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Investment update

Weekly insight into the marketplace.

 

June 24 to 28, 2024

Markets closed Q2 mixed

In the second quarter’s final week of trading, the AI-driven tech rally, which propelled the S&P 500 and the Nasdaq to three-month gains of 4% and 7% respectively, flashed mixed signals. On Monday, micro-chip giant Nvidia officially entered correction territory (defined by a decline of over 10%) as its stock fell a further 6.7%. Over three consecutive sessions, Nvidia shares plummeted 13% overall and erased US$430 billion in market capitalization. The S&P 500 slid 0.3% and the Nasdaq fell over 1% in the wake of Nvidia’s decline. The Dow moved 0.7% higher as investors pivoted towards the energy and financial sectors. Canada’s TSX also posted a 1.4% gain, led by a 3% gain on the energy index. The tables turned Tuesday with the S&P 500 and the Nasdaq posting gains, while the TSX and the Dow declined. Next to Nvidia, which rebounded 6% on Tuesday, the biggest AI story of the week centered around Amazon. The online retail heavyweight crossed the US$2 trillion market-cap threshold for the first time ever on Wednesday (just the fifth U.S. company to do so). All four North American benchmarks closed higher on Wednesday. Thursday was also a positive day for markets, as investors turned their attention toward Friday’s Personal Consumption Expenditures (PCE) inflation reading. The PCE index was unchanged in May after edging 0.3% higher in April, which should support expectations for one Federal Reserve interest rate cut later this year. Markets ended the week mixed with the TSX and the Nasdaq closing higher and the S&P 500 and the Dow declining.

Service prices pushed Canadian CPI higher

Statistics Canada released the latest Canadian inflation report on Tuesday, which showed a slight reacceleration in May. Annually, the inflation rate rose to 2.9%, up from 2.7% in April and above the 2.6% forecast in a Reuter’s poll of analysts.The increase was largely driven by higher prices for services, led by cellular services, travel tours, rent and air transportation, which grew at a faster pace than expected. On a monthly basis, rent was up 0.9%, which brought the yearly pace up to 8.9%. The annual cost of groceries also accelerated for the first time since June 2023, climbing 1.5% in May. It's a modest increase from April’s 1.4% pace, but overall, food prices are still 22.5% higher than they were in May 2020. Core inflation, which excludes the more volatile prices for food and gas, and is the Bank of Canada’s preferred inflation gauge, was also up in May. Auditing firm Deloitte released a report last week that now predicts the Bank of Canada of Canada will hold off on cutting rates again until September.

Canada’s economy grew in April

Real gross domestic product (GDP) grew at a 1.1% annualized rate in April, according to Statistics Canada’s latest data. On a monthly basis, GDP increased at a 0.3% pace, the fastest pace since January’s 0.5% growth, with 15 out of 20 sectors rising. The results matched advanced estimates and were in line with economists’ expectations. Wholesale and retail trade were key drivers of growth, along with manufacturing, mining and oil and gas extraction. Advanced estimates for May currently forecast 0.1% GDP growth in May. Despite the growth being slightly better than was expected for 2024 so far, April’s GDP data is unlikely to compel the Bank of Canada to cut interest rates again in July.

The stock and bond market*

Index Close Week YTD
S&P/TSX Composite 21,875.79 1.49% 4.38%
Dow Jones Industrial Average 39118.86 -0.08% 3.79%
S&P 500 Index 5460.48 -0.08 14.48%
NASDAQ Composite 17732.60 0.24% 18.13%
10-year Canadian Bond Yield 3.47% 0.13% 0.37%
10-year U.S. Treasury Yield 4.36% 0.11% 0.48%
WTI Crude Oil (US$/barrel) $81.54 1.00% 13.80%
Canadian Dollar US$0.7301 0.10% -3.19%
Bank of Canada Prime Rate 6.95%

*Weekly performance ending June 28, 2024. Source: Bloomberg.

Key take-away
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What’s ahead

Canadian and U.S. employment data (July 5):  As central bank officials continue to assess the health of their respective economies ahead of potential interest rate cuts, employment data and labour market insights will continue to play an important role.

Circle these dates 

July 24: Bank of Canada interest-rate announcement

July 31: U.S. Federal Reserve interest-rate announcement

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