Market Insights: Market Commentary - Dark Clouds or Sunglasses?

Milestone Wealth Management Ltd. - Aug 21, 2020
Macroeconomic and market developments Quiet summer trading has set in on the various markets, commodities and currencies this week. North American equity markets were fairly flat this week, with Canada down slightly and the US markets roughly flat.

Macroeconomic and market developments

  • Quiet summer trading has set in on the various markets, commodities and currencies this week. North American equity markets were fairly flat this week, with Canada down slightly and the US markets roughly flat.
  • Similarly, the price of US oil flat this week, with US WTI (West Texas Intermediate) crude trading around $42, however WCS (Western Canadian Select) was up another dollar, trading around $30 on Friday.
  • The Canadian dollar was roughly flat this week as well, trading around 75.7 cents on Friday compared with 75.6 cents last Friday.
  • Gold was up just slightly at approximately $1,946, up $6 from last Friday.
  • The big political story this week was the resignation of Finance Minister Bill Morneau. The surprise announcement came as reports of a rift between Morneau and Trudeau over policy and the WE charity controversy.  In his place, Chrystia Freeland was appointed as the new Finance Minister.
  • Apple stock continued to grind higher this week, becoming the first US publicly listed company ever to eclipse the $2 Trillion valuation mark. 
  • The US election heated up this week, with the Democrats holding their four-day virtual Democratic National Convention.  Numerous speakers took their turns speaking out against President Trump and in favour of Democratic candidate Joe Biden and running mate Kamala Harris.
  • Canada's June retail sales came in +23.7% vs consensus for +24.5%. Analysts forecasts had largely followed StatCan's flash estimate for +24.5%, issued back on 21-Jun, after the May report showed a strong rebound from April's 24.5% drop. StatCan again provided a flash estimate for next month's reading, with early estimates for +0.7% in July suggesting momentum stalled after two strong months of strong improvement.
  • The number of confirmed COVID-19 cases continued to increase this week.  Total global cases are now at approximately 23 million, with total deaths just under 800,000.  The US total cases are now over 5.75 million with just over 177,000 deaths, followed by Brazil with 3.5 million and India with 2.9 million cases.
  • For a deeper COVID dive, the US investment company First Trust has put out a US COVID-19 Tracker: here

Charts of the week

In past weekly missives we have highlighted that negativity continues to pervade, like a dark cloud over investor sentiment.  We are not dismissive of these challenges but offer the following selection of charts that may allow you to view the world through an alternative lens.   When Negative is Positive: While the S&P500 hit all-time highs this week, it did so on negative breadth.   And what is negative breadth you ask?  This is where the declining stocks outnumber the advancing stocks, yet the market pushes higher.  One could view this as a lack of agreement among investors that the market should be pushing higher.  The below chart illustrates historically that the market has performed very well, three, six and twelve months on, after a scenario similar to what we experienced this week.



Soar During the Crash: Several weeks ago, we discussed the AAII Sentiment Survey which illustrated the overarching anxiety that individual investors are feeling with today’s markets.  The below Yale “Crash Confidence” investor survey further affirms this negative sentiment.  You can see however, by the circled inflection points in the past, that this degree of pessimism has often been associated with interim market lows, leading to strong gains that followed.


Gimme Shelter – Canadian Housing: Amid the COVID economy shutdown a few months ago, there were reports projecting that the Canadian housing market would suffer dearly.  Specifically, the high-priced markets of Toronto and Vancouver have been a worry for the Canadian government for quite some time.  However, to the surprise of many, the Canadian housing market activity seems to have come roaring back to life in July.  Here are some specific statistics:


  • National home sales rose 26% on a month-over-month (m-o-m) basis in July.
  • Actual (not seasonally adjusted) activity was up 30.5% year-over-year (y-o-y).
  • The number of newly listed properties climbed 7.6% from June to July.
  • The MLS® Home Price Index (HPI) rose 2.3% m-o-m and was up 7.4% y-o-y.


Drowning in Liquidity:  M2 is a money liquidity term that includes M1 (aka cash in people’s pockets) plus near cash (savings and chequing account balances, money market mutual funds, etc).  Liquidity is an important component for investors as it is often the lubricant that facilitates further investment growth into factories and productivity.  The chart below is illustrative of a world awash in liquidity with the most recent downtick suggestive of said reinvestment into future industrial and commercial economic activity.  



Speaking of Liquidity, Did I Miss the Boat?:  With the S&P500 in the US reaching all-time highs, it begs the question, is there any more internal energy left to push it higher?  We have highlighted in past commentaries that we have not felt overly comfortable with the S&P500 becoming increasingly skewed by five mega cap tech names.  If we can set that concern aside for now and look at historical market performance in the chart below, it would appear to indicate that the boat has not been missed.  The chart also indicates that the longer you go between the prior market high (most recently February 2020) and the current market high, the more oomph you get in the rate of return.  For markets it seems, absence does make the heart grow fonder.



Sources:, CREA, Globe and Mail,,, Canaccord Genuity, Financial Post, Bespoke Investment Group, Ned Davis Research, Inc., Yale Investment Research, LPL Research