Oct. 12–16, 2020

What happened last week

Markets reacted to earnings reports, vaccine trials and political headwinds

A jittery marketplace – continuing to show signs of vulnerability to daily developments – was once again on full display. In addition to the ongoing fiscal-stimulus tug-of-war within U.S. Congress and the fast-tracked vaccine trials occurring around the world (two topics that have been driving recent market activity), investors also weighed a new round of corporate-earnings reports as well as shifting opinion on what a potential Democratic presidential victory could mean for financial markets.

On Monday, all three major U.S. stock indexes (i.e., Canada’s S&P/TSX Composite was closed for the Thanksgiving holiday) pushed higher, building on the previous week’s momentum, and marking four consecutive days of gains. Big tech drove the day’s rally, with Apple and Amazon leading the way. Both companies held signature events during the week, but not even the launch of Apple’s iPhone 12 on Tuesday could overcome a shadow cast by news that two major vaccine trials had come to a sudden halt.

Johnson & Johnson and Eli Lilly & Co. pressed pause on vaccine trials

A choppy day of trading on Tuesday ended with all four major North American benchmarks closing in negative territory. This was partly due to reports that U.S. House Speaker Nancy Pelosi and the Democrats had rejected the latest White House proposal for a financial-relief package, further eroding hope that a deal would be reached before the Nov. 3 Presidential election. But, it was unexpected announcements from Johnson & Johnson and Eli Lilly & Co. that weighed heaviest on markets: Johnson & Johnson stated that it was stopping the clinical trial of its COVID-19 vaccine because of an unexplained illness in a study participant; Eli Lilly & Co. cited unnamed safety concerns for its stoppage. The following day, Eli Lilly & Co. attempted a degree of damage control, saying that some trials of its experimental vaccine would continue.

Big-bank corporate earnings reports sent a mixed message

Wednesday brought the second full day of Q3 corporate-earnings reports, and it was the second consecutive day of declines for equity markets across the board. America’s five biggest lenders (Bank of America, Citigroup Inc., JPMorgan Chase & Co, Wells Fargo & Co., and Goldman Sachs) had varying degrees of success and disappointment. Namely, Wells Fargo’s profits plunged 57% in the quarter, while Goldman Sachs had its best performance in a decade (by some measures). Executives from all five organizations honed in on loans, warning that related losses won’t be fully known until next year. This was enough to spook investors.

Employment data in the U.S. and Canada dragged on markets

Heading into the week’s final days of trading, there was a spike in the number of Americans filing first-time jobless claims (marking a seven-week high) and a report from payroll-services provider ADP that showed 240,800 lost jobs in Canada – in September alone.

Thursday ended with modest declines for Wall Street, while Canada’s TSX eked out a minor gain. Overall, despite three consecutive days of losses, it was a positive week for North American markets, based on the strength of Monday’s gains and a strong close on Friday.


The stock and bond market*
INDEX CLOSE WEEK YTD
S&P/TSX Composite 16,438.75 -0.75% -3.66%
Dow Jones Industrial Avg. 28,606.31 0.07% 0.24%
S&P 500 Index 3,483.81 0.19% 7.83%
NASDAQ Composite 11,671.56 0.79% 30.08%
10-yr GoC Yield 0.57% -0.06% -1.13%
10-yr U.S. Treasury Yield 0.76% -0.03% -1.16%
WTI Crude Oil (US$/bbl) 40.78 0.44% -33.37%
Canadian Dollar US$0.7580 -0.43% -1.55%
Bank of Canada Prime Rate 2.45%

*Weekly performance ending October 16, 2020. Sources: www.bloomberg.com, www.bankofcanada.ca and www.treasury.gov.


What’s ahead

Canadian economic data: Several reports, to be released this week, will offer insight into different aspects of the Canadian economy, including the Bank of Canada’s Business Outlook Survey results, monthly retail-sales figures, and a report on inflation.

Circle these dates

  • Oct. 28: Bank of Canada interest-rate announcement and monetary-policy report
  • Nov. 3: U.S. presidential election

Key take-away

We are experts in dealing with market uncertainty. Know that the fund managers we partner with have been through this before. They understand markets, are well-positioned to help with strategies based on sound fundamentals, and take a long-term approach designed to outlast temporary market volatility.


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