Market Watch: May 28

There were green numbers all across the board Wednesday after the Federal Reserve reiterated its pledge to maintain its economic support despite a recent uptick in inflation. A clear sign that inflation fears are easing was Wednesday’s reading of the Cboe Volatility Index (i.e., the VIX), which dropped to its lowest level since early May.

U.S. markets turned in another mostly positive performance Thursday, with the Dow up 141 points, while the S&P and Nasdaq were essentially flat. In another sign of the ongoing U.S. recovery, initial jobless claims fell again last week to a new pandemic low—just over 400,000. In Canada, the TSX posted another modest 29-point gain.

N.A. Markets Post Moderate Gains

For the four trading days covered in this report, the Dow added 256 points to close at 34,464, the S&P 500 rose 45 points to settle at 4,201, while the technology-heavy Nasdaq climbed 265 points to close at 13,736. In Canada, the TSX jumped 247 points to end at 19,774.

Strategy

Canada’s Finance Minister touts government spending and resilience of the private sector as primary factors driving the post-pandemic recovery

Canada’s Finance Minister touts government spending and resilience of the private sector as primary factors driving the post-pandemic recovery – Chrystia Freeland was named Canada’s Finance Minister in August last year after leading the Liberal government international trade and foreign ministries.

In late April, shortly after tabling her government’s budget, Ms. Freeland sat down with Bloomberg Markets and gave an interview about spending, deficits, taxation, globalization, and China. The interview was published this morning.

Off the top, the Finance Minister was asked about the budget and Canada’s fiscal position more specifically. She rightly pointed to a consistent decline in the country’s deficit, which is expected to fall to just over 1 per cent of GDP in the 2025-2026 fiscal year, as evidence of her government’s fiscal prudence. Still, as we have written previously, we do not think enough has been done to right-size the debt-to-GDP ratio through what is expected to be a period of above-trend economic growth. The Liberal’s expect Canada’s debt ratio to fall to 49.2 per cent by the 2025-2026 fiscal year, which could constrain future government spending requirements during a future recession and might result in the type of fiscal reforms of the early 1990s.

Ms. Freeland highlighted Standard & Poor’s recent confirmation of Canada’s AAA credit rating and, notwithstanding the extraordinary spending incurred, the fact we continue to have among the lowest debt-to-GDP ratio in the G7. In the fourth quarter, the Canadian economy grew by almost 10 per cent. In her view, this is a testament to the resilience and entrepreneurship of Canadian businesses and that significant government support helped avoid long-term economic scarring.

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Market Watch: May 28

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