Market Watch: July 7

On Wednesday, North American equity markets finished low over concerns about the economy and how high the U.S. Federal Reserve Board may go with its rate increases. In China, services sector activity expanded in June at its slowest pace since January. Conversely, the employment growth expanded at a faster pace in June compared to May. The Dow lost 130 points by the close, the S&P 500 went down by 9 points, and the Nasdaq decreased by 25 points. In Canada, the TSX saw a 101-point decrease, dragged down by the Health Care sector.

On Thursday, North American equity markets slid lower. After a stronger-than-expected jobs report in the U.S. from ADP, investors expected the Fed would need to continue raising interest rates. Exports from Canada dropped by 3.8 per cent in May, driven by a decline in shipments of energy products, along with farm, fishing and intermediate food products. By the close, the Dow decreased by 366 points, the S&P 500 was down by 35 points, and the Nasdaq went down 113 points. In Canada, the TSX decreased by 293 points, weighed down by the weakness in the Information Technology sector.

North American Indexes end the week low

For the four trading days covered in this report, the Dow decreased by 485 points to close at 33,922, the S&P 500 went down 39 points to settle at 4,412, and the tech-heavy Nasdaq lost 109 points to close at 13,679. In Canada, the TSX went down by 345 points to end at 19,811.

Strategy

Key takeaways from FOMC’s June 13-14 meeting minutes

The minutes from the U.S. Federal Reserve’s (Fed) June 13-14 meeting confirmed that most officials supported a pause to assess the impact of rate hikes on the economy. Officials continued to judge that growth would be “subdued” for the balance of the year due to tighter financial conditions affecting pockets of the economy that are most sensitive to interest rates. Conversely, the Fed staff (analysts and economists who work for the Federal Reserve System) forecast a “mild recession” will begin later this year, followed by a “moderately paced recovery.” In their discussion about economic activity, several participants pointed out the discrepancy between gross domestic product (GDP) and gross domestic income (GDI), with the latter being relatively weaker. Most participants who noted the divergence suggested that economic momentum may not have been as strong as indicated by the GDP numbers. Finally, some participants noted that alternate employment measures, such as the Quarterly Census of Employment and Wages (QCEW), suggest that job growth may have been softer than the Bureau of Labor Statistics (BLS) initially reported.

The QCEW gathers data from the state unemployment insurance records covering over 96 per cent of U.S. employment. Although it lags behind the monthly BLS report, it is considered a reliable and comprehensive measure of employment. The BLS’s non-farm payrolls report showed job growth of 3.2 per cent year-over-year in 2022 compared to the 2.6 per cent suggested by the QCEW. According to Bloomberg, this discrepancy translates into an additional 900,000 jobs implied by the payrolls report. As such, the 2022 BLS data may need to be revised lower.

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Market Watch: July 7

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