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 22, 2021.

Equity Indices	Level	1 week	YTD	52-week
S&P/TSX Composite	21,216	1.4%	21.7%	30.3%
S&P 500	4,545	1.6%	21.0%	31.6%
NASDAQ	15,090	1.3%	17.1%	31.2%
Euro Stoxx 50	4,189	0.1%	17.9%	32.1%
Hang Seng	26,127	3.1%	-4.1%	5.4%

Source: Bloomberg, RBC Wealth Management

• TSX ended little changed in Friday trading, up fractionally and extending a streak of daily gains going back to its last decline on 4-Oct. Sectors mixed, energy and industrials the leaders with health and tech the laggards. TSX closed near record highs and logged another solid week of gains for a third straight week.

• US equities finished mostly lower, but off worst levels, in Friday afternoon trading. Dow, S&P and Nasdaq capped their third straight week of gains. Gold finished up 0.8%. WTI crude settled up 1.5%, notching its ninth straight weekly gain. Canadian dollar little changed against USD.

• U.S. equities had their third consecutive week of gains, bringing October 2021 return-to-date gains to more than 5%. Equity gains are broad-based with sector leadership coming from Utilities, Health Care, and Real Estate. Despite all sectors being higher, relative weakness is evident in Consumer Staples, Materials, and Consumer Discretionary

• Earnings season has begun in earnest as companies reporting results have broadened from Financials last week to include Health Care, Information Technology, Consumer, and Communications companies this week. S&P 500 earnings are on track for nearly 30% q/q growth, fueled by 14% revenue growth and margin expansion and beat rates for the S&P 500 surpassing 75% on the top and bottom lines.

• Third quarter corporate earnings results boosted investors’ optimism across the board as global equity funds saw robust inflows this week. According to Reuters, investors bought a net $12.6 billion in global equity funds.

 

Economy

Canada

• Canada’s Consumer Price Index (CPI) accelerated to 4.4% y/y in September, its fastest pace since February 2003, according to Statistics Canada. Although Bank of Canada (BoC) Governor Tiff Macklem recently acknowledged that inflation could prove more persistent than initially thought, the BoC has remained steadfast in its view that these price increases will prove transitory.

• The gap between Canadian and U.S. short-term interest rates has widened significantly over the past month, driven largely by the market’s expectation that the BoC will be more aggressive than the Federal Reserve in raising rates. Short-term interest rate differentials tend to influence currency fluctuations, and the widening gap between Canada and the U.S. has contributed to the relative strength of the Canadian dollar against its U.S. counterpart.

U.S.

• In terms of economic data, housing and weekly unemployment claims took center stage. September housing starts declined 1.6% m/m, on 1.56 million housing starts, much lower than the consensus expectation of a 0.5% expansion. The weekly initial unemployment claims total of 290,000 was more favorable than the consensus expectation of 299,000, and brought the four-week average to 320,000, the lowest level since the pandemic began.

• Though the Federal Reserve has yet to formally announce its plans for curtailing monthly asset purchases, an announcement we expect at its Nov. 3 meeting, the market is already looking beyond the tapering process to what the next rate hike cycle might look like—and, more importantly, when it might start.

• For now, our view remains that the first Fed rate hike is still a long way down the road, perhaps arriving late next year, and that there are more important issues to consider than the timing of rate hikes. (RBC Global Portfolio Advisory Committee).

• House Democrats are close to reaching a deal on Biden’s spending package. Nancy Pelosi, the Speaker of the House, has stated that Congress is close to a deal on the multi-billion dollar spending agenda, according to the Financial Times. Lawmakers and administration officials have been trying to slim the cost of the climate and social safety net package to about $2 trillion in order to counter resistance from more moderate Democrats.

Further Afield

• Yields on short-term UK government bonds jumped this week, after Bank of England Governor Andrew Bailey commented that the central bank “will have to act” to curb inflation. The market-implied probability of an increase in the bank rate was brought forward significantly, with the first rate hike now fully priced in for November and further tightening anticipated in December, which would bring the main policy rate to 0.50%.

• China’s Q3 2021 GDP grew 4.9% y/y, below Bloomberg consensus of 5% and down from Q2’s 7.9%. Industrial production rose 3.1% in September, below the 4.5% Reuters estimate. We believe the weak economic indicators mainly reflect the impacts of a property market slowdown and power shortages. On the positive side, September saw continued solid growth in the export sector and a moderate recovery in retail sales, which rose 4.4% y/y.

 

Notes About Companies in Model Portfolio

• Apple (AAPL) JP Morgan expects Apple to report solid F4Q (Sep-end) beat, led by solid demand for iPhone 12 series, Macs as well as Services, but expect investor attention to be focused on guidance for F1Q (Dec-end) in light of the recent concerns relative to supply. In that regard, we expect results for F4Q and qualitative guidance for F1Q22 to feel like deja-vu from the last earnings call with a beat accompanied by guidance for lower than typical seasonality for F1Q22, driven by supply limitations.

• Canadian National Railway (CNR) reported its financial and operating results for the third quarter ended September 30, 2021, showing strong performance across nearly all key metrics, with adjusted diluted earnings per share ("EPS") of C$1.52, up 10 per cent, an adjusted operating ratio of 59.0 per cent, an improvement of 90 basis points, and revenues of C$3.6 billion, up five per cent over the third quarter of 2020. For the same period, the Company reported a 72 per cent year-over-year increase in diluted EPS to C$2.37 and an operating ratio of 62.7 per cent.

  • CNR also announced that Jean-Jacques (JJ) Ruest will retire as president and chief executive officer and as a member of the Board of Directors of the Company, effective as of the end of January 2022, or such later time as a successor has been appointed to ensure a flawless transition.

 

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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