By Scotia Wealth Management - The Zukiwsky Group

Sponsored

Market Watch: April 8

Apr 8, 2022 | 12:40 PM

Big Picture

Tech Stocks Decline as Investors Weigh Fed Plans

U.S. equity markets climbed Monday as investors went bargain shopping in the beaten-down tech sector, which has come under pressure this year as the Fed continues to unveil its ongoing strategy for raising interest rates. It was a strong day for the Nasdaq, which climbed 271 points, while the TSX added 132 points, as oil prices rose over speculation that European nations could shift away from Russian energy sooner than expected.

Wall Street indexes fell Tuesday after Fed governor Lael Brainard’s comments that the central bank is strongly committed to cutting inflation this year, a sign that the Fed may raise rates by 50 basis points at its next meeting. Following Brainard’s remarks, Wall Street’s selloff accelerated, and government bond yields jumped. The TSX also ended in the red, dragged down by the energy and materials sectors. Bond yields hit their highest level in three years, and the Nasdaq logged a decline of over 2 per cent for a second straight day on Wednesday. Government bonds sold off for a fourth straight session after minutes from the Fed’s March meeting further detailed the central bank’s plans to fight inflation.

After falling 2.3 per cent on Tuesday, the Nasdaq shed an additional 2.2 per cent Wednesday, as tech stocks continue to fall in the wake of the Fed’s plans. Canada’s TSX also closed lower Wednesday, with the tech sector posting a 3.3 per cent drop for the day.

cocaine, fentanyl, meth and more

Innisfail RCMP make drug seizure near Dickson

59m ago

grinch-esque

Vandalism cause for costly repairs at Sylvan Lake Winter Village

1h ago

good news

Ermineskin Cree Nation to connect to safe water supply via regional water services commission

2h ago

After being down for much of the day, North American markets staged a late rally Thursday to secure nominal gains, breaking a two-day losing streak. Finally, in yield curve news, the U.S. yield curve remained slightly inverted between 2- and 10-year Treasurys on Monday, but steepened slightly later in the week. North American Markets Lose Ground For the four trading days covered in this report, the Dow lost 235 points to close at 34,583, the S&P 500 dropped 46 points to settle at 4,500, while the tech-heavy Nasdaq sunk 364 points to close at 13,897. In Canada, the TSX lost 118 points to end at 21,835.

Strategy

The Fed readies for QT in May, starting a three-month ramp-up period to roll-off securities at a maximum pace of US$95 trillion per month.

The minutes from the Federal Open Market Committee (FOMC) meeting in March were released yesterday afternoon and they contained specific details about the bank’s quantitative tightening (QT) plan. The details put forward suggest the process could start as early as May and involve a quick three-month ramp up to a maximum of US$95 billion shrinking of the balance sheet per month, divided between US$60 billion in Treasuries and US$35 billion in MBS.

Importantly, the shrinkage will occur entirely by attrition, that is to say: not reinvesting the proceeds from maturing securing. The Committee did not contemplate outright asset sales, but the minutes did leave the door open to MBS sales after the QT process is “well under way”. Based on the securities that the Fed has on its balance sheet and the details released yesterday, the Fed will be able to sustain the intended shrinkage of its Treasury holdings until early 2025. Beyond that, the pace will have to slow down considerably because the Fed simply doesn’t have enough maturing securities on its balance sheet.

However, it is extremely unlikely that the Fed will be able to continue QT throughout that time horizon. There is a serious risk that the economy will falter well before 2025, and QT itself increases that risk. Moreover, the financial system needs a certain amount of liquidity to function properly, as exemplified by the experience of 2019, when the Fed’s balance sheet shrank below that limit.

Disclaimer This report is provided to you for informational purposes only and is not intended to provide personal investment advice. This report does not include or constitute an investment recommendation and does not take into account the particular investment objectives, financial conditions, or specific needs of individual clients. Any statements regarding future prospects may not be realized. Before acting on this material, you should consider whether it is suitable for your particular circumstances and talk to your investment advisor.

The author(s) of the report and the supervisors of the Global Portfolio Advisory Group may own securities of the companies included herein.

Scotia Capital Inc. is what is referred to as an “integrated” investment firm since we provide a broad range of corporate finance, investment banking, institutional trading and retail client services and products. As a result we recognize that there are inherent conflicts of interest in our business since we often represent both sides to a transaction, namely the buyer and the seller. While we have policies and procedures in place to manage these conflicts, we also disclose certain conflicts to you so that you are aware of them. Please note that we may have, from time to time, relationships with the companies that are discussed in this report.

The Global Portfolio Advisory Group prepared this report by analyzing information from various sources. Information obtained in the preparation of this report may have been obtained from the Equity Research and Fixed Income Research departments of the Global Banking and Markets division of Scotiabank. Information may be also obtained from the Foreign Exchange Research and Scotia Economics departments within Scotiabank. In addition to information obtained from members of the Scotiabank group, information may be obtained from the following third-party sources: Standard & Poor’s, Morningstar, Bloomberg, Credit Suisse AG, Perimeter Markets Inc., and FactSet. The information and opinions contained in this report have been compiled or arrived at from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness.

While the information provided is believed to be accurate and reliable, neither Scotia Capital Inc., which includes the Global Portfolio Advisory Group, nor any of its affiliates makes any representations or warranties, express or implied, as to the accuracy or completeness of such information. Neither Scotia Capital Inc. nor its affiliates accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents.

Nothing contained in this report is or should be relied upon as a promise or representation as to the future. The pro forma and estimated financial information contained in this report, if any, is based on certain assumptions and analysis of information available at the time that this information was prepared, which assumptions and analysis may or may not be correct. There is no representation, warranty or other assurance that any projections contained in this report will be realized.

Opinions, estimates and projections contained herein are those of the Global Portfolio Advisory Group as of the date hereof and are subject to change without notice. For that reason, it cannot be guaranteed by The Bank of Nova Scotia or any of its subsidiaries, including Scotia Capital Inc. This report is not, and is not to be construed as: (i) an offer to sell or solicitation of an offer to buy securities and/or commodity futures contracts; (ii) an offer to transact business in any jurisdiction; or (iii) investment advice to any party. Products and services described herein are only available where they can be lawfully provided. Scotia Capital Inc. and its affiliates and/or their respective officers, directors or employees may from time to time acquire, hold or sell securities and/or commodities and/or commodity futures contracts mentioned herein as principal or agent.

Trademarks are the property of their respective owners.

Copyright 2022 Scotia Capital Inc. All rights reserved.

This report is distributed by Scotia Capital Inc., a subsidiary of The Bank of Nova Scotia. Scotia Capital Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada.

® Registered trademark of The Bank of Nova Scotia, used under licence. Scotia Wealth Management® consists of a range of financial services provided by The Bank of Nova Scotia (Scotiabank®); The Bank of Nova Scotia Trust Company (Scotiatrust®); Private Investment Counsel, a service of 1832 Asset Management L.P.; 1832 Asset Management U.S. Inc.; Scotia Wealth Insurance Services Inc.; and ScotiaMcLeod®, a division of Scotia Capital Inc. Private banking and International private banking services are provided in Canada by The Bank of Nova Scotia. Estate and trust services are provided by The Bank of Nova Scotia Trust Company. Portfolio management is provided by 1832 Asset Management L.P. and 1832 Asset Management U.S. Inc. Insurance services are provided by Scotia Wealth Management Insurance Services Inc. Wealth advisory and brokerage services are provided by ScotiaMcLeod, a division of Scotia Capital Inc. International investment advisory services are provided in Canada by Scotia Capital Inc. Financial planning services are provided by The Bank of Nova Scotia, 1832 Asset Management L.P., and ScotiaMcLeod, a division of Scotia Capital Inc. Scotia Capital Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. Scotia Wealth Insurance Services Inc. is the insurance subsidiary of Scotia Capital Inc., a member of the Scotiabank group of companies. When discussing life insurance products, ScotiaMcLeod advisors are acting as Life Insurance Agents (Financial Security Advisors in Quebec) representing Scotia Wealth Insurance Services Inc.

Scotia Wealth Management consists of a range of financial services provided, in The Bahamas, by Scotiabank (Bahamas) Limited and The Bank of Nova Scotia Trust Company (Bahamas) Limited. International private banking services are provided in The Bahamas by Scotiabank (Bahamas) Limited, an entity registered with The Central Bank of The Bahamas. International investment advisory services are provided in The Bahamas by Scotiabank (Bahamas) Limited, an entity registered with The Securities Commission of The Bahamas. International wealth structuring solutions are provided in The Bahamas by The Bank of Nova Scotia Trust Company (Bahamas) Limited, an entity registered with The Central Bank of The Bahamas.

Scotia Wealth Management consists of international investment advisory services provided, in Barbados, by The Bank of Nova Scotia, Barbados Branch, an entity licensed by the Barbados Financial Services Commission.

Scotia Wealth Management consists of a range of financial services provided, in the Cayman Islands, by Scotiabank & Trust (Cayman) Ltd. International private banking services, international investment advisory services and international wealth structuring solutions are provided in the Cayman Islands by Scotiabank & Trust (Cayman) Ltd., an entity licensed by the Cayman Islands Monetary Authority.

Scotia Wealth Management consists of international private banking services provided, in Peru, by Scotiabank Peru S.A.A, an entity supervised by the Peru Superintendence of Banking and Insurance.