By Scotia Wealth Management - The Zukiwsky Group

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MARKET WATCH: Dec. 20

Dec 20, 2019 | 2:55 PM

Big Picture

U.S. Markets Continue to Climb, Unfazed by Trump Impeachment

After a relatively flat day of trading Wednesday, U.S. stocks resumed their climb on Thursday, as the three major indexes once again recorded a trio of record closes. Consumer staples and tech stocks led the charge after key sector names offered further proof that economic growth remains solid.

Interestingly, the impeachment of President Trump Wednesday evening by the U.S. House seems to have had little-to-no impact on U.S. markets. The third U.S. president ever to face an impeachment trial, Trump has little chance of being convicted in a trial to be held January in the Republican-held Senate. For now, analysts and investors are managing to tune out the political noise. In Canada, the TSX notched modest gains Monday and Tuesday, buoyed by the preliminary U.S.-China trade deal, which should bode well for global growth and help drive up oil prices. The TSX was down on Wednesday, however, as both gold and oil prices weakened. Meanwhile, the loonie climbed to a seven-week high against the greenback on Wednesday after data showing an increase in underlying inflation reduced the likelihood for a near-term interest-rate cut by the Bank of Canada. In the U.K., the pound fell sharply against the U.S. dollar Tuesday–its steepest daily decline in more than a year–over mounting fears of a no-deal Brexit. The slide continued on Wednesday as sterling declined an additional 0.4%. Last week, the pound hit its highest level since May 2018 after exit polls indicated that Boris Johnson was en route to a landslide victory in the general election.

Finally, the Stoxx Europe 600 index gained 1.4% on Monday to reach its first new high in four years, although the index surrendered ground in the next three trading sessions.

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Markets

N.A. Markets Continue Year-End Rally

For the four days covered in this report, the Dow surged 242 points to close at 28,377, the S&P 500 added 36 points to settle at 3,205, while the tech-heavy Nasdaq jumped 152 points to close at 8,887. In Canada, the TSX was up three of four sessions, gaining 61 points to end at 17,064.

Equities/Strategy

Equities

“It don’t mean nothing till you sign it on the dotted line” – Last week U.S. and China announced that negotiators from both sides had agreed in principle to the phase one trade deal between the two countries. The substance of the phase one agreement has not yet been released, but the U.S. has indicated that China will buy US$50 billion worth of agricultural goods in 2020, along with energy and other products. In exchange, the U.S. will reduce the tariffs on many Chinese imports that are currently paying tariffs in the range of 15% to 25%. U.S. President Donald Trump had previously indicated that the first phase of the agreement would include measures to (i) improve intellectual property protection (ii) open the Chinese financial services market and (iii) prevent Chinese currency manipulation. Subsequent agreements would likely include provisions on forced-technology transfer, subsidies and business practices of state-owned enterprises. We are encouraged by the recent developments, but given the fluid nature and instability of previous announcements, we caution against reading too much into any single event. The trajectory of the negotiations so far appears to track a positive path, but until pen is put to paper and concrete details are divulged we will proceed with caution. Trade-related uncertainties have receded in recent weeks, but with equity markets near their all-time highs we expect volatility to remain elevated.

(Bill Curry)

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