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 November 12, 2021.

Equity Indices	Level	1 week	YTD	52-week
S&P/TSX Composite	21,769	1.5%	24.9%	31.3%
S&P 500	4,863	-0.3%	24.7%	32.4%
NASDAQ	15,861	-0.7%	23.1%	35.5%
Euro Stoxx 50	4,370	0.2%	23.0%	27.5%
Hang Seng	25,328	1.8%	-7.0%	-3.2%

Source: Bloomberg, RBC Wealth Management

• TSX closed higher on Friday afternoon trading at a new record high. Canadian equities finished 1.5% higher this week for the second consecutive week. Health care and tech were the leaders with utilities and energy the laggards.

• US equities were higher in Friday trading, ending near best levels though major indexes still snapped a big five-week winning streak. Gold finished up 0.2% capping week's 2.8% gain, best since early May. WTI crude settled down 1.0%, finishing lower for third-straight week. Canadian dollar higher against USD.

• The Consumer Price Index (CPI) in the U.S. surged 6.2 percent in October compared to a year ago, the highest level since 1990. But the curious phenomenon is that the U.S. equity market has largely ignored high and rising inflation so far this year.

• S&P 500 corporate earnings growth has been robust and is on pace to rise 50 percent in 2021 and could tack on another 7 percent in 2022, according to the consensus forecasts. Importantly, there is a perception among equity market participants that COVID-19 is the main contributor to inflation, and that as the pandemic continues to dissipate and supply chains start to function more normally, inflation rates will begin to retreat.

• An inflation spike to even higher levels, which could put greater pressure on S&P 500 profit margins to the degree that earnings growth could become constrained or outright retreat in 2022. Depending on the path of inflation and, importantly, the Fed’s response to it—whether it manages the situation effectively or ineffectively—inflation could generate volatility for the U.S. equity market in 2022.

 

Economy

Canada

• As the Fed has formally announced its plans for tapering the pace of its quantitative easing program, we believe investor attention could increasingly shift towards the timing and pace of the next rate hike cycle. We identified 18 Fed rate hikes dating back to 1958 and analyzed how the S&P/TSX Composite Index has historically performed in the year leading up to and after the first rate hike.

• Overall, we found that the initial hike hasn’t tended to matter for the Canadian equity market. To wit, our study showed that the S&P/TSX Composite generated positive outcomes 78% of the time in the 12 months leading up to the first hike with average returns of 13.9%, while returns in the 12 months thereafter were also healthy, averaging 10.1% with a positive outcome 72% of the time.

• The Canadian labour market recovery continued in October, with Canada’s unemployment rate declining for the fifth consecutive month, coming in at 6.7% compared to 6.9% in September. This still leaves the unemployment rate about one percentage point above the pre-pandemic level recorded in February 2020.

U.S. 

• Private payrolls grew by 604,000 employees in October, nearly 45% above the median estimate in Bloomberg’s pre-release market survey. The accelerating pace of hires helped drop the unemployment rate to 4.6%, potentially indicating that rising wages are beginning to clear the hiring backlog in the economy. One remaining concern is the stagnant labor participation rate—only 61.6% of Americans over the age of 16 are working or looking for work, compared to 63.4% pre-pandemic.

• Nearly $600 billion in new infrastructure spending was approved by Congress last week in a bipartisan bill. The measure is heavily weighted toward physical infrastructure, with roads, power, and rail accounting for almost half of the incremental funds.

Further Afield 

• The Q3 reporting season is almost complete in Europe. In aggregate, results have delivered a solid beat to consensus expectations, with STOXX Europe 600 EPS surprising positively by around 9%.

• The Office for National Statistics estimates UK GDP grew 1.3% q/q in Q3, slightly below the Bank of England’s (BoE) 1.5% forecast, owing to downward growth revisions in July and August.

• A gauge of Chinese property stocks is up more than 10% last week, the biggest weekly jump since November 2018. The rebound follows a series of articles published in state media in the past few days signaling support measures are on the way to help Chinese developers tap debt markets, potentially easing a liquidity crunch.  

 

Notes About Companies in Model Portfolio 

• Apple (AAPL) announced Apple Business Essentials, an all-new service that brings together device management, 24/7 Apple Support, and iCloud storage into flexible subscription plans for small businesses with up to 500 employees. The company also unveiled a new Apple Business Essentials app that enables employees to install apps for work and request support.

• Canadian Apartment Properties Real Estate Investment Trust (CAR.UN) announced Tuesday continuing strong operating and financial results for the three and nine months ended September 30, 2021. The company has maintained a very high level of rent collection, with over 99% of rents collected year to date. Net operating income ("NOI") increased by 1.1% and 2.1% for the stabilized portfolio for the three and nine months ended September 30, 2021.

• The Walt Disney Company (DIS) reported on Wednesday earnings for its fourth quarter and fiscal year ended October 2, 2021. Diluted earnings per share (EPS) from continuing operations for the quarter was income of $0.09 compared to a loss of $0.39 in the prior-year quarter.

• Intact Financial Corporation (IFC) reported another excellent quarter driven by better-than-forecast underwriting income (primarily from the U.K./International and U.S. Commercial segments) and to a lesser extent, distribution income. IFC increased the dividend by 10%. Q3/21 operating EPS of $2.87 was well above RBC Capital Markets’ forecast of $1.93 and consensus of $1.75 (consensus range of $1.40 to $2.55).

• Johnson & Johnson (JNJ) This morning, J&J announced plans to separate its Consumer Health business, creating a new standalone pure-play consumer health company (NewCo) while J&J (RemainCo) would retain its global leading Pharma and Medical Device businesses. On strategic rationale, JNJ sees more focused, independent Consumer Health Company with increasing digital presence and e-commerce capabilities.

 

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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