By Scotia Wealth Management - The Zukiwsky Group

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Market Watch: Oct. 7, 2022

Oct 7, 2022 | 2:47 PM

Big Picture

Markets Struggle for Traction After Strong Start to Q4

U.S. and Canadian stocks started Q4 with a bang, a real relief for investors after an especially tough Q3. The Dow finished 2.7% higher, the S&P 500 added 2.6%, while the Nasdaq and TSX rose 2.3% and 2.4%, respectively. The TSX’s biggest percentage gain since late April 2020, helped largely by an almost 6% gain in the energy sector. In the U.S., 10-year Treasury yields dropped to 3.65% from 3.80% Friday. U.S. stocks surged again on Tuesday in a broad-based rally, extending the strong start to Q4. The Dow climbed 825 points, the S&P jumped 112, and the Nasdaq rose 361 points. Combined with Monday’s rally, it was the best two-day performance for the Dow since April 2020. Positive sentiment in the U.S. was lifted by new data showing that the U.S. labour market may be starting to cool. On Monday, another report showed U.S. manufacturing growth had also declined, perhaps making a case for less aggressive hikes by the Fed. In Canada, the TSX added 490 points on energy strength and a 12% jump in shares of Shopify. Unfortunately, the two-day rally fizzled out on Wednesday after data showing strong U.S. labour demand again suggested the Fed will maintain its aggressive rate-hike trajectory. In U.S. bond markets, the yield on 10-year Treasurys climbed back to 3.76%. By Wednesday’s close, losses for the three major U.S. indexes were modest, while the TSX dropped 136 points. U.S. and Canadian stock markets surrendered a bit more ground on Thursday as recession fears continue to weigh on sentiment. By Thursday’s close, the Dow declined 347 points, while the S&P 500 and Nasdaq dropped 39 and 75 points, respectively. In Canada, the TSX lost 256 points, weighed down by weakness in the financials and consumer staples sectors.

Markets Gain Ground Early in Q4

For the four trading days covered in this report, the Dow gained 1,202 points to close at 29,927, the S&P 500 rose 160 points to settle at 3,745, while the tech-heavy Nasdaq added 498 points to close at 11,073. In Canada, the TSX climbed 535 points to end at 18,979.

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Strategy

OPEC+ ratifies its biggest production cut since 2020

OPEC+ ratifies its biggest production cut since 2020, reducing its output limits by as much as 2 million barrels a day. The cut will take effect in November. While this is a significant reduction, the actual impact would be smaller as many countries are already pumping below their quotas. They could automatically follow their new limit without having to curb production. Some of the countries that could decrease output are the United Arab Emirates and Kuwait. Earlier estimates based on a cut of 1.5 million barrels a day were forecasting an actual reduction of half a million barrels a day, lifting oil prices to a minimum of $90 per barrel for the rest of the year. Meantime, U.S. officials are looking at potential responses since President Joe Biden is trying to tame prices ahead of the mid-term elections in November. However, there is little sign that the U.S. could pressure the group. United Arab Emirates Energy Minister Suhail Al Mazrouei insisted the decision was technical, not political. The U.S. Energy Department was analyzing whether a ban on exports of gasoline, diesel and other refined petroleum products would lower prices. So far, the only concrete solution would be for the U.S. to consider again using its Strategic Petroleum Reserve to curb prices.

Disclaimer

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