Market Insights: July is Historically a Positive Month for the Markets

Macroeconomic and Market Developments:

• North America markets were volatile this week, but ended up slightly positive due to a strong up day on Friday. In Canada, the S&P/TSX Composite Index was up 0.19%. In the US, the Dow Jones Industrial Average was up 0.24% and the S&P 500 Index increased by 0.41%.
• The Canadian dollar was down this week, closing at 80.35 cents vs 81.16 cents last Friday.
• Oil prices were mixed this week, with US West Texas crude finishing at $74.56 USD compared with $75.20 last week, and the Western Canadian Select price at $61.84 compared with $61.31 last week.
• Gold prices were up this week, closing at ~$1,808 USD vs ~$1,788 last Friday.
• Brookfield Business Partners (BBU.UN) announced another acquisition this week, building on its purchase of Modulaire Group last week. This week, Brookfield Business Partners announced an agreement to acquire DexKo Global Inc, a global manufacturer of highly engineered components for trailers, recreational vehicles and towable equipment providers for $3.4 billion.
• Calgary based TC Energy (TRP), formerly TransCanada Pipeline, announced it has filed a Notice of Intent to initiate a legacy North American Free Trade Agreement (NAFTA) claim under the United States-Mexico-Canada Agreement to recover economic damages resulting from the revocation of the Keystone XL Project's Presidential Permit.
• Oil prices were volatile this week. On Tuesday, after a spat between Saudi Arabia and the UAE at the OPEC+ meeting prevented an agreement on production quotas, oil popped higher to ~$76 before reversing and plunging lower to ~$73. Volatility continued throughout the week, with oil trading as low as $71.07 but finishing the week at $74.56.
• Interest rates in the bond market have plummeted over the past couple of weeks. US 10-year government bonds had hit a pandemic-era high of just over 1.7% in late March, but this week closed at just 1.36% after touching a low of 1.27% during the week. Many analysts have speculated as to the underlying reasons for the drop in interest rates, including slower growth expectations for the economy and a resurgence in COVID variant cases around the world.
• On Friday, Canada’s June employment numbers were released, showing the Canadian economy gained 230,700 jobs, ahead of 185,000 that was estimated, which recouped much of the 275,000 jobs lost in April and May. The unemployment rate edged down to 7.8% from 8.2% in May, which was in line with consensus estimates.
• Here is a link to a short video from Canaccord’s chief U.S. Strategist Tony Dwyer entitled Talking through transition: DWYER VLOG
• US Investment company First Trust has created a COVID Recovery Tracker. Click here: RECOVERY TRACKER

Weekly Diversion:

Check out this fascinating video of a robotic grocery distribution facility.

Charts of the Week:

With one week in the books for July, we thought we would share how the month of July has performed the last 70 years, specifically looking at post-election years (like 2021). Past performance is no guarantee of future results, but it is interesting to see seasonality trends that have occurred. As you can see below, July has typically been a very strong month for the S&P 500 Index, especially the last 10 years. In fact, if you look only at post election years, July has historically been the strongest month of the year with an average return of just over 2%.

Source: LPL Research, FactSet.

All indices are unmanaged and cannot be invested directly. The current design of the S&P 500 was first launched in 1957; prior performance of its predecessor index, the S&P 90.

This week we wanted to show historical intra-year declines for both the S&P/TSX Composite and the S&P 500 to highlight the unusual lack of drawdown so far this year. A drawdown is the largest market drop from a peak to a trough during the year. This is not a prediction of a larger drawdown during the balance of this year, but it certainly provides some context of the lower level of volatility this year compared to 2020, where you can see the extremely large drawdown numbers. The 2021 intra-year decline of 4% is, so far, one of the smallest on record. For the S&P 500, the median drawdown since 1980 is 11% with 93% of calendar years experiencing a greater-than-5% drawdown. As for the S&P/TSX Composite here in Canada, this year’s intra-year decline has also been one of the smallest at the same -4%. Since 1980, the median intra-year decline has been 11%, with 90% of calendar years experiencing a greater-than-5% drawdown. Additionally, it is worth noting that, despite an average intra-year drop of 15%, annual returns were positive 29 of 41 years, or approximately 71% of the time.

Source: FactSet, Standard & Poor’s, JP Morgan Asset Management

Returns are calendar year and based on price index only and do not include dividends. Data as of June 30, 2021. For illustrative purposes only.

Source: Canaccord Genuity, Bloomberg, Standard & Poor’s

Returns are calendar year and based on the total return index which include dividends. Data as of June 30, 2021. For illustrative purposes only.

Sources: CNBC.com, Globe and Mail, Financial Post, BNN Bloomberg, Tony Dwyer, Canaccord Genuity, First Trust Advisors, LPL Research, FactSet, Standard & Poor’s