Chamber of Commerce on Thursday, Bank of Canada Governor Tiff Macklem said that the recovery is expected to be “slow and choppy,” and added that the bank’s policy makers “…agreed that as the economy shifts from reopening to recuperation, it will continue to need extraordinary monetary policy support.”

U.S. jobs data pointed to a stalled recovery

The weekly U.S. Department of Labor report on applications for U.S. state unemployment benefits showed extensive unemployment persists. Initial claims came in at 884,000 for the week ending Sept. 5, and the total number of Americans claiming ongoing unemployment assistance rose by 93,000 to 13.4 million in the week ending Aug. 29, higher than economists expected.

The stock and bond market*
S&P/TSX Composite 16,222.46 0.03% -4.93%
Dow Jones Industrial Avg. 27,665.64 -1.66% -3.06%
S&P 500 Index 3,340.97 -2.51% 3.41%
NASDAQ Composite 10,853.54 -4.06% 20.96%
S&P Global 1200 Index 2,626.11 -1.27% -0.10%
10-yr GoC Yield 0.59% 0.05% -1.11%
10-yr U.S. Treasury Yield 0.67% -0.05% -1.25%
WTI Crude Oil (US$/bbl) 37.33 -6.14% -38.86%
Canadian Dollar US$0.7589 -0.88% -1.42%
Bank of Canada Prime Rate 2.45%

*Weekly performance ending Sept. 11, 2020. Source: Bloomberg.

What’s ahead

Economic reports: This week, reports from Statistics Canada on Canadian retail sales and inflation will give investors further insight into the state of Canada’s economic recovery.

Federal Reserve meetings and statement: In its last decision on July 29, the U.S. central bank said that it would leave interest rates near zero and committed to use all tools to support the economic recovery. An updated statement is expected this Wednesday, Sept. 16.

Circle these dates

  • Oct. 12: Canadian markets closed for Thanksgiving holiday
  • 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

Key take-away

Having professionally managed investments as part of your roadmap is both comforting and valuable in reaching your long-term financial goals. The investment fund managers we partner with have been through market uncertainty before. They understand the market, are equipped with sound strategies and take an approach that’s designed and proven to outlast market volatility.

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