By Scotia Wealth Management - The Zukiwsky Group

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Market Watch: July 5

Jul 5, 2019 | 11:30 AM

Big Picture

U.S. Indexes Hit Record Highs in Pre-July 4th Rally

U.S. stocks continued to climb on Wednesday, with each of the major indexes closing at a record high, as a temporary trade truce between the U.S. and China and expectations for a more dovish Fed sparked a strong week for equities. The Dow climbed nearly 180 points during a shortened trading session on Wednesday, putting it above its previous October record. The Dow was the last of the three major U.S. indexes to set a record close this year, as trade tensions and concerns of slowing global growth weighed on its performance in recent months.

Traders are now turning their focus to the Fed and whether it will cut interest rates in 2019. According to analysts, weakening economic figures, including slowing U.S. factory activity, support such a move. However, it remains unclear if the trade truce brokered at the G20 Summit will affect the Fed’s decision. One critical piece of data that might alter the Fed’s position is June’s employment report due Friday morning. Meanwhile, the yield on U.S. 10-year Treasurys has fallen to multiyear lows, hitting 1.94% on Wednesday, while yields in the eurozone fell to record lows as the European Central Bank is expected to continue its dovish course.

There was positive news for Canada on Wednesday as Statistics Canada reported a trade surplus of $762 million in May, fuelled by rising exports of cars, aircraft and energy products. The news came as a surprise to many analysts, who had forecast a $1.5-billion shortfall in a recent Reuters poll. The news helped bolster the loonie, which strengthened against the greenback to 76.5 cents (US). Finally, the TSX finished fairly flat on Thursday, weighed down by the health care sector, after registering modest gains in the two previous trading sessions.

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Markets

N.A. Markets Continue to Climb

It was a shortened trading week for N.A. markets with holidays in both Canada and the U.S. For the four days covered in this report, the Dow added 366 points to close at 26,966, the S&P 500 gained 54 points to settle at 2,996, while the tech-heavy Nasdaq climbed 124 points to close at 8,130. In Canada, the TSX was up 207 points to end at 16,589.

Equities/Strategy

Equities

U.S. equity markets enjoyed one of their strongest June rallies in years despite slowing global growth and mounting trade and geopolitical uncertainties. A dovish shift by major central banks and portfolio rebalancing may have contributed to equities’ advance. With respect to the latter, the recent rally in credit markets likely left large institutional investors underweight exposure to equities, forcing them to buy to bring their portfolios in line with investment mandates. Data from Bank of America’s most recent monthly Global Fund Manager survey, released last week, showed investors have not been as underweight equities as they are now since the financial crisis. As investors turn their attention to the upcoming Q2 earnings season, consensus expectations imply modest YOY growth. However, earnings growth is expected to accelerate in the second half of the year.

(Bill Curry)

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