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 Q3 2023 edition covers Market Review, Concentration of Returns in U.S. equities and Estate Planning Basics.

 

Markets

Market scorecard as of close on Friday August 11, 2023.

Country	Equity Indices	Level	1 week	YTD
Canada	S&P/TSX Composite	20,408	0.8%	5.3%
U.S.	S&P 500	4,464	-0.3%	16.3%
U.S.	NASDAQ	13,645	-1.9%	30.4%
Europe/Asia	MSCI EAFE	2,129	-0.7%	9.5%

Source: FactSet

• Canadian stocks advanced modestly (+0.8%) last week.

• U.S. stocks were down for a second straight week. The S&P 500 Index was down 0.3% for the week.

• From Global Insight Weekly (August 10, 2023) by RBC Wealth Management Global Portfolio Advisory Committee:

• • While equity market volatility is rarely welcomed, we would emphasize that pullbacks are healthy, particularly following rallies such as the one we saw in the first half of 2023. It is also important to acknowledge that the S&P/TSX Composite has returned approximately 7% year to date, with most sectors sitting in positive territory.

• • Overall, we believe the S&P/TSX Composite has effectively priced in a mild recession as it’s currently trading at approximately 13x forward earnings, a discount to its long-term average of roughly 15x. Valuations in the heavyweight and economically sensitive bank industry are particularly discounted. As a result, we believe investors are receiving adequate compensation to stay invested in Canadian equities.

 

Economy

Canada

• The Canadian labour market is not as tight at the start of the year. On balance, July’s employment report showed some signs of weakness on the margins, as new jobs declined and employment growth remained flat. The unemployment rate has risen by roughly half a percentage point since April’s report, and is now up to 5.5%.

• Ultimately, the Bank of Canada will likely view the July employment report as supportive of pausing its rate hike campaign while assessing any monetary policy action ahead of the September meeting.

U.S. 

• U.S. credit card balances have topped $1 trillion for the first time. On Tuesday, the Federal Reserve reported that total credit card debt rose by $45 billion in Q2 to eclipse the $1 trillion level. The continued rise in credit card balances is yet another illustration of how consumers have continued to spend, despite rising prices and lower savings rates over the past couple of years. While continued consumer resilience can arguably be viewed as a positive for the economy, we think it’s fair to ask if it is sustainable in the longer term—especially as credit card delinquency rates continue to creep up and as student loan payments are set to resume in October.

 

• On Thursday, the Bureau of Labor Statistics released the Consumer Price Index report for July, which showed that headline CPI was up 3.2% y/y. The report seems to have reinforced the market’s view that the Federal Reserve will forgo an interest rate hike in September, with the market-implied probability of a hike falling to 9.5% following the report (from 14.0% previously) according to the CME FedWatch Tool.

Further Afield 

• On Aug. 7, the Italian government announced a surprise 40% tax on Italian banks’ “windfall” net profits between 2021 and 2023 derived from higher interest rates. The EURO STOXX Banks Index fell 3.5% on Aug. 8. The Italian government’s new tax echoed a similar move by the Spanish government last year. Investors are concerned other countries will follow the Italian example.

• The Chinese economy fell into deflation in July for the first time in more than two years. The Consumer Price Index (CPI) fell 0.3% y/y according to China’s National Bureau of Statistics.

• Japan’s economy appears poised to mark its third straight quarterly expansion. Economists polled by Reuters expect upcoming data to show the country’s GDP grew by 3.1% in Q2, underpinned by resilient exports.

 

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