By Scotia Wealth Management- The Zukisky Group

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Market Watch: Sept. 3, 2021

Sep 3, 2021 | 1:04 PM

Markets Extend Monthly Winning Streak

It’s been a fairly quiet week for N.A. markets. On Monday, the S&P and Nasdaq recorded fresh record highs as investors once again embraced the tech sector after the Fed’s dovish comments Friday on the prospect of hiking interest rates. The Dow, however, was fairly flat Monday, while the TSX lost 50 points.

All four major indexes recorded minor losses Tuesday, but it’s been a strong August. The S&P was up nearly 3 per cent for the month, its seventh consecutive monthly rise, while the Dow added 1.2 per cent. The big winner was the Nasdaq, up roughly 4 per cent for the month, its third consecutive month of gains. In Canada, the TSX ended August up 2.9 per cent, its seventh straight month of gains.

In economic news, Statistics Canada reported Tuesday that the Canadian economy experienced an unexpected contraction in Q2, with real GDP down 0.3 per cent. It was Canada’s first quarterly decline in output since Q2 2020, when Covid lockdowns decimated the economy. The GDP report came as a surprise to most analysts and the BoC, which had projected a 2 per cent gain.

The first day of September trading was mixed. The Dow was slightly off, while the S&P and Nasdaq recorded modest gains. The TSX hit a record close, adding 106 points, as railway stocks surged after U.S. regulators failed to approve CN’s deal to buy Kansas City Southern, potentially opening the door for a possible deal with CP. Despite ongoing supply-chain issues, Canadian manufacturing activity grew in August at the fastest pace in four months, while U.S. manufacturing also expanded.

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Finally, U.S. markets registered modest gains Thursday after economic data revealed that initial jobless claims fell to 340,00 (a new pandemic low) and the U.S. trade deficit decreased to $70 billion in July. Although the U.S. economic recovery appears to be on track, private-sector job creation was weak in August, with roughly 375,000 jobs created. In Canada, the TSX hit yet another record close, adding 105 points, as oil prices continued their recent climb.

Strong Week for Nasdaq, TSX

For the four trading days covered in this report, the Dow lost 12 points to close at 35,444, the S&P 500 rose 28 points to settle at 4,537, while the tech-heavy Nasdaq surged 202 points to close at 15,331. In Canada, the TSX added 151 points to end at 20,795.

Strategy

August payrolls fall-short as high-contact service jobs showed little growth

U.S. hiring activity slowed abruptly in August as nonfarm payrolls grew added the fewest number of jobs in the last seven months, complicating the upcoming decision for the U.S. Federal Reserve to begin scaling back monetary stimulus. Nonfarm payrolls increased 235,000 last month, trailing all forecasts, after an upwardly revised 1.05 million gain in July.

Employment in leisure and hospitality, which has posted strong gains recently, was flat amid the spreading delta variant and persistent hiring challenges. The unemployment dipped to 5.2 per cent while the labour force participation rate remained unchanged at 61.7 per cent and hours worked slipped to 34.7 from 34.8, previously.

The deceleration in hiring likely reflects both growing fears about the rapidly spreading delta variant of COVID-19 and difficulties filling vacant positions. In August, 5.6 million people reported they were unable to work because of the pandemic, up from 5.2 million a month earlier.

The surge in infections, which has already curbed consumer activity and disrupted in-person schooling and return-to-office plans, may have led businesses to grow more cautious about hiring and dissuaded some workers from pursuing high-contact employment opportunities.

As of the end of August, U.S. payrolls are still 5.3 million below their pre-pandemic level. Overall average hourly earnings rose 0.6 per cent last month, twice as much as forecast though possibly a reflection of the composition of August employment and scant low-wage job growth.

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