To my clients:
It was an up (though volatile!) week for North American stock markets with the Canadian TSX finishing up 1.4%; the U.S. Dow Jones Index up 0.3%; and the U.S. S&P 500 up 0.1%.
Brief update noting that the U.S. Government shutdown has ended (for now – funding is only in place through the end of January!), and that key economic data reports – notably the monthly employment and inflation reports - should begin trickling in, perhaps as early as next week (there is no detailed release schedule yet). So the data holes left by the nearly 1.5 month government shutdown should start to get filled. For what it’s worth, alternate data sources (state job reports, private payroll reports, private manufacturing and service sector reports) have pointed to an economy that continues to expand and an employment sector, much as it was before the shutdown, that is lukewarm but not necessarily contracting. However, official government data will be welcome in either confirming or challenging these perspectives.
Further, the employment and inflation reports will be key to influencing the next Fed rate decision in December, with the prospects for a cut now standing just below 50/50 (odds of a cut stood at 100% on October 17th). Diminishing prospects of a rate cut likely played a role in this week’s market volatility – as did stretched technology sector valuations predicated upon a sustained and robust artificial intelligence build out. On this latter point, periodic “indigestion” should be expected in the quarters and years ahead as the markets try to model all manner of implications resulting from AI adoption. For what it is worth, and as I have previously articulated, I still do not believe we are in an AI bubble, despite rising chatter of such. “Chatter” does not make an assertion so, and for evidence of this I’d ask readers to type the following into Google: “2014 tech bubble articles”. You will see much “chatter” of a bubble then as well. But if you look at a 15-year chart of the Nasdaq Index, I’d defy anyone to point to where that technology bubble might have burst (FYI, the Nasdaq is up 5-fold since 2014).
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
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