Market Watch: Feb. 4, 2022

Markets posted another solid session on Tuesday, with the Dow up 273, while the S&P 500 climbed 31 points. Energy once again led the major S&P sectors, as U.S. crude prices neared a seven-year high. That was also good news for the TSX, which hit a two-week high, adding 221 points for the day.

U.S. stocks extended their winning streak on Wednesday, as strong earnings from Google parent Alphabet helped spur positive sentiment, despite news that the nonfarm private sector in the U.S. lost about 300,000 jobs in January. In Canada, the TSX rose 42 points, again on energy and financials strength.

With earnings season about halfway through, the number of companies that have surpassed expectations on sales and profit is above average, although not quite as strong as earlier in the recovery.

The winning streak for U.S. stocks ended on Thursday, however, as disappointing earnings from key tech names like Meta, PayPal and Spotify weighed heavily on investor sentiment. Meta, which is Facebook’s parent company, lost more than $230 billion in market value Thursday, the biggest one-day loss ever for a U.S. company.

By Thursday’s close, the Nasdaq plunged 539 points, the Dow shed 518 and the S&P 500 dropped 112. In Canada, the TSX was also in the red, declining 268 points on tech and energy weakness.

Markets Gain Ground, Despite Thursday’s Losses

For the four trading days covered in this report, the Dow rose 386 points to close at 35,111, the S&P 500 added 45 points to settle at 4,477, while the tech-heavy Nasdaq climbed 109 points to close at 13,879. In Canada, the TSX gained 352 points to end at 21,094.

Strategy

Canada snaps a seven-month streak of job gains as Omicron effects drag down services employment

The Canadian economy snapped a seven-month streak of job gains in January as it suffered a more significant than expected setback amid fresh lockdowns in Ontario and Quebec. Canada shed 200,100 jobs in January, nearly double the 110,000 estimate, and the unemployment rate leapt to 6.5% from 6% in December. January’s declines were driven by Ontario and Quebec, where the lockdowns were most severe, and were fairly evenly split between full-time (-85,700k) and part-time (-117,400) workers. The bulk of the losses were limited to pandemic-exposed sectors, with accommodation and food services accounting for 113,000 of the lost jobs. Goods-producing sectors recorded a gain, led by construction. Hours worked, which is closely correlated to output, fell 2.2% in January, and the number of employees who worked less than half their usual hours jumped by 620,000. As was the case during previous waves of the pandemic, youth aged 15 to 24 were most affected by employment losses in January, reflecting that they are more likely to work in industries directly affected by COVID-19 public health measures. Average hourly wages grew 2.4% on a year-over-year basis in January, down from 2.7% in November and December 2021 and in line with the average annual wage growth of 2.5% observed in the five years from 2015 to 2019. This morning’s data add to a growing list of data that suggest the Canadian economy in for a tough start to the year. However, we expect the Bank of Canada will look through the temporary weakness and push ahead with its tightening cycle, starting in March.

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by Scotia Wealth Management - The Zukiwsky Group

Market Watch: Feb. 4, 2022

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