Market Watch: July 23

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In oil news, OPEC+ agreed last weekend to steadily restore the millions of barrels a day of production it had halted by adding 400,000 barrels each day starting in August until the shortfall is restored. Finally in Japan, exports jumped 48.6% in June from a year earlier supporting hopes for an export-led recovery in the world’s third-largest economy. It was the fourth straight month of double-digit gains although numbers are inflated due to the COVID-led plunge last year.

serious two-vehicle crash

Red Deer RCMP asking for public's help in collision investigation

55m ago

Council says no to city status

Sylvan Lake to remain a town for the foreseeable future

3h ago

Until conditions improve

Maskwacis RCMP advise public to avoid travel due to poor road conditions

4h ago

Despite rough start to the week, N.A. markets end on a high note

For the four days covered in this report, the Dow rose 136 pts. to finish at 34,823, the S&P 500 added 40 pts. to end at 4,367 and the Nasdaq advanced 257 pts. to close out Thursday’s session at 14,684. In Canada, the TSX moved 102 pts. higher to settle at 20,097.

Strategy

Equities should continue to perform well, but a slower rate of ascent may be warranted given earnings breadth and margin forecasts

Equity markets appear set to extend recent performance, though at a slightly lower rate of ascent. Equity market performance waned toward the end of the second quarter as concerns over inflation and central bank policy took centre stage. We think near-term volatility is likely to persist until market participants can credibly price policy risks and COVID-19 variants are brought under better control. From a technical perspective, benchmark indices remain at or modestly above our expected projections, which implies reopening progress is being priced-in to run without setback. This means inflation pressures are likely to be passed on to consumers. But if growth disappoints, valuations could be affected. All this signals that investors should maintain a balanced stance, with a bias towards normalization. Importantly, stock selection will be even more critical as valuations become increasingly full. Overall, we think reopening and fiscal spending should support further price appreciation, but with pockets of valuation excess and ever-present downside risk, we remain selective.

Corporate earnings are likely to continue to improve as growth and supply-demand normalize. The outlook for corporate earnings remains intact, though we think growth rates are likely to peak this year, which may have the effect of slowing but not derailing the equity market’s advance. Indeed, the Institute for Supply Management’s (ISM) Purchasing Managers’ Index for U.S. manufacturing and its Markit counterpart are still at or near all-time highs, indicating a strong recovery in earnings growth remains likely into 2H. Earnings breadth is still improving, but we think it may peak with the upcoming 2Q earnings season, adding to our expectation for a slower stock-price ascent in the second half of the year. Earnings breadth peaked above 80% in each of the past two earnings cycles and likewise coincided with near-term stock peaks. In 1Q, 78.4% of stocks posted EPS growth year-over-year.

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