Market Watch: January 20

There were red numbers all around in Wednesday trading as weak U.S. economic data stoked fears of a recession. According to the U.S. Commerce Department, retail sales fell 1.1 per cent in December, with higher interest rates and inflation hurting spending on cars, gas and big-ticket items, like furniture. The news sent investors flocking into U.S. Treasurys, as 10-year yields tumbled 16 basis points to 3.374 per cent. Although losses for the TSX were relatively minor (0.4 per cent), it was a different story for the Dow, which declined 614 points (1.8 per cent). Meanwhile the Nasdaq fell 138 points, and the S&P 500 lost 62. U.S. stocks registered modest losses

Thursday as economic data and corporate-earnings reports failed to provide a clear picture of the U.S. economy. While jobless claims fell in the U.S., the latest earnings reports have been mixed. In Canada, the TSX dropped 35 points by Thursday’s close. Finally, as the U.S. government is about to run up against the debt limit, the Treasury Department is expected to begin deploying “extraordinary measures” in order to keep paying obligations to bondholders, Social Security recipients and others. Lawmakers and the Biden administration have roughly five months to pass legislation to avoid defaulting on the debt.

N.A. Markets Lose Ground

For the four trading days covered in this report, the Dow lost 1,258 points to close at 33,044, the S&P 500 dropped 100 points to settle at 3,899, while the tech-heavy Nasdaq sunk 227 points to close at 10,852. In Canada, the TSX surrendered 19 points to end at 20,341.

Strategy

Canadian home prices decline further

Canadian home prices continued their descent in December, according to the Teranet-National Bank Home Price Index. After seasonal adjustment, the measure fell 0.3 per cent on a month-over-month basis, the sixth straight decline but smaller than the -1.0 per cent reading observed in November. In December, six out of 11 cities experienced contractions, with Winnipeg falling by 1.8 per cent and Toronto by 0.4 per cent. Conversely, prices increased in places like Quebec City (+1.3 per cent) and Victoria (+1.1 per cent). For the remaining cities tracked by Teranet but not included within the headline index, 11 of 18 cities saw prices fall, with the largest decreases observed in Brantford and Kelowna. Since peaking in May 2022, the index has recorded a cumulative drop of 10 per cent, the largest ever and surpassing the 9.2 per cent loss in value that occurred during the 2008 financial crisis. Prices remained unchanged year-over-year after increasing by 2 per cent in November, marking the first time since 2009 that the index failed to record annual price gains.

With the Bank of Canada widely expected to raise policy rates further at its next meeting, we think housing could come under further pressure. Mortgage rates have increased rapidly, which has dampened demand for new purchases and refinances, according to a report by CMHC. That said, Canada appears to be in a similar boat as the U.S., where moderating price pressures could pave the way for a pause in the monetary tightening cycle, allowing home prices to bottom.

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by Scotia Wealth Management - The Zukiwsky Group

Market Watch: January 20

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