MARKET WATCH: Oct. 23

On Tuesday, U.S. markets registered modest gains as optimism increased over a possible stimulus package, while markets declined slightly on Wednesday as stimulus hopes faded. In Canada, the TSX was off 43 points Wednesday, dragged down by the energy sector, which fell more than 2% over concerns of weakening oil demand.

It was much the same news on Thursday as all eyes were once again focused on stimulus progress. While Tuesday’s initial deadline for agreement came and went, lawmakers continue to negotiate, although the chances for passage in the Senate look especially dim. By Thursday’s close, the Dow and S&P were up 0.5%.

In other news, according to data from Refinitiv, profits for TSX-listed companies will decline 18.7% in Q3, versus last year–a vast improvement over Q2, which saw a nearly 42% decline, year-over-year.

A bit of good news from the U.S. Labor Department: initial jobless claims last week fell to 787,000—much better versus the week prior, which saw 898,000 Americans file for new jobless benefits.

Finally, government borrowing in the eurozone hit its highest levels since the creation of the EU. The combined budget deficits of eurozone governments for Q2 surged to 11.6% of GDP, a four-fold increase versus Q1.

N.A. Markets Down

For the four trading days covered in this report, the Dow shed 242 points to close at 28,364, the S&P 500 lost 31 points to settle at 3,453, while the tech-heavy Nasdaq dropped 165 points to close at 11,506. In Canada, the TSX declined 160 points to end at 16,279.

Strategy

Summer momentum likely to fade into winter months in Canada

Summer economic momentum is likely to fade into the end of the year as COVID-19 case resurgences and winter weather curbs activity. The Canadian economy is expected to expand at a 45% quarter-over-quarter, annualized pace in the third quarter, supported by re-opening efforts across the country and rebounding output in the manufacturing sector.

Through the end of September, the Canadian economy has recouped roughly 75% of the jobs lost in March and April, but that run off labour market strength will face challenges from the re-tightening of containment measures across the country.

Looking ahead, the Canadian economy is likely to fall back to more stable growth readings in the 3.0%-4.5% range for the foreseeable future as the economy works off the excess capacity that the global health crisis introduced.

Regional economic sensitivities and varying containment management policies are likely to contribute to the uneven and protracted economic recovery. In all, output is unlikely to regain its pre-crisis levels until at least the end of 2021.

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by Scotia Wealth Management - The Zukiwsky Group

MARKET WATCH: Oct. 23

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