Market Insights: Market Commentary - More Growth vs Value Debate

Milestone Wealth Management Ltd. - Sep 18, 2020
Macroeconomic and market developments It was a flat week for North American stock markets. The TSX Composite was down slightly, the S&P500 was down ~0.5% and the Dow Jones Industrial Average was flat. The Canadian dollar also stayed very flat this

Macroeconomic and market developments

  • It was a flat week for North American stock markets. The TSX Composite was down slightly, the S&P500 was down ~0.5% and the Dow Jones Industrial Average was flat.
  • The Canadian dollar also stayed very flat this week, finishing unchanged at 75.8 cents.
  • Gold prices increased slightly again this week to $1,958 from $19,50 last Friday.
  • Oil prices staged a big recovery this week from the previous two week slide.  WTI finished at roughly $41 this Friday, up from around $37.50 last Friday.  In Canada, Western Canadian Select also had a good week, finishing around $29 from approximately $26 last Friday.
  • Last weekend, S&P announced changes to the makeup of the S&P/TSX Composite Index, which became effective before trading on Monday morning.  Five new companies were added: Fortuna Silver Mines (FVI), New Gold (NGD), Osisko Mining (OSK), Sprott (SII) and Trillium Therapeutics (TRIL).  Two companies were dropped from the index: Cineplex (CGX) and Pason Systems (PSI).
  • The United States government announced on Tuesday that it was lifting its 10% aluminum tariff on Canada, retroactive to September 1, 2020.  This came just hours before Canada was scheduled to announce retaliatory tariffs on the US.
  • MEC (formerly known as Mountain Equipment Co-op) announced on Monday that it is being purchased by US private equity firm Kingswood Capital Management Ltd.  MEC operates 22 stores in Canada.  It had been losing money prior to the onset of COVID-19, but the pandemic has changed the retail landscape dramatically and made it even more difficult for MEC to compete.
  • The US Federal Reserve announced on Wednesday that they are leaving interest rates at their current target of 0 – 0.25%, as expected. The central bank will also allow inflation to run somewhat above the 2% target rate before increasing interest rates, indicating that rates could be very low for much longer than originally anticipated when interest rates were lowered in March in response to the COVID shutdown of the economy. The Fed also made it clear that it will keep monetary policy loose for a prolonged period of time, saying it expects to maintain near zero short-term interest rates until (a) the employment situation is back to normal (with an unemployment rate around 4.0%) and (b) inflation is running at or above 2%.
  • On Tuesday, Apple held an event in which they made several key product and service announcements.  One that garnered much attention was the unveiling of Fitness+ which is a new fitness service for Apple Watch.  The service will reportedly connect Apple Watch users to trainers, as well as a catalog of workout videos on iPhones, iPads or on an Apple TV device, synced to an Apple Watch.
  • Canadian tech company Nuvei Corporation completed its IPO on the Toronto Stock Exchange on Thursday, under the symbol NVEI.  Nuvei is a Montreal-based payments-processing company.  The company’s Founder and CEO, Philip Fayer, has become Canada’s newest billionaire with his shares worth roughly $1.5 billion by the end of trading on Thursday.
  • Total confirmed global COVID-19 cases stood at just over 30.6 million, up from 28.5 million a week ago, with total deaths increasing from 917,000 to 954,000.  The United States continues to lead in confirmed cases with slightly over 6.91 million, with India at 5.30 million and Brazil at 4.46 million.  The United States crossed over the 200,000 death mark, ending the week at roughly 203,000.
  • For a deeper COVID dive, the US investment company First Trust has put out a US COVID-19 Tracker: COVID TRACKER

Charts of the week

Last week we discussed how value might be making a comeback versus growth. So far this month we are definitely witnessing that, at least in the short-term. After 11 straight months of large-cap growth stocks outperforming, the longest stretch in over 20 years, value stocks have held up well so far this month. Through yesterday, the Russell 1000 Growth index is down over 7% month-to-date, while the value index is down less than 1%. Needless to say, things can change over the next eight trading days, but right now this 6% gap is the widest we have seen in over 19 years back to March 2001. At least we will likely finally see value break its streak of monthly underperformance. 


Source: Bespoke Investment Group LLC

We also wanted to highlight this past Monday due to the strong positive volume we witnessed, with over 85% of the total trading volume for the Nasdaq being up on the day. Strong positive breadth is typically viewed positively for overall markets as one would expect. However, this sort of up volume ratio for the Nasdaq is rarely seen after such strong rallies; they tend to occur after large declines. In fact, this past Monday was only the 10th time in the last 30 years where the Nasdaq has rallied more than 20% in 5 months and then had an up-volume ratio greater than 85%. We wanted to see what this situation in the past has meant for future S&P500 returns.

From the incredible statistics at Sundial Capital Research, we can see in the following table that forward returns in the last nine occurrences, while not particularly good over the next two weeks, have been very strong over the next 3, 6 and 12-month time periods. So strong that they have been positive over those periods 100% of the time with forward median returns in the range of 9.1% to 15.2%. You will also note that none of these prior occurrences took place near an imminent peak or recession. Let’s hope this trend continues.   SPX after Nasdaq >20% gain in 5 months and Nasdaq up volume >85%



Sources:,  Globe and Mail,,,, Canaccord Genuity, Financial Post, Calgary Herald, Bespoke Investment Group, Sundial Capital Research