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.

You can view the past four weeks’ Weekly Update in the link to my Blog.

Read my latest Smart Investor newsletter on my website. The Q2 2023 edition covers Market Review, Recession Scorecard and Focus on Bonds.

 

Markets

Market scorecard as of close on Friday June 2, 2023.

Country	Equity Indices	Level	1 week	YTD
Canada	S&P/TSX Composite	20,025	0.5%	3.3%
U.S.	S&P 500	4,282	1.8%	11.5%
U.S.	NASDAQ	13,241	2.0%	26.5%
Europe/Asia	MSCI EAFE	2,098	0.8%	7.9%

Source: FactSet

• TSX closed higher in Friday afternoon trading, near best levels. All sectors higher. Canadian equities finished 0.5% higher in a weekly basis after five straight declines. Canadian dollar higher against USD, loonie posted solid weekly gain.

• US equities finished sharply higher in Friday trading, ending near best levels. S&P 500 notched its third-straight weekly gain, while Nasdaq up for sixth-straight week (longest streak since Jan 2020). Risk-on was the big theme for Friday. Followed some renewed FOMO chatter in the prior session. A few dynamics remained in focus. Mixed takeaways from Friday’s May payrolls (339K against Street expectations for 185-195K but unemployment higher at 3.7% vs. 3.5% expected) have seemingly taken some pressure off of the June rate hike risk. In addition, still strong labor market backdrop continues to underpin soft-landing expectations.

 

Economy

Canada

• Canada’s economy grew at an annualized rate of 3.1% in Q1, handily exceeding the consensus forecast of 2.5%.

• The snapback in economic momentum from a weak Q4 2022 suggests to us that Canada’s economy has been more resilient than prior market expectations, and we believe this could put pressure on the Bank of Canada (BoC) to reassess whether interest rates are sufficiently restrictive to bring inflation down towards its 2% target.

U.S. 

• U.S. consumer confidence slipped in May to a six-month low as Americans grow more pessimistic about the outlook for labor markets and business conditions. Nonetheless, household spending remains resilient, as purchasing plans for homes, cars, and major appliances still managed to increase in May.

• Debt-limit deal passes U.S. House of Representatives. As initially expected, the deal that was agreed upon by both President Biden and House Speaker McCarthy that will raise the debt-ceiling but impose restraints on fiscal spending until the beginning of 2025 has been cemented in Congress.

Further Afield

• The eurozone is seeing signs of inflation decelerating as prices dipped more than expected. The region’s preliminary May inflation reading fell to 6.1% y/y, below expectations for 6.3% y/y.

• China announced that the official Manufacturing Purchasing Managers’ Index (PMI) further contracted to 48.8 in May from 49.2 in April. This is the lowest reading since China’s reopening. The recent selloff in Chinese stocks seems consistent with the soft economic data. However, we think a large part of the market movement has been driven by sentiment, with two major concerns from investors: geopolitics and doubts over the sustainability of the recovery.

 

Notes About Companies in Model Portfolio

• FactSet's Q1 Canada earnings season review noted while S&P/TSX Composite is reporting its largest y/y earnings decline since 2020, both the number and magnitude of earnings beats are above average. As of 1-Jun, 94% of TSX companies have reported results with 56% posting EPS above consensus (vs 54% 3-year average). However, blended earnings tracking down 16.1% y/y, which would be largest decrease since Q3'2020 and below prior estimate.

 

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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