Market Watch: Sept. 2, 2022

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All three major U.S. indexes fell Wednesday, marking the fourth straight day of declines driven by the prospect of ongoing hawkish Federal Reserve policy. Major U.S. indexes slid between 4% and 5% in August, their worst monthly performances since June. By Wednesday’s close, the Dow dropped 280 points, while the S&P 500 and Nasdaq fell 31 and 67 points, respectively. The TSX also registered its fourth straight day of losses, falling 182 points on weakness in the energy, financials and materials sectors. In economic news, Canada’s economy grew at an annualized rate of 3.3% in Q2, driven by strong consumer spending and business investment. However, that’s weaker than anticipated by both the Bank of Canada and Bay Street, which forecast growth at 4% and 4.4%, respectively.

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U.S. stocks staged a minor comeback Thursday afternoon, with the S&P 500 and Dow finishing slightly higher, while the Nasdaq was off slightly. In Canada, the TSX fell 188 points as energy prices fell on fears of sagging demand.

A Rough Week for N.A. Markets

For the four trading days covered in this report, the Dow lost 627 points to close at 31,656, the S&P 500 dropped 91 points to settle at 3,967, while the tech-heavy Nasdaq sunk 357 points to close at 11,785. In Canada, the TSX lost 730 points to end at 19,143.

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Canada’s GDP rose 0.8% in the second quarter

Canada’s GDP rose 0.8% in the second quarter (3.3% quarter-over-quarter annualized), with higher business and household spending offsetting the negative impact of weak real estate investment, according to data released by Statistics Canada. Household spending rose 9.7% at a QoQ annualized pace while business investment in inventories was the primary contributor to growth in the quarter. Although GDP was healthy in the first half of the year as Canada’s resource-intensive economy benefitted from surging commodity prices, growth will be harder to come by in the second half of the year. Indeed, the latest monthly reading shows the economy contracted by 0.1% in July following no growth in May and a 0.1% reading in June, adding to signs of a slowing economy. The Bank of Canada’s aggressive policy tightening campaign has already started to weigh on households. Residential investment contracted by an annualized 28% rate in the quarter, the largest drop since the early 1960s outside of the Covid-19 pandemic. Further interest rate hikes are expected with markets pricing in a 75bps move at next week’s meeting. While Canada’s economy has recorded robust growth in the first half of the year and decoupled from the U.S. which contracted during the same period, growth in the two countries should converge going forward.

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