Market Insights: Market Commentary - Positive Underlying Technicals
Milestone Wealth Management Ltd. - Oct 02, 2020
Macroeconomic and Market Developments: North American markets were positive this week. In Canada, the TSX Composite index was up 0.83% and in the US, the Dow increased 1.87% and the S&P500 rose 1.51%. Oil prices were weaker, with US West Texas crude
Macroeconomic and Market Developments:
- North American markets were positive this week. In Canada, the TSX Composite index was up 0.83% and in the US, the Dow increased 1.87% and the S&P500 rose 1.51%.
- Oil prices were weaker, with US West Texas crude down ~$3, dropping from $40 to around $37. Similarly in Canada, Western Canadian Select was down ~$2, going from around $28 last Friday to roughly $26 this Friday.
- The Canadian dollar increased this week, going from 74.7 cents last Friday to 75.1 cents this Friday.
- Gold also had a good week, increasing from $1,866 to $1,907.
- US President Donald Trump, along with the first lady Melania Trump and the president’s top aide Hope Hicks, have tested positive for COVID-19. White House physician said the president and first lady, were currently well and would remain at the White House while they recover. Vice President Mike Pence and his wife have tested negative.
- Canada's economy reported a July GDP reading of +3% month-over-month, matching consensus estimates. Statistics Canada posted that it is the third consecutive monthly gain, which continued to offset the steepest drops experienced by Canadian economic activity in March and April. However overall economic activity was still about 6% below February's pre-pandemic level. Statistics Canada currently is estimating a 1% GDP gain in August.
- According to a new report on global real estate conditions by UBS released this week, Toronto ranks third in the world in its annual bubble index, following only Munich and Frankfurt. That puts Toronto ahead of traditionally expensive markets like Paris and London. In fact, this is the fourth straight year that Toronto has been in UBS’s ‘bubble zone’.
- The first of three US Presidential Election debates was held on Tuesday evening in Cleveland. The main topics addressed in the debate were Trump’s appointment of Amy Coney Barrett to the Supreme Court, the COVID-19 outbreak, the economy, climate and the candidates’ records. The debate got very heated, with frequent interruptions; at one point, even the moderator said “I hate to raise my voice, but why shouldn’t I be different than the two of you?”.
- Last Friday, US President Donald Trump tweeted an announcement for a new rail line between Canada and Alaska. The proposed 2,570-kilometre A2A railway aims to transport bulk commodities such oil, grain and ore in addition to containerized goods, and aims to develop “a new railway connecting the Alaska Railroad and Alaska’s tidewater, to northern Alberta.” If it proceeds, the railway project could serve as another important outlet for Alberta’s oil producers who have struggled due to lack of pipeline capacity.
- On Tuesday, Disney announced lay offs of 28,000 employees across its parks, experiences and consumer products division. Around 67% of the 28,000 laid off workers were part-time employees. While Disney’s theme parks in Florida, Paris, Shanghai, Japan and Hong Kong have been able to reopen with limited capacity, both California Adventure and Disneyland have remained shuttered in Anaheim, California.
- The total global COVID-19 cases reached 34.7 this week from 32.5 million last week with total deaths crossing over the 1 million mark. In Canada, cases continued to rise, notably in Ontario and Quebec. Total cases in Canada now stand at 160,535, with active cases at 14,866. Alberta currently has 1,596 active cases.
- For a deeper dive, the US investment company First Trust has put out a US COVID-19 Tracker: COVID TRACKER
Chart of the Week:
Earlier this week, the markets gapped up strongly after weakness the last three weeks. This broad rally on Monday on top of Friday’s upside reversal may be an early sign of improvement. In our Chart of the Week, courtesy of statistics from Sundial Capital, we show that the S&P 500 achieved a rare breadth thrust on Monday, where the positive volume and up issues were over 80% of the total after the index hitting a 30-day low, all with the 50- and 200-day moving averages still in an uptrend. Since 1962, this is only the 10th time this has occurred, with almost all of them occurring in the last 10 years with the exception of 1984. In the prior 9 instances, there was quite a bit of choppiness over the following weeks. However, over the longer-term, there was only one very slight loss over the next six months with a median gain of 11.6% and over the next year it was positive 100% of the time with a median gain of 16.1%. Even the next three months showed a strong median gain of 5%. In the chart, you will note the last row shows the Z-Score. A Z-Score of +2 or more suggests the data is significant and thus strong outperformance in this case. As always, past data does note predict future results. >Friday’s, markets were once again volatile with the news of Donald Trump testing positive for COVID, so perhaps the choppy short-term prediction of this chart will play out again; however, we are hopeful that given our favorable backdrop of historic excess liquidity and a synchronized global economic recovery this will provide another short-term buying opportunity. 