By Scotia Wealth Management - The Zukiwsky Group

Market Watch: May 19, 2023

May 19, 2023 | 12:55 PM

Big Picture

Corporate earnings influence investors’ decisions

North American equity markets advanced on Monday as investors pushed stocks higher despite the U.S. debt ceiling still being in question. By the close, the Dow gained 48 points, the S&P 500 went up by 12 points, and the Nasdaq gained 80 points. In Canada, the TSX finished 120 points higher, with Utilities as the strongestperforming sector. On Tuesday, Canadian equity markets fell markedly on the day as higher-than-expected inflation raised expectations the Bank of Canada (“BoC”) could return to raising interest rates. By the day’s close, the Dow lost 336 points, the S&P 500 dropped by 26 points, and the Nasdaq dropped 22 points. In Canada, the TSX went down by 298 points, weighed down by the Energy and the Materials sectors. North American equity markets moved higher on Wednesday as comments from Washington lawmakers pointed to an agreement to raise the debt ceiling. The Dow gained 409 points by the close, the S&P 500 went up by 49 points, and the Nasdaq increased by 158 points. In Canada, the TSX saw a 54-point increase, benefitting from the Health Care sector. On Thursday, North American equity markets finished higher on signals an agreement on the U.S. debt ceiling will be reached. According to Statistics Canada, new home prices in Canada fell by 0.1% in April. For the second straight month, sales of existing homes in the U.S. dropped in April. By the close, the Dow increased by 115 points, the S&P 500 was up 39 points, and the Nasdaq went up by 188 points. In Canada, the TSX increased slightly by 0.66 points.

North American Indexes end the week high

For the four trading days covered in this report, the Dow increased by 235 points to close at 33,536, the S&P 500 went up by 74 points to settle at 4,198, and the tech-heavy Nasdaq gained 404 points to close at 12,689. In Canada, the TSX fell by 123 points to end at 20,297.

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Strategy

Canada’s inflation rate accelerated for the first time since June

Canada’s consumer price index (CPI) rose 4.4% year-over-year (YoY) in April, exceeding the median consensus estimate of 4.1% and the March reading of 4.3%, according to data released by Statistics Canada. A 4.9% annual uptick in shelter was the largest contributor to inflation as more mortgages were initiated or renewed at higher interest rates. High borrowing costs are pricing prospective buyers out of the market, stimulating rental costs (+6.1%). Prices rose 0.7% on a month-month-month (MoM) basis, with gasoline (+6.3%) contributing heavily to the headline figure, while food prices rose 0.4%. Excluding the volatile food and energy categories, inflation was up 0.3% compared to March. The average of the two core inflation gauges, watched closely by the Bank of Canada (BoC), moderated to 4.2% YoY from 4.5% in March. In our view, the latest report puts additional policy rate increases back on the table for the BoC. However, market expectations have not been swayed materially by the data. At the time of this writing, the futures market is pricing a ~34% probability of a quarter-point hike at the June meeting, while the probability of a 2023 rate cut has been lowered. It is worth noting that the BoC surprised markets in 3 out of 8 meetings last year. As such, we would not rule out the possibility of further monetary policy tuning.

Disclaimer

_{Strategy Canada’s inflation rate accelerated for the first time since June Canada’s consumer price index (CPI) rose 4.4% year-over-year (YoY) in April, exceeding the median consensus estimate of 4.1% and the March reading of 4.3%, according to data released by Statistics Canada. A 4.9% annual uptick in shelter was the largest contributor to inflation as more mortgages were initiated or renewed at higher interest rates. High borrowing costs are pricing prospective buyers out of the market, stimulating rental costs (+6.1%). Prices rose 0.7% on a month-month-month (MoM) basis, with gasoline (+6.3%) contributing heavily to the headline figure, while food prices rose 0.4%. Excluding the volatile food and energy categories, inflation was up 0.3% compared to March. The average of the two core inflation gauges, watched closely by the Bank of Canada (BoC), moderated to 4.2% YoY from 4.5% in March. In our view, the latest report puts additional policy rate increases back on the table for the BoC. However, market expectations have not been swayed materially by the data. At the time of this writing, the futures market is pricing a ~34% probability of a quarter-point hike at the June meeting, while the probability of a 2023 rate cut has been lowered. It is worth noting that the BoC surprised markets in 3 out of 8 meetings last year. As such, we would not rule out the possibility of further monetary policy tuning. and 1832 Asset Management U.S. Inc. Insurance services are provided by Scotia Wealth Management Insurance Services Inc. Wealth advisory and brokerage services are provided by ScotiaMcLeod, a division of Scotia Capital Inc. International investment advisory services are provided in Canada by Scotia Capital Inc. Financial planning services are provided by The Bank of Nova Scotia, 1832 Asset Management L.P., and ScotiaMcLeod, a division of Scotia Capital Inc. Scotia Capital Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. Scotia Wealth Insurance Services Inc. is the insurance subsidiary of Scotia Capital Inc., a member of the Scotiabank group of companies. When discussing life insurance products, ScotiaMcLeod advisors are acting as Life Insurance Agents (Financial Security Advisors in Quebec) representing Scotia Wealth Insurance Services Inc. Scotia Wealth Management consists of a range of financial services provided, in The Bahamas, by Scotiabank (Bahamas) Limited and The Bank of Nova Scotia Trust Company (Bahamas) Limited. International private banking services are provided in The Bahamas by Scotiabank (Bahamas) Limited, an entity registered with The Central Bank of The Bahamas. International investment advisory services are provided in The Bahamas by Scotiabank (Bahamas) Limited, an entity registered with The Securities Commission of The Bahamas. International wealth structuring solutions are provided in The Bahamas by The Bank of Nova Scotia Trust Company (Bahamas) Limited, an entity registered with The Central Bank of The Bahamas. Scotia Wealth Management consists of international investment advisory services provided, in Barbados, by The Bank of Nova Scotia, Barbados Branch, an entity licensed by the Barbados Financial Services Commission. Scotia Wealth Management consists of a range of financial services provided, in the Cayman Islands, by Scotiabank & Trust (Cayman) Ltd. International private banking services, international investment advisory services and international wealth structuring solutions are provided in the Cayman Islands by Scotiabank & Trust (Cayman) Ltd., an entity licensed by the Cayman Islands Monetary Authority. Scotia Wealth Management consists of international private banking services provided, in Peru, by Scotiabank Peru S.A.A, an entity supervised by the Peru Superintendence of Banking and Insurance. Scotia Wealth Management® in Chile consists of services provided by Scotiabank Chile (Bank), Scotia Corredora de Bolsa Chile Limitada (Brokerage) and Scotia Administradora General de Fondos Chile S.A. (Asset Management), entities supervised by the Comisión para el Mercado Financiero de Chile (Financial Market Commission). ® Registered trademark of The Bank of Nova Scotia, used under license}

by Scotia Wealth Management - The Zukiwsky Group

Market Watch: May 19, 2023

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