By Scotia Wealth Management - The Zukiwsky Group

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MARKET WATCH: March 12, 2021

Mar 12, 2021 | 12:45 PM

Big Picture

A Volatile Week for Technology Stocks as Signs of Recovery Build

Technology stocks continued their recent decline Monday, pulling the Nasdaq index into correction territory, as U.S. government bond yields continued climbing, making high-growth technology names a bit less attractive. On Monday, the yield on the 10-year U.S. Treasury ticked up to nearly 1.6%, its highest level since last February. Meanwhile, a rotation toward cyclical names continued, driven by the expectation that the $1.9-trillion stimulus package will be signed into law this week by U.S. President Biden. By Monday’s close, the Nasdaq dropped 311, the Dow climbed 306, and the S&P was down 20 points. In Canada, the TSX was up 77 points, buoyed by the Financials and Real Estate sectors.

North American markets rallied on Tuesday, with the Nasdaq recovering roughly 4% — its biggest single-day rise since early November — as U.S. bond yields retreated and investors looked for bargains in the technology sector. The TSX closed at a record high, gaining 141 points to end the day at 18,599. Meanwhile, the Dow hit a record intraday high but lost some ground later in the session, finishing up just 30 points.

The Dow, however, notched a fresh record Wednesday, climbing 462 points, after U.S. inflation data showed a negligible increase in consumer prices for February, easing investors’ inflation worries. The Nasdaq and S&P finished fairly flat, while the TSX added 91 points. As expected, the Bank of Canada on Wednesday held its overnight rate steady at 0.25%, noting once again its intention to keep rates low until 2023.

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Technology shares, especially FAANG stocks, were once again in favour Thursday as fears of rising rates diminished somewhat, leading to an increased sense of calm in the bond market. The Nasdaq surged nearly 330 points, while the Dow and S&P added 189 and 41, respectively. It was a broad-based rally on Thursday with all 11 S&P sectors trading higher. In Canada, the TSX staged a rally of its own, jumping nearly 155 points to a new record close at 18,845.

Dow, TSX Hit New Record Highs

For the four trading days covered in this report, the Dow surged 989 points to close at 32,485, the S&P 500 added 97 points to settle at 3,939, while the technology-heavy Nasdaq added 479 points to close at 13,399. In Canada, the TSX continued its strong recent showing, gaining 464 points to end at 18,845. GLOBAL PORTFOLIO ADVISORY GROUP

Strategy

Canada’s February Labour Force Survey showed encouraging breadth and headline results

The Canada economy added more than 259,000 jobs in February as restrictions in many regions were eased, easily surpassing the consensus estimate for a gain of 75,000 and fully reversing January’s 212,800 decline.

The unemployment rate fell to 8.2%, down from 9.4% and was better than the estimated 9.2%, while the labour force participation rate held steady at 64.7%.

Job growth skewed more toward part-time employment, 171,000 vs. 88,200 full-time positions, but the regional breadth of the survey is encouraging. Perhaps the most promising piece of the report was that total hours worked increased 1.4%, driven by gains in the wholesale and retail trade sector. In our view, this adds upside risk to the 1Q GDP numbers and suggests reopening efforts are progressing well in regions that have relaxed restrictions.

Of the sixteen sector classifications in the Labour Force Survey, six were higher than last February, one flat, and nine remain below pre-crisis levels. Accommodations & food services and information, culture & recreations combined account for ~440,000 jobs lost in the year. Removing those two sectors that were hardest hit by the pandemic, the Canadian economy is down ~160,000 jobs, most of which are in the retail and wholesale trade sector. We think these sectors should see better recovery momentum in the months ahead as vaccines are administered and restrictions are rolled back.

Overall, we think today’s report will stoke some expectation that the Bank of Canada may start removing some of its ultra-accommodative policy, given its recent emphasis on labour market indicators as it gauges the degree of stimulus needed in the economy. We think there are likely to be significant changes to forecasts and asset purchase tapering at its next meeting in April.

Disclaimer

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