Market Watch: August 27, 2021

All four major North American markets were in the green Monday, with the Nasdaq hitting another record close, while the TSX jumped 138 points, led by the energy and materials sectors.

Energy stocks turned in another strong performance Tuesday, with Brent crude climbing 3.4 per cent to hit the $71 per-barrel mark. Tuesday’s gains were a bit more moderate, with the Dow adding 30, while the S&P and Nasdaq gained 6 and 77, respectively. The TSX added 70, boosted again by energy names.

The TSX closed at an all-time high Wednesday, with the financials sector ending in positive territory — despite bank stocks retreating from intraday highs after the Liberals revealed plans to increase their corporate tax rate. In the U.S., all three major markets posted moderate gains once again, with new record highs for the S&P 500 and Nasdaq.

In economic news, new data released Thursday showed that the U.S. economy grew 6.6 per cent on an annualized basis in Q2, while weekly jobless claims were 353,000, up slightly from the prior week. All four major North American markets took a step back Thursday as concerns over Afghanistan took centre stage after a terrorist attack at the Kabul airport. According to initial reports, more than 70 people were killed. All three U.S. indexes registered moderate losses, while the TSX dropped 83 points, weighed down by the financials sector.

Markets Keep Climbing

For the four trading days covered in this report, the Dow gained 93 points to close at 35,213, the S&P 500 rose 29 points to settle at 4,470, while the technology heavy Nasdaq surged 232 points to close at 14,946. In Canada, the TSX added 165 points to end at 20,504.

Strategy

Full-employment box remains unchecked, keeping the Fed from achieving “substantial further progress” goal

Full-employment box remains unchecked, keeping the Fed from achieving its “substantial further progress” goal. A few weeks ago, at the time of the July Federal Open Market Committee (FOMC) meeting, the U.S. economy looked like it was roaring ahead, but over the last six weeks there has been a clear moderation in consumer spending and the labour market recovery remains slow. The strength of incoming jobs data will be crucial to the Fed’s decision making.

But another factor to consider is whether the Delta variant will upend the return to schools in the fall semester, which could also slow hiring as parents without childcare options are prevented from returning to work.

On the other side of the Fed’s dual mandate is price stability. Inflation is now running well above the central bank’s 2 per cent target, thanks largely to supply-chain disruptions that have pushed up the prices of specific goods like vehicles, as well as the burst of spending on the leisure services in recent months that is now moderating as the Delta variant spreads. The view at the Fed is that the current burst of inflation is largely transitory, and it will dissipate next year as supply chains normalize and reopening progresses.

But several Fed officials are also citing hot price pressures as a reason to begin raising rates as soon as next year. That leaves a fine line for the Chairman to walk, but we think by underlining the distinction between removing emergency policy measures like QE versus tightening policy by raising the fed funds rate, we should have a clearer timeline for normalization after this weekend.

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Market Watch: August 27, 2021

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