Market Watch: Nov. 13

The Nasdaq closed sharply lower again Tuesday as vaccine hopes continued to draw capital toward cyclicals associated with economic recovery. In Canada, the TSX rose for a second day, led by energy and financials, while materials and tech faltered. By Tuesday’s close, the Dow added 263 points, the TSX climbed 139, and the Nasdaq lost 160.

However, the trend toward economically sensitive value stocks reversed a bit on Wednesday as investors tempered their exuberance over an imminent recovery as new infections in the U.S. continued to hit record levels. Once again, tech shares powered the Nasdaq higher, closing with a 232-point gain. In Canada, the TSX closed with another triple-digit gain, reaching its highest level since late August.

However, N.A. markets surrendered ground on Thursday as the number of new virus cases continues to surge, putting the U.S. on track to reach 400,000 COVID deaths by year-end. Concerns over a smooth transition of power for President-elect Biden have also begun weighing on markets this week, as President Trump still refuses to concede the election, despite losing the popular vote by more than 5 million. By Thursday’s close, the Dow lost 317 points, the Nasdaq was off 77, and the TSX dropped 191.

N.A. Markets Rebound Strongly

For the four trading days covered in this report, the Dow surged 757 points to close at 29,080, the S&P 500 added 28 points to settle at 3,537, while the tech-heavy Nasdaq lost 186 points to close at 11,709. In Canada, the TSX added 299 points to end at 16,582.

Strategy

U.S. inflation flat in October, and jobless claims continue to edge lower

Consumer prices were unchanged in October after rising 0.2 per cent from the previous month, which was the lowest in five months, and below consensus estimates. On an annual basis, CPI rose 1.2 per cent which was also below the consensus estimate of 1.3 per cent. Core inflation, which excludes volatile food and fuel costs and is often viewed as a more reliable gauge of price trends, was also flat in the month.

Higher airfares and new-car prices helped offset the declines in gasoline, medical care and apparel. Food prices also increased as more consumers dined out. The CPI figures continue to depict the divide between service and goods sectors. Core goods CPI, which excludes food and energy, is at an eight-year high of 1.2 per cent after multiple years of deflation. Core services CPI has significantly declined since the start of the pandemic as in-person interactions have dwindled.

The Federal Reserve has indicated it plans to keep interest rates near zero until 2023 and allow for an overshoot of its 2 per cent inflation target. The bank’s preferred interest rate measure, personal consumption expenditure, typically undershoots CPI and has persistently been below its target. We expect inflationary pressures to remain muted in the near term.

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Market Watch: Nov. 13

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