By Scotia Wealth Management - The Zukiwsky Group

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Market Watch: Sept. 11

Sep 11, 2020 | 9:35 AM

Big Picture

N.A. Markets Unsteady After Tech Sell-Off

Although markets in the U.S. and Canada were closed for Labour Day, the tech sell-off that began late last week continued Tuesday as some key tech names surrendered further ground. Their declines hit the tech-heavy Nasdaq especially hard, which slumped more than 4%, entering correction territory. The S&P 500 fell nearly 3%, and the Dow lost 2.3%. The TSX also closed lower by 118 points, as a big drop in oil prices pressured the energy sector. Brent crude fell more than 5% to $39.78 a barrel–dropping below $40 for the first time since June. Declining oil prices also dragged the loonie to a near-two-week low against the greenback. N.A. markets bounced back on Wednesday as investors waded back in to take advantage of the three-session tech wreck. By Wednesday’s close, the Dow was up 440 points, while the Nasdaq added nearly 300. Despite being down more than 7% over the past week, the Nasdaq, as of Wednesday, was still holding on to a 24% gain for the year. Gold prices rose to their highest level in nearly a week on Wednesday, as the U.S. dollar weakened and doubts over a timely vaccine in the U.S. began to grow. Oil also rebounded from Tuesday’s hard slide, which helped propel the TSX 284 points higher. Also, the Bank of Canada held its overnight rate steady Wednesday at 0.25%, pledging to keep rates low for as long as necessary. While U.S. markets started strong in early trading Thursday, positive sentiment wavered as U.S. unemployment claims remained elevated at 884,000 last week–further evidence the labour-market recovery has lost precious momentum. Also weighing on sentiment was news that U.S. lawmakers have yet again failed to make any headway on a coronavirus relief bill. By Thursday’s close, the Dow was down over 400 points, while the TSX dropped nearly 200.

Markets Lose Ground as Key Tech Names Decline

For the three trading days covered in this report, the Dow shed 598 points to close at 27,535, the S&P 500 dropped 88 points to settle at 3,339, while the tech-heavy Nasdaq plunged 393 points to close at 10,920. In Canada, the TSX was off by 33 points to end at 16,185.

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Strategy

Record contraction in 2Q has set the stage for a stronger-than-expected start to 3Q in Canada.

The Canadian economy suffered its worst economic contraction on record in 2Q as GDP fell 38.7% on an annualized basis,adding to the 8.2% decline observed in 1Q. Still, early indication suggests that the recovery has gotten off to a betterthan- expected start. Monthly output growth rose 6.5% in June, besting consensus expectations of an increase of 5.8%. The year-over-year figure showed a narrower-than-expected contraction of -7.8% versus consensus of -9.0%. Statistics Canada produced a flash estimate for July that showed further growth of 3% month-over-month. Comparatively, the 2Q contraction ranks worse than that of U.S. and Germany but better than the U.K., Italy, and Spain. The pace of recovery in the early stages of 3Q suggests Canada is leading the recovery owing to relatively better containment measures and wellsupported consumers.

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