MARKET WATCH: Oct. 30, 2020

Markets were largely mixed on Tuesday as the Dow and S&P declined on disappointing earnings and failed stimulus, while the Nasdaq registered a small gain. The TSX also closed lower, despite a modest rebound in crude prices.

It was an especially rough Wednesday for N.A. markets, as the U.S. reported more than 73,000 new coronavirus cases Tuesday. The Dow lost 943 points – its fourth losing session in a row and worst day since June 11 — while the Nasdaq tumbled 425. Canada’s benchmark index was also hit hard, losing 434 points as oil plunged more than 5%.

U.S. stocks bounced back a bit Thursday after new data showed 751,000 Americans applied for new jobless benefits, down from 791,000 last week. Also boosting markets was news that U.S. GDP for Q3 increased at a 33.1% annual rate, by far the strongest quarterly pace of growth in records going back to the 1940s. While that’s good news, the U.S. economy is still smaller than it was before the pandemic, output is down 3.5% since the end of 2019, and the prospects for Q4 are anything but promising as coronavirus cases surge.

N.A. Markets Sell Off Sharply

For the four trading days covered in this report, the Dow plunged 1,676 points to close at 26,659, the S&P 500 lost 155 points to settle at 3,310, while the tech-heavy Nasdaq dropped 363 points to close at 11,185. In Canada, the TSX fell 633 points to end at 15,671.

Strategy

Canadian GDP surprises to the upside in August and early September estimate suggest solid hand-off to 4Q

Canadian GDP expanded 1.2% on a month-over-month basis in August, following growth of 3.1% in July and surpassing Statistics Canada flash guidance of 1.0% growth. August marks the fourth consecutive monthly expansion in output, however overall economic activity was still roughly 5% below February’s pre-pandemic high. The agency also provided an early estimate for September output, predicting an increase of 0.7%. Considering September’s estimate, the data suggests the economy grew 10% in the third quarter, implying about 46% growth on an annualized basis, representing an all-time high. Still, we expect growth to slow considerably from here. Just this week, the Bank of Canada projected annualized growth of only 1% in the final three months of the year, and reiterated expectations for a drawn-out recovery over the next several quarters.

Warmer weather, lower virus counts and mass re-openings encouraged a surge in retail spending between July and September. In addition, pent-up demand for housing led to a boom in construction and real estate in the third quarter. Indeed, both goods-producing (+0.5%) and services-producing (+1.5%) industries were up as 15 out of 20 industrial sectors posted increases and two were essentially unchanged in August. The manufacturing sector was up for the fourth consecutive month, although at a much slower pace compared with the previous three months, rising 1.2% in August as gains in durable manufacturing more than offset lower non-durable manufacturing. The construction sector rose 1.5% in August, up for the fourth consecutive month, as the majority of subsectors increased, bringing the activity to within 2% of February’s pre-pandemic level.

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by Scotia Wealth Management - The Zukiwsky Group

MARKET WATCH: Oct. 30, 2020

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