Below is a summary of some of the relevant news items from the Capital Markets and the Economy from the past week extracted from RBC Global Insights and FactSet Research.

Markets

Market scorecard as of close on Friday July 23^rd, 2021.

Equity Indices	Level	1 week	YTD	52-week
S&P/TSX Composite	20,188	1.0%	15.8%	26.0%
S&P 500	4,412	2.0%	17.5%	36.3%
NASDAQ	14,837	2.8%	15.1%	41.8%
Euro Stoxx 50	4,109	1.8%	15.7%	21.9%
Hang Seng	27,322	-2.4%	0.3%	8.2%

Source: Bloomberg, RBC Wealth Management

• TSX closed higher in Friday afternoon trading. Tech the leader with health care the laggard. Canadian equities ended 1% higher this week.

• US finished equities higher in Friday trading, near best levels as Dow, S&P, and Nasdaq posted fresh record closes. S&P 500 and Nasdaq both higher for fourth-straight session, erasing Monday's outsized pullback.

• Summer hasn’t seen much respite for stock markets. But it’s normal for outside forces or concerns to knock down the market from time to time. Even though the major indexes are only slightly below their all-time highs reached on July 12, the market was jolted recently.

• We think a mix of interrelated issues jostled the market: the increase in COVID-19 infections, particularly the delta variant; concerns about the degree to which virus related restrictions would be resumed and their potential economic impact; and the swift decline in the 10-year Treasury yield, which raised uncertainty worldwide about what—if anything—the bond market may be signaling about future economic growth.

• Even though some U.S. states and many countries are now struggling with delta and other variants are surfacing more frequently, overall hospitalizations and deaths are below prior waves likely due to the uptake in vaccinations.

• As long as hospitalization rates don’t risk crippling health care systems and vaccines prove to protect people from severe consequences of infections, we think any related economic softness can be absorbed without serious repercussions. It seems investors embraced this thinking as the market rebounded.

• Reality check: Pullbacks happen even in good years. Since 2000, more than half of the years have included pullbacks of 10% or more for the S&P 500. Importantly, pullbacks and corrections are not uncommon even in good years. Among the 12 years with above-average annual returns, 10 of them included periods where the market pulled back seven percent or more.

• Bottom line, volatility—an old familiar friend—is back, and its presence is normal.

 

Economy

Canada

• After weakening early in the pandemic, the Canadian dollar went on its strongest run in more than a decade, rising to a six-year high of US$0.83 in early June. The rally made it the best-performing advanced-economy currency through the first five months of the year.

• However, recent developments suggest the loonie’s June peak could be a high-water mark for 2021. RBC Economics sees the Canadian dollar remaining within a range around the US$0.80 level over the second half of this year and weakening slightly in 2022.

• Canadian housing market activity decreased in June, but remained strong. Home resales fell for the third consecutive month, down 8.4% from May. Despite the decline in housing activity, home prices continued to rise across most markets, with Canada’s composite MLS Home Price Index up 0.9% m/m and 24.4% y/y in June.

U.S.

• According to a Wall Street Journal survey of economists, respondents estimate that U.S. gross domestic product grew a seasonally adjusted 8.5% annual rate in the second quarter of 2021. That would bring the size of the U.S. economy above $19.2 trillion, which was the GDP level reached in the fourth quarter of 2019 – ahead of the first wave of coronavirus infections and restrictions.

• Expectations for monetary support are driven in part by rising domestic and international COVID-19 case counts and partly by the continued lack of progress on fiscal policy.

• Despite a bipartisan agreement to increase traditional infrastructure investment by nearly $600 billion, legislative action on the measure has stalled amid a disagreement on funding the plan and a dispute between the House and Senate on the timing of broader budget legislation.

• The bipartisan plan failed to advance in the Senate last week, although backers believe it will eventually move forward in that chamber. Lack of fiscal progress raises pressure on the Fed to reiterate its commitment to low interest rates, increasing focus on the central bank’s policy meeting this week.

Further Afield

• The U.S. and China remain at odds from a geopolitical standpoint—a situation we expect to persist for years to come. On the trade side, however, data suggests the U.S. and China are shipping goods to each other at the fastest pace in years. Monthly two-way trade, which tumbled in February of last year amid shutdowns at Chinese factories, rebounded over the past year to new records, according to official Chinese data.

• Observers believe the trading boom between the U.S. and China can continue, with China purchasing millions of tons of U.S. farm goods and U.S. consumers still shopping and importing in record amounts.

 

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Shiuman