Market Watch: Dec. 10

All four major N.A. markets closed higher Tuesday, with the S&P and Nasdaq setting record highs, as the health care sector rose on positive vaccine news. The TSX also ended the day in positive territory, with energy stocks turning in a strong performance despite a minor pullback in crude prices.

It was a rough session for N.A. markets Wednesday, with the TSX off nearly 80 points as the materials and tech sector weighed on the index. In the U.S., markets retreated from record highs as negotiations stalled once again between lawmakers looking to pass another fiscal stimulus package.

U.S. markets retreated Thursday morning after fresh data showed new jobless claims jumped sharply last week to 853,000 — substantially more than economists had forecast. The latest jobs data underscores the desperate need for more stimulus, but Republicans seem unwilling to sign off on a substantial spending bill. Also weighing on sentiment was the latest coronavirus data from the U.S., with the death toll climbing to a new single-day record of 3,100. By Thursday’s close, the numbers were mixed: the Dow was down 75 points, the Nasdaq was up 67, and the TSX added 33.

Finally, negotiations on a post-Brexit trade deal between the U.K. and European Union are entering their final hours as both sides reportedly have until Sunday to reach a decision. The ongoing drama has once again dragged down the pound, which weakened nearly 1% against the greenback Thursday.

U.S. Markets Lose Ground; TSX Up Slightly

For the four trading days covered in this report, the Dow lost 219 points to close at 29,999, the S&P 500 dropped 31 points to settle at 3,668, while the tech-heavy Nasdaq declined 59 points to close at 12,405. In Canada, the TSX added 72 points to end at 17,593.

Strategy

The outlook for the Canadian economy is in a state of flux with upside and downside in play.

Recovery momentum in Canada’s labour market slowed again in November, posting the smallest monthly job gain in the last six months. The Canadian economy added 62.1k jobs last month, with the entirety of the growth coming from full-time employment. The unemployment rate ticked down 0.4 percentage points to 8.5%, though at least some of the decline resulted from the participation rate falling to 65.1%, from 65.2% previously.

Statistics Canada conducted the Canadian Survey on Business Conditions which collects information on businesses’ expectations moving forward. Interestingly, almost one-quarter of businesses in accommodation and food services (22.5%) expected to reduce their number of employees over the next three months, more than double the average across all businesses (10.4%).

We would note that the survey was conducted from mid-September to mid-October, and those figures likely understate operators’ intentions given the retightening of restrictions in November. Accordingly, we expect customer-facing sectors could face increased downside in future reports.

Notwithstanding the retightening of restrictions in many large regions in the fall, the Canadian economy is still expected to register growth of 3.2%, on a quarter-over-quarter basis, in 4Q this year. Taken together, the sizeable fiscal response, unparalleled monetary support, and expected vaccine deliveries these elements continue to suggest a solid recovery will unfold next year. We expect large holdings of cash will be drawn down as Canadians become more confident that the pandemic will be controlled, and that job and health-related risks will fall. The Canadian dollar has responded accordingly, benefitting from the rebound in oil prices and broad U.S. dollar weakness. We think the trend has staying power in the short-term, both technically and fundamentally. Longer-term, though, as the global recovery takes hold, some renewed weakness is likely warranted.

In all, even if upside risks materialize next year, significant portions of the Canadian economy will remain under stress and will take longer to return to pre-crisis levels of activity and output.

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by Scotia Wealth Management - The Zukiwsky Group

Market Watch: Dec. 10

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