Market Watch: May 7

The Dow set yet another record Wednesday as strong earnings continued, and fears of rising interest rates eased. It was the Dow’s 22nd record close of 2021. Wednesday’s rally came after Yellen softened comments about the need for higher rates. In Canada, the TSX climbed 123 points but remained below its record high of last month.

U.S. stocks mounted a late-session turnaround Thursday, closing at session highs, following upbeat corporate earnings and signs of continued improvement in the labour market. The Dow notched yet another record, adding 318 points, while the Nasdaq broke its losing streak. However, the TSX was left behind Thursday, registering a modest 20-point decline.

Finally, the Canadian dollar rose on Thursday to its highest level versus the greenback in nearly four years, breaking 82 U.S. cents by the end of trading.

Dow Keeps Climbing, Nasdaq Down

For the four trading days covered in this report, the Dow jumped 673 points to close at 34,548, the S&P 500 rose 20 points to settle at 4,201, while the tech-heavy Nasdaq dropped 330 points to close at 13,633. In Canada, the TSX gained 183 points to end at 19,291.

Strategy

Canada’s labour market recovery falters on widespread reintroduction of containment measures.

The Canadian labour market recovery faltered in April, dragged down by renewed lockdown conditions in many key regions.

Employment fell 207k in April, surpassing the consensus estimate of a decline of 150k, partially erasing the 303k jobs added in March. The unemployment rate rose to 8.1 per cent in April, from 7.5 per cent a month earlier, while losses were fairly evenly split between full-time and part-time categories, 129k vs. 77.8k.

Overall, the details of the report line up with the headlines on sector and regional weakness. Indeed, Ontario led provincial declines at -153k while British Columbia (-43k), Quebec (13k), and Alberta (13k) also experienced contractions, albeit milder in comparison.

In recent months, employment in retail trade, accommodation and food services, and information, culture and recreation, categories that typically account for one-third of private sector employees, have risen and fallen in lockstep with easing and tightening of containment measures. Conversely, in industries less directly affected by these restrictions, such as professional services, real estate, or finance, the number of private sector employees has increased steadily and surpassed pre-pandemic levels. We expect this trend to persist for a couple of more months as vaccines are rolled out and restriction variability remains high. Still, we think more stability is achievable in high-contact sectors nearer the end of the summer.

Canada’s economy remains half a million jobs shy of pre-pandemic levels, though we expect that gap to close at some point this year.

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Market Watch: May 7

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