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 September 3rd, 2021.

Equity Indices	Level	1 week	YTD	52-week
S&P/TSX Composite	20,821	0.9%	19.4%	26.6%
S&P 500	4,535	0.6%	20.7%	31.3%
NASDAQ	15,364	1.5%	19.2%	34.1%
Euro Stoxx 50	4,202	0.3%	18.3%	27.2%
Hang Seng	25,902	1.9%	-4.9%	3.6%

Source: Bloomberg, RBC Wealth Management

• TSX closed higher in Friday afternoon trading with another record high. Materials the leader with health care the laggard. Canadian equities rose 0.9% last week. US equities were narrowly mixed in very light Friday trading. S&P 500 finished fractionally below Thursday's record close, while Nasdaq set another record.

• U.S. stocks ended the month of August on a solid footing, with the S&P 500 Index posting its seventh consecutive monthly gain (see chart) and having hit 12 all-time highs during the month. The key driver was likely the dovish commentary on interest rates by Fed Chair Jerome Powell at the annual Jackson Hole Economic Symposium.

 

• Year-to-date returns of 20.4% make it harder for investors to find timely new stock ideas, but we note that over the last 70 years when the markets were up over 20% by August, six times out of seven they also posted positive returns for the rest of the year, with the typically weak month of September eclipsed by seasonal strength in the final quarter.

 

Economy

Canada

• The Canadian banks reported a clean sweep, with earnings beating consensus estimates. Broadly speaking, the stronger earnings were driven primarily by a pickup in top-line revenue growth and improving credit conditions.

• Canadian GDP unexpectedly fell by an annualized 1.1%, in contrast to the Bank of Canada’s forecast of 2.0% growth. Exports fell at an annualized 15%, driven largely by a pullback of automobile parts production as car companies continued to struggle with a semiconductor chip shortage.

• Business investment and household purchasing power strengthened. The savings rate has continued to increase and household spending on services, still below pre-shock levels, has room for further recovery. Economic growth in H2 2021 depends heavily on the impact of delta variant developments, but high vaccination rates in Canada should help shore up economic resilience.

U.S.

• Big miss from US August employment report with headline up 235K m/m vs consensus for ~725K increase in nonfarm payrolls coming after a gain of nearly 2M jobs in the prior two months (both June and July revised up).

• August’s Consumer Confidence Index reading of 113.8 was the lowest since February and missed consensus forecasts of 124. Survey respondents cited concern over the rapid rise in COVID-19 cases among unvaccinated Americans, although the pace of vaccinations has risen strongly since July, particularly since the FDA granted full approval to the Pfizer vaccine.

• Consumers shifted their spending habits during August, with airlines noting disappointing traveler numbers while fast food outlets recorded strong demand as consumers avoided dining in restaurants.

• The slowdown in economic momentum prompted cuts in Q3 2021 GDP growth forecasts, with analysts citing consumer resistance to paying the higher prices caused by ongoing supply chain issues.

Further Afield

• August’s eurozone inflation estimate leapt to a 10-year high of 3% y/y, a level not reached since 2011. The biggest culprit seems to have been a year-over-year increase in the prices of clothing and footwear due to a delayed sales season last year that depressed prices. The spike in inflation is unlikely to shift the European Central Bank to a more hawkish stance, in our view, as the bank will likely view the increase in inflation as a temporary phenomenon.

• The Wall Street Journal reported that China’s stock market regulator is planning to block tech firms that handle large amounts of sensitive user data from going public overseas. We think these steps are aimed at tightening the oversight of the Tech sector that will shape China’s digital economy for decades.

 

Notes About Companies in Model Portfolio 

• Apple (AAPL) announced that it is working with several states across the country, which will roll out the ability for their residents to seamlessly and securely add their driver’s license or state ID to Wallet on their iPhone® and Apple Watch®. Arizona and Georgia will be the first states to introduce this new innovation to their residents, with Connecticut, Iowa, Kentucky, Maryland, Oklahoma, and Utah to follow. The Transportation Security Administration (TSA) will enable select airport security checkpoints and lanes in participating airports as the first locations customers can use their driver’s license or state ID in Wallet.

• Canadian National's (CNR) endeavor to acquire Kansas City Southern hit a major snag, as the Surface Transportation Board rejected its proposed independent voting trust, which was to be the first step (under which KCS shareholders would receive total deal consideration) in the tie-up during the full, and lengthy, review process. In short, the STB thinks CN's proposal "fails to establish that their use of a voting trust would have public benefits" and noted risk of "public interest harms relating to both competition and divestiture." While it's tough to say the decision will completely derail the deal, it materially lowers the probability of success.

• Costco Wholesale Corporation (COST) For the 16-week fourth quarter ended August 29, 2021, the Company reported net sales of $61.4 billion, an increase of 17.4 percent compared to net sales of $52.3 billion during the similar period last year. For the 52-week fiscal year ended August 29, 2021, the Company reported net sales of $192.1 billion, an increase of 17.7 percent from the $163.2 billion during the similar period last year.

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Feel free to contact me with any questions and/or to discuss investment ideas.

I appreciate the opportunity to serve you and look forward to continuing to help you accomplish your long-term financial goals.

 

Regards,

Shiuman