By Scotia Wealth Management - The Zukiwsky Group

SPONSORED

MARKET WATCH: June 11, 2021

Jun 11, 2021 | 2:29 PM

Big Picture

North American Markets Range-bound as Investors Weigh Inflation Concerns, Labour Data

U.S. and Canadian equity markets have been moving sideways for much of the week, as investors weigh concerns about inflation against signs that the economic recovery is gaining steam. It was a fairly quiet trading session Monday with the Dow slightly off, and the Nasdaq registering a modest 67-point gain. The S&P and TSX were flat. It was another muted session Tuesday with the S&P flat again, the 12th consecutive day without a 1% move in either direction. The Nasdaq and TSX registered small gains, while the Dow was slightly off. As expected, the Bank of Canada on Wednesday left its key interest rate unchanged at 0.25% and said it would maintain its current policy of quantitative easing. U.S. indexes edged quietly lower Wednesday, while the TSX shed 64 points. In inflation news, U.S. consumer headline prices rose 5% in May from a year earlier, marking the highest annual inflation rate since 2009. Investors are waiting to see if the latest data will cause the Fed to dial back current efforts to stimulate the economy. Central bankers will meet next week to discuss their options. In other news, U.S. initial jobless claims fell to 376,000 last week, adding to signs of a healing labour market. U.S. markets took the news in stride, edging slightly higher, with the Nasdaq adding 108 points, while the TSX rose 47 points.

A Quiet Week for N.A. Markets

For the four trading days covered in this report, the Dow declined 290 points to close at 34,466, the S&P 500 inched up 9 points to settle at 4,239, while the technology-heavy Nasdaq added 206 points to close at 14,020. In Canada, the TSX edged up 20 points to end at 20,049.

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Strategy

Equity indices, and risk appetite more broadly, remain technically undecided.

Sell in May and go away is an old adage that suggests equity market performance over the summer months is lacklustre and mostly bound by downward trends. However, with post-pandemic reopening strategies in play across North America and Europe, there is potential for this summer not to follow the typical seasonal pattern. Recent GPAG technical analysis concludes that short-term bull trends on all tracked major indices (the S&P/TSX, S&P 500, NASDAQ Composite, and Dow Jones Industrial Average) remain intact. The NASDAQ Composite, unlike its peers, has experienced a period of prolonged consolidation. While we would have preferred to see a more material retracement, consolidation eases constraints to a renewed upward trajectory. The other three benchmarks have extended their recent ascents and warrant caution when considering any broad asset deployment. Nonetheless, we take comfort that systemic warning signs, such as LIBOR or the TED spread, are not flashing. Absent any changes, we are cautiously assessing prevailing activity in a potentially more bullish light.

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