Market Watch: Sept. 4

Canadian and U.S. stocks ended higher on Tuesday with tech stocks once again leading the charge. Positive sentiment was fueled by data from the Institute for Supply Management, which showed U.S. manufacturing activity accelerated in August, growing for the third straight month.

A broad rally in U.S. stocks Wednesday sent the Dow above 29,000 for the first time since February, along with new closing records for the S&P and Nasdaq Composite. The rally was fueled in part by data showing the U.S. nonfarm private sector added more than 425,000 jobs in August, still well below an expected gain of more than 1 million jobs. By Wednesday’s close, the Dow was up more than 450 points, while the TSX added just 53, as energy shares weighed on the index.

However, any weekly gains in U.S. markets were erased Thursday, driven by a steep decline in U.S. tech shares, many of which have led the market higher in recent months.

On the economic front, new U.S. jobs data released Thursday showed that 881,000 Americans applied for unemployment benefits last week. Unemployment claims have continued to drop but remain near historic highs. Also weighing on sentiment was news that U.S. lawmakers still remain at an impasse over a new coronavirus relief package, further hampering hopes for a timely recovery.

By Thursday’s close, the Dow dropped more than 800 points, the S&P surrendered 126, while the Nasdaq lost 598, or nearly 5 per cent. In Canada, the TSX lost 249.

Thursday’s Tech Sell-Off Erases Week’s Gains for U.S. stocks

For the four days covered in this report, the Dow lost 361 points to close at 28,293, the S&P 500 dropped 53 points to settle at 3,455, while the tech-heavy Nasdaq plunged 238 points to close at 11,458. In Canada, the TSX was off by 257 points to end at 16,449.

Strategy

August labour market data in Canada and the U.S. continue to show signs of a recovery.

The August Labour Force Survey (LFS) in Canada showed that the economy added 245.8k jobs, notably most of it coming from full-time employment (+205.8k), and the unemployment rate continued to track lower to 10.2 per cent, down from 10.9 per cent the prior month.

The report is showing that the momentum of the recovery is slowing down. Canada lost 3 million jobs in March and April at the height of the pandemic and with today’s numbers, Canadian employment levels are now 1.1 million below pre-crisis levels or roughly 63 per cent of pre-crisis employment levels.

Notably, core-age (25-54) men and women have made the fastest gains in employment and are closer to pre-pandemic employment levels with core-age men reaching 96.6 per cent of their February employment levels and core-age women reaching 95.6 per cent.

Youth continues to be the most affected and with this category only reaching 84.7 per cent of pre-pandemic employment levels.

In August, most of the gains were seen in the service sector (+218.1k) as most sub-industries within this sector continue to report employment gains. In Ontario, employment rose by 141.8k followed by Quebec with 54.2k additions but the pace of additions has slowed since reporting net additions in June.

Today’s numbers prove that there are diminishing returns associated with re-opening. The relatively easy employment gains have already been made and adding additional jobs could be harder without a more meaningful rebound in domestic and international activity.

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Market Watch: Sept. 4

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