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 25, 2023.

Country	Equity Indices	Level	1 week	YTD
Canada	S&P/TSX Composite	19,836	0.1%	2.3%
U.S.	S&P 500	4,406	0.8%	14.7%
U.S.	NASDAQ	13,591	2.3%	29.8%
Europe/Asia	MSCI EAFE	2,055	-0.1%	5.7%

Source: FactSet

• Canadian equities finished higher Friday, a bit off best levels after shaking off morning weakness. Most sectors higher. TSX eked out a slight 0.1% weekly gain after falling nearly 3% last week, its biggest weekly decline since March.

• US equities mostly higher Friday, with the S&P 500 up 0.8% for the week. As expected, no explicit near-term policy signal from Powell in Jackson Hole, who stressed data dependence. Reiterated that Fed needs to see more progress on inflation and highlighted some upside risks to growth. Also reiterated that getting inflation back to 2% target will likely require a period of below-trend economic growth as well as some softening in labor market conditions.

• Falling prices on 10-year U.S. government bonds last week briefly pushed yields—which move inversely to price—to their highest level since 2007. The market move followed a series of stronger-than-expected economic reports, comments from several Federal Reserve speakers on the potential need for higher interest rates to combat inflation, and increases in the size of recent government bond auctions.

 

Economy

Canada

• The Canadian economy remains on solid footing, with household consumption trends proving resilient. Housing activity, which accounts for a sizeable portion of Canadian GDP, has improved meaningfully in recent months—despite the impact of higher borrowing rates.

• On a more cautious note, the leveraged position of Canadian households remains in focus. In aggregate, for every dollar of disposable income earned, Canadian households currently hold CA$1.81 of debt. There is a risk that if labour market weakness begins to materialize, household debt will continue to become harder to service, which could ultimately place downward pressure on economic activity.

U.S. 

• At the Jackson Hole symposium: Federal Reserve Chair Jerome Powell and European Central Bank President Cristine Lagarde discussed some of the challenges they have encountered while balancing monetary policy and the ongoing structural shifts in the economy. Fed Chair Powell cautioned that above-trend growth risks delaying inflation’s downward trend towards target, which could warrant a more hawkish bias at the Fed.

• Resilient U.S. economic growth has also led some economists to argue whether the neutral rate—the policy rate that neither stimulates nor restrains the economy—could be higher than the Fed’s ~2% estimate. However, Powell reiterated that neutral rate estimates are subject to considerable uncertainty.

Further Afield

• The preliminary HCOB Eurozone Purchasing Managers’ Index (PMI) fell to 47 in August from 48.6 in July, significantly below economists’ consensus expectation of 48.5. This is firmly in contraction territory as a reading below 50 indicates a decline in economic activity.

• U.S. Secretary of Commerce Gina Raimondo will travel to Beijing and Shanghai August 27–30 for meetings with senior Chinese government officials and American business leaders. According to the press release from the U.S. Commerce Department, Raimondo “looks forward to constructive discussions on issues relating to the U.S.-China commercial relationship, challenges faced by U.S. businesses, and areas for potential cooperation.”

 

Notes About Companies in Model Portfolio

• Royal Bank of Canada (RY) reported on Thursday net income of $3.9 billion for the quarter ended July 31, 2023, up $295 million or 8% from the prior year. Results mainly due to higher revenue in Capital Markets reflecting higher revenue in Corporate and Investment Banking, including the impact of loan underwriting markdowns in the prior period, as well as in Global Markets. Higher net interest income driven by higher interest rates and strong volume growth in Canadian Banking also contributed to the increase.

• TD Bank Group (TD) reports Q3 2023 results on Thursday. TD reported net income was $2,963 million, 8% down from $3,214 million in the same period last year. In Canadian Personal and Commercial Banking the decrease primarily reflects higher provisions for credit losses (PCL), partially offset by revenue growth.

• • TD has been responding to formal and informal inquiries from regulatory authorities and law enforcement concerning its Bank Secrecy Act/anti-money laundering compliance program, both generally and in connection with specific clients, counterparties or incidents in the US, including in connection with an investigation by the United States Department of Justice

 

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