While Tuesday this week was known as Super Tuesday in the US, the entire week was in fact quite super with respect to global markets.
What is Super Tuesday?
According to Investopedia, “Super Tuesday refers to the date in the U.S. presidential primary process when the greatest number of states hold their contests. This year, March 1 was Super Tuesday, with both Democrats and Republicans holding primaries in Alabama, Arkansas, Georgia, Massachusetts, Oklahoma, Tennessee, Texas, Vermont and Virginia, and caucuses in Colorado and Minnesota. Republicans are also holding caucuses in Alaska and Wyoming, while Democrats are holding caucuses in American Samoa, a territory”
While Donald Trump and Hillary Clinton didn't win their parties' nominations on Super Tuesday, they both became much harder to beat by securing seven states each. Click here for the 6 takeaways from Super Tuesday, as reported by CNN.
So, why was it such a Super Week?
March has come into 2016 like a charging bull; global equities have risen meaningfully since the February 11th low. The MSCI World (which represents developed countries) has climbed about ~9%, while the S&P 500 has rallied 9.3%.
At home, the TSX briefly hit the break-even point for 2016 in early trading on Wednesday morning (13,030, about 20 points above where it started the year) and finished the week off at 13,212. The TSX had a rough start to 2016, but with recent gains Canada's benchmark equity gauge is now among the best-performing developed markets.
The main fundamental drivers of the rally are:
- Crude oil and other commodities have bounced off of severely depressed levels.
The production “freeze” agreement between Russia and Saudi Arabia is being viewed as a first step toward more rational oil supplies. Importantly, there is evidence oil production is beginning to taper off in Russia and the U.S.
- Fears have diminished about a U.S. recession and major global economic downturn. Economic data has improved moderately in the U.S. and has largely held steady in Europe and China. It has been “good enough” to buy equity markets some breathing room. Just today, the U.S labour market showed true strength in February, creating 242,000 jobs, as the unemployment rate held steady at 4.9%.
- There has been relative calm in China.
Since the stress in Chinese markets earlier in the year, the government has eased policy and has been more effective in managing its currency and regulating its stock market.
- Q4 corporate earnings cleared low expectations.
Earnings and revenue growth were unimpressive in most regions, even excluding the Energy Sector, but did not signal that economic stress is forthcoming. Guidance from large bellwether companies was cautiously constructive for the most part, and even optimistic in some cases.
Fundamental challenges linger, just as they normally do when equity markets attempt to work through a corrective period; I sincerely think we’re turning a corner here – and while it might be a wide turn with some bumps, it’s heading in the right direction. It’s worth mentioning that the U.S. presidential election could increase uncertainty and volatility, especially because Donald Trump’s campaign is spotlighting trade proposals that differ from the current global trade regime – but we won’t know until the guy with the toupee sings.