To my clients:
It was a down week for North American stock markets with the Canadian TSX finishing down 3.7%; the U.S. Dow Jones Index down 3.0%; and the U.S. S&P 500 down 2.0%.
This has been an important week and, if there were time, I could write tomes. But owing to time constraints I’ll attempt to be succinct:
- As we all know, the U.S. and Israel launched an attack on Iran. The Supreme Leader Ali Khameini and other senior leaders were killed in the war’s opening moments. While regime change was not cited as an initial goal of the attack, comments coming from President Trump in the past 24 hours certainly seem to suggest that the goal is evolving in that direction. Oil prices continue to spike and, frankly, it is the rise in oil price that is the most significant threat to an otherwise sound U.S. economy. Unless other powers become involved, as I’ve often said, regional conflicts are best ignored when it comes to portfolio management. Despite the negative stock market results for the week, I’d characterize the market reaction, so far, to be orderly. Events over the weekend are sure to shape how markets behave next Monday and next week.
- It’s the first week of a new month. For the second consecutive month, the ISM Manufacturing Index expanded with a reading greater than 52. The two consecutive months of expansion break a three year trend of contraction. Maintaining its own multi-year trend (this of the positive variety), ISM Services printed solidly positive at over 56.
- I’ll deal with the last of the Big 3 economic releases separately. The monthly U.S. Employment Report printed sharply negative, with 92,000 jobs lost in February. Looking at the trend of the past 6 months it appears that hiring is stalling. Historically, this would be a concerning development, but there are legitimate questions arising as to whether this stall in hiring is of the cyclical variety which would usually portend recession; or if the downshift in hiring is of the structural variety marking some permanent change in the labor dynamic that need not lead to recession. Given the continued strength in other economic indicators (see the ISM indexes cited above), as well as solid corporate earnings results including, importantly, productivity gains, the emerging perspective is that there may indeed be a structural shift in employment taking place. And the suspected underlying cause of that shift is the growing utility of artificial intelligence. Put simply, corporations are starting to use AI, and this is likely impacting the need for employees. AI is probably the most transformative technology ever developed, and I suspect it will also transform how we interpret economic data such as employment. There are bigger societal and economic questions implied by this emerging transformation, though it is far beyond the scope of this update for me to address adequately here and now. But I assure clients I will be actively watching and considering the implications.
That’s it for this week. All the best,
Nick
Nick Scholte, CIM, FCSI
Senior Portfolio Manager
RBC Dominion Securities Inc. │ Tel: 604.257.7569
2950 Glen Drive, 7th Floor │ Coquitlam, BC │ V3B 0J1
Toll Free: 1.844.665.9900 │Email: nick.scholte@rbc.com
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