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 October 1^st, 2021.

Equity Indices	Level	1 week	YTD	52-week
S&P/TSX Composite	20,151	-1.2%	15.6%	24.5%
S&P 500	4,357	-2.2%	16.0%	28.9%
NASDAQ	14,567	-3.2%	13.0%	28.6%
Euro Stoxx 50	4,035	-3.0%	13.6%	26.3%
Hang Seng	24,576	1.6%	-9.8%	4.8%

Source: Bloomberg, RBC Wealth Management

• The mood of the U.S. equity market has shifted lately from that of a charging bull to a resting bull. The S&P 500 surged 103 percent from the COVID-19 low back in March 2020 through early September 2021. This is by far the most powerful post-trough rally of all recovery periods during similar time frames going back to the 1960s. Recently, the index has cooled off, pulling back 5.1 percent since Sept. 2, and has broken a seven-month winning streak.

• We (at RBC Capital Markets) expect more market volatility leading up to or during the Q3 earnings season due to headwinds related to supply chains, high energy input costs, inflation, and labor market constraints. It would not be surprising to us if the earnings beat rate falls short of the lofty levels achieved in the five preceding quarters and is punctuated by some high-profile earnings misses.

• Despite the unique COVID-related headwinds, leading economic indicators are still signaling that recession risks are nearly nonexistent, household fundamentals remain strong, and earnings growth should persist, at least at a moderate pace. Therefore, we continue to anticipate worthwhile market gains over the next 12 months, albeit with less robust returns than during the last 12 months.

• According to Bloomberg, Brent oil rose above $80 a barrel, marking the “latest milestone in a global energy crisis, on signs that demand is running ahead of supply.” This is the highest price level since October 2018.

 

Economy

Canada

• Inflation is hitting Canadian consumers at the grocery store, as pandemic-related disruptions that impacted food production and supply bottlenecks have yet to subside. According to a recent study published by Dalhousie University’s Agri-Food Analytics Lab, Canadian food prices are up 5% over the past 12 months. This stands in contrast to numbers published by Statistics Canada showing food inflation at 2.7% over the same period

U.S. 

• Congress faced an Oct. 1 deadline to avoid a partial government shutdown and an estimated Oct. 18 cutoff date to prevent a default by the U.S. government. We expect the required legislation to pass in time and we see little realistic risk of a Treasury default.

Further Afield 

• The British pound declined to a 2021 low of 1.34 to the U.S. dollar. Counterintuitively, this coincided with the UK 10-year bond yield jumping above 1%, from a low of 0.47% in August, as markets reacted to hawkish comments from Bank of England Governor Andrew Bailey. RBC Capital Markets… warns that the pound’s behaviour could be an early indicator of markets starting to look more critically at funding needs and reliance on foreign capital.

• At least 20 provinces in China have implemented power usage restrictions. Companies in industries that consume significant amounts of electricity are required to reduce production, and some companies are required to move production to weekends and nighttime to avoid using large amounts of power during peak hours. China’s economic growth in Q3 and Q4 could be affected by the power shortages.

• Fumio Kishida has won the Liberal Democratic Party’s presidential election and is set to become the next prime minster of Japan after the one-year term of former Prime Minister Yoshihide Suga. The market does not anticipate major changes in the overall macro policy framework. But Kishida supports lifting COVID-19 restrictions and wants to put together an economic stimulus package worth trillions of yen before the end of the year.

 

Notes About Companies in Model Portfolio

• Fortis (FTS) announced a roughly 6% increase in its common share dividend to a new annualized rate of $2.14/share (up from $2.02/share), marking 48 consecutive years of increased dividends. Fortis also announced that in conjunction with the release of its Q3/21 results that is scheduled to be on October 29, 2021, the company will share its new five-year capital outlook for the period 2022-2026.

 

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

 

Regards,

Shiuman