Market Watch: April 30

North American markets, however, were essentially flat on Tuesday, registering nominal losses or gains. The S&P 500 ended the day in the red (just slightly) for the first time in three sessions, while the Nasdaq dropped 48 points. As of Tuesday, about a third of S&P 500 companies had reported earnings, with roughly 88 per cent topping analysts’ expectations.

U.S. indexes were all in the red Wednesday despite the Federal Reserve’s pledge to maintain its loose monetary policy for the foreseeable future. The TSX, however, bucked the trend, ending with a strong 182-point gain, buoyed by surging Shopify shares and rising oil prices. The loonie rose against the greenback again on Wednesday — at one point climbing above 81 cents US — as Canadian investors cheered domestic retail sales data. The U.S. recovery also seems to be taking hold as the U.S. economy grew at a 6.4 per cent annual rate in Q1 2021. According to the Conference Board, U.S. consumer confidence rose in April to the highest level in 14 months, while new jobless claims have continued to fall.

U.S. stocks climbed higher in afternoon trading Thursday, as investors cheered strong economic data, solid corporate earnings and the prospect of nearly $2 trillion in new government stimulus. By Thursday’s close, the Dow was up 240, while the S&P and Nasdaq added 28 and 32, respectively. In Canada, the TSX lost 101, as falling gold prices weighed on the index.

N.A. Markets Register Modest Gains

For the four trading days covered in this report, the Dow added 17 points to close at 34,060, the S&P 500 rose 31 points to settle at 4,211, while the tech-heavy Nasdaq climbed 65 points to close at 14,082. In Canada, the TSX gained 154 points to end at 19,256.

Strategy

The Fed still is not talking about tapering asset purchases.

The U.S. Federal Reserve broadly met expectations this week, holding its policy stance unchanged and issuing modest upgrades to its inflation and growth assessments, while firmly pushing back against the need to taper asset purchases. Overall, policymakers have welcomed an accelerating recovery that is now more evident including the sectors which were most hard-hit during the pandemic.

Despite material improvement in the outlook for growth and employment, the Committee members remain firmly entrenched in the view that the recent pickup in inflationary pressures will prove transitory. This reflects highly accommodative year ago comparable levels and supply-demand imbalance that will likely result in above target inflation over the middle months of this year.

What policymakers did not reference was how they might evaluate the monthly trend in the price level and how their expectations might differ or affect policy outcomes. We think the Committee will look through short-term effects for the time being, holding off on passing assessment until later in the summer.

Most importantly, and roundly cheered by markets, was Chairman Powell firmly stating that it is not time yet to start talking about tapering, echoing his earlier comments regarding eventual interest-rate increases. We expect asset purchases to run at the current pace of at least US$120 billion per month through the end of this year, and for discussions about potential tapering to materialize throughout the summer.

The Jackson Hole Economic Symposium (held in August) has been used in the past to announce significant changes to the Bank’s policy, including last year’s change in the inflation targeting mechanism, and we think there is a chance taper discussions are formalized here this year. Beyond the path of asset purchases, the central bank is likely to be patient in actually raising rates from near zero. Interest rates are not likely to be raised until late 2022, or early 2023, which is nonetheless sooner than the FOMC projected in March.

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Market Watch: April 30

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