Market Watch: Aug. 13, 2021

Markets flipped the script on Tuesday as the S&P and Dow closed at new highs after the Senate passed an infrastructure package and oil prices regained ground. The Dow added 163 points, while the Nasdaq lost 72 points, as big technology names struggled. Canada’s main index also hit a record high on Tuesday, as heavyweight energy and mining sectors bounced back from Monday’s steep losses.

There were more record highs Wednesday for the Dow and S&P after data showed U.S. consumer price increases slowed in July, easing concerns that the Federal Reserve will be in a rush to taper its bond purchases. The U.S. consumer-price index gained 5.4% in July, year over year, while core inflation excluding food and energy prices), rose 4.3%YoY—slightly below analysts’ expectations. In Canada, the TSX climbed 58 points—another record close–as higher gold prices boosted the mining sector.

On the U.S. jobs front Thursday, initial jobless claims for the prior week came in at 375,000, largely in line with analysts’ expectations. All three major U.S. indexes registered slight gains Thursday, while the TSX dropped 33 points as slumping gold prices and weakening oil demand weighed on the index.

Dow, S&P and TSX Gain Ground; Nasdaq Slightly Off

For the four trading days covered in this report, the Dow added 292 points to close at 35,500, the S&P 500 rose 25 points to settle at 4,461, while the tech-heavy Nasdaq retreated 20 points to close at 14,816. In Canada, the TSX added 45 points to end at 20,520.

Strategy

Prices paid by consumers climbed in July at a more moderate pace, marking a slight deceleration from the rate of increase observed in recent months. Headline CPI inflation rose 0.5% in July on a month-over-month basis, slowing from the 0.9% pace the prior month and matching consensus expectations. Prices were up 5.4% on a year-over-year basis, while core CPI rose 0.3% MoM and 4.3% YoY. Ongoing challenges, including materials shortages, shipping bottlenecks and hiring difficulties, will likely continue to distort data in the months ahead. The rise in core prices was slightly weaker than expected and mainly reflected much smaller increases in most of the pandemic-affected sectors that had driven stronger gains in previous months. Hotel room rates did rise by a substantial 6% MoM, but airfares fell slightly in the month while used vehicle prices saw a much smaller 0.2% increase. Moreover, the latest data on wholesale auction prices suggests that used vehicle prices will probably decline outright in August, which, if it continues, could become a more significant drag on core inflation over the coming months. Overall, the July data suggest that the initial burst of stronger inflation is now fading. However, it is too soon to say how quickly price gains will drift back to near the Fed’s inflation target.

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by Scotia Wealth Management - The Zukiwsky Group

Market Watch: Aug. 13, 2021

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