Market Insights: U.S. Consumer Spending Unleashed

Macroeconomic and Market Developments:

• North America markets dipped early in the week but made a positive climb by Friday. In Canada, the S&P/TSX Composite Index rose 1.01%. In the US, the Dow Jones Industrial Average was down slightly by just over 1% as was the S&P 500 Index.
• The Canadian dollar finished up this week, closing at 80.17 cents vs 79.58 cents last Friday.
• Oil prices were up this week. US West Texas crude was up to $73.78 from $72.02 last week, and the Western Canadian Select price also made gains to $59.37 vs $57.89 last week.
• Gold prices were up this week, closing at $1,813 vs $1,802 last Friday.
• On Monday, Inter Pipeline (IPL) announced that it is officially breaking its current takeover agreement with Pembina (PPL) in an effort to pursue the deal with Brookfield Infrastructure (BIPC). This will result in a $350 million break fee being payable to Pembina, which will be paid for by Brookfield.
• This week was a big week for earnings in the US. On Monday, Tesla beat estimates with earnings of $1.45/share vs $0.98 expectations. On Tuesday, Apple reported blowout earnings of $1.30/share vs $1.01 expectations, Microsoft beat with earnings of $2.17/share vs $1.92 expectations and Alphabet (Google’s parent company) also crushed earnings estimates with $27.26/share vs $19.34 expected. On Wednesday, Facebook also beat estimates with $3.61/share vs $3.03 expected. On Thursday, Amazon also beat earnings expectations with earnings of $15.12/share vs $12.30/share expectations. However, the positive results didn’t translate into higher stock prices for these large tech companies, with only Tesla and Alphabet up on the week.
• On Wednesday, Statistics Canada released the June Consumer Price Index (CPI), showing a 3.1% rise year-over-year, in line with consensus and down from +3.6% in May. The report incorporated updated CPI basket weights to better reflect 2020 pandemic-driven shifts in spending patterns.
• On Friday, Canada’s GDP numbers were released showing the economy contracted 0.3% in May matching consensus, following a 0.5% decline in April. Canada’s total economic activity was approximately 2% below February 2020's pre-pandemic level. However, Statistics Canada also noted preliminary information indicates an approximate 0.7% increase in real GDP for June.
• Here is a link to a short video from Canaccord’s chief U.S. Strategist Tony Dwyer entitled A Story and a Game Plan Highlight: DWYER VLOG
• US Investment company First Trust has created a COVID Recovery Tracker. Click here: RECOVERY TRACKER

Weekly Diversion:

Check out this video of a very cute future Olympian.

Charts of the Week:

There has been a lot of talk in the media about the economic recovery from the COVID shutdowns. GDP reports for Canada and the US for Q2 2021 have looked very strong compared with Q2 2020 when most of the lockdowns were at their worst. Additionally, there has been much talk about the massive level of savings that consumers were able to build up last year due to the fact that they were limited in the things the could do (most dramatically the lack of the ability to travel).

On Thursday, the Commerce Department released their first estimate of US Q2 GDP, which came in much lower than expected at a rate of 6.5% vs 8.4% expected. This chart shows that whereas US GDP wasn’t as strong as hoped for Q2, it is still very strong historically.

And not surprisingly the big driver has been in personal spending. As you can see from the chart below, the consumer is alive and well and busy spending that big amount of savings from last year.

Source: Connected Wealth

Sources: CNBC.com, Globe and Mail, Financial Post, BNN Bloomberg, Tony Dwyer, Canaccord Genuity, First Trust Advisors, Connected Wealth, Bureau of Economic Analysis