By Scotia Wealth Management - The Zukiwsky Group

Market Watch: June 2, 2023

Jun 2, 2023 | 2:18 PM

Big Picture

Corporate earnings influence investors’ decisions

On Monday, positive sentiment in response to the U.S. debt ceiling agreement was partially offset by concerns that recent economic data could lead central banks to more monetary tightening. U.S. equity markets were closed for Memorial Day. By the close, the TSX finished 48 points higher, with Health Care as the strongestperforming sector. North American equity markets finished mixed on Tuesday, as investors proceeded with caution amid economic data that pointed to the possibility of more rate increases by the U.S. Federal Reserve Board (“Fed”); and uncertainty about the U.S. debt ceiling after a few Republican lawmakers noted they would vote against the bill. By the day’s close, the Dow lost 51 points, the S&P 500 had a tiny gain of 0.07 points, and the Nasdaq went up by 42 points. In Canada, the TSX went down by 229 points, dragged down by the Energy sector. On Wednesday, North American equity markets dropped. A rise in job openings in the U.S. pointed to a stilltight labour market and raised expectations that the Fed could keep hiking interest rates. Higher net exports and relatively strong consumer spending boosted Canada’s economy, but a real estate and business investment drop partially offset it. The Dow lost 135 points by the close, the S&P 500 went down by 26 points, and the Nasdaq declined by 82 points. In Canada, the TSX saw a 167-point decrease hindered by weakness in the Energy sector. North American equity markets advanced on Thursday. Investors demonstrated a risk-on mood as the U.S. Debt Ceiling was approved by the House of Representatives and is expected to pass the Senate, which should help the U.S. avoid defaults. By the close, the Dow increased by 153 points, the S&P 500 by 41 points, and the Nasdaq by 166 points. In Canada, the TSX increased by 100 points, benefitting from the strong performance of the Materials sector.

North American Indices end the week low

For the four trading days covered in this report, the Dow decreased by 32 points to close at 33,062, the S&P 500 went up 16 points to settle at 4,221, and the tech-heavy Nasdaq gained 125 points to close at 13,101. In Canada, the TSX fell by 248 points to end at 19,672.

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Strategy

Debt ceiling clears the House; Senate vote is up next

The U.S. debt ceiling deal passed the House of Representatives yesterday with a final tally of 314-117. The deal, dubbed the Fiscal Responsibility Act (FRA), aims to suspend the debt ceiling past the 2024 presidential election. Two-thirds of Republicans voted in favour, a strong show of support for House Speaker Kevin McCarthy, who has come under scrutiny by some disgruntled party members for not negotiating sufficient spending cuts. The FRA will now head to the Senate, bringing the U.S. one step closer to averting a destabilizing default. The Democrats hold a razor-thin 51-49 majority in the Senate. The chamber’s rules require a minimum of 60 votes for passage, meaning at least 9 Republicans must show their support (assuming all Democrats vote in favour). Although some GOP members have expressed discontent toward the accord, several have voiced their support, including Senate Republican leader Mitch McConnell. In our view, successful passage through the Senate is the most likely outcome. However, we cannot rule out the risk of a possible filibuster to delay the process as some lawmakers seek amendments. Any changes to the bill would mean it needs to go back to the House. Given that the Treasury has designated June 5 as the date it will run out of funds to meet its obligations, the margin for error is low

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by Scotia Wealth Management - The Zukiwsky Group

Market Watch: June 2, 2023

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