Market Insights: Trick or Treat

Macroeconomic and Market Developments:

• North American markets were mixed this week. In Canada, the S&P/TSX Composite Index was down 0.78%. In the U.S., the Dow Jones Industrial Average was up 0.40% and the S&P 500 Index increased 1.32%.
• The Canadian dollar was down slightly this week, closing at 80.73 cents vs 80.86 cents last Friday.
• Oil prices were down this week. U.S. West Texas crude closed at $83.57 vs $84.11 last week. The Western Canadian Select price closed at $67.86 vs $68.93 last week.
• The gold price was down this week, closing at $1,783 vs $1,794 last Friday.
• Turmoil continued at Rogers Communications (RCI.b) this week. Former Chairperson Edward Rogers held his own board meeting last weekend with the directors that he has chosen, which was immediately called invalid by the company’s existing board.
• The Bank of Canada shocked Canadian bond markets on Wednesday by unexpectedly announcing that they will be ending the Quantitative Easing (QE) program and accelerating the potential timing of interest rate hikes. The Central Bank also boosted inflation forecasts, now expecting 4.8% inflation in Q4 2021, and now believe that inflation will stay elevated into next year before easing to around 2% by late 2022. The news sent shorter term interest rates higher in Canada, but whereas normally the Canadian dollar would be expected to appreciate, surprisingly the Loonie stayed relatively flat.
• Cominar REIT (CUF.un) is being acquired by an investment consortium for $11.75/unit, which represents a 13% premium to the previous day’s closing price of $10.36/unit. The REIT is being overtaken by Iris Acquisition II, an entity led by Canderel Real Estate Property, a leading Québec real estate owner and operator, and includes FrontFour Capital Group, Artis REIT (AX.UN), and partnerships managed by the Sandpiper Group.
• George Weston Ltd (WN) announced that it has entered into an agreement to sell its Weston Foods fresh and frozen bakery businesses to affiliated entities of FGF Brands Inc. for total cash consideration of $1.2 billion. George Weston announced back on March 23, 2021, that it decided to sell its bakery segment and to focus on its Retail and Real Estate businesses.
• Algonquin Power & Utilities (AQN) has reached an agreement with American Electric Power (AEP) by which Algonquin will purchase AEP’s Kentucky operations for US$2.846 billion. In conjunction with this transaction, Algonquin has announced a C$650 million stock offering.
• It was a busy week for large cap earnings in the U.S., with the companies posting mixed results. Facebook (FB) reported on Monday, beating on earnings with $3.22/share vs $3.19/share expected, but missing on revenue with $29.01 billion vs $29.57 billion expected. Alphabet (GOOGL) reported on Tuesday, beating expectations on both earnings and revenue, with earnings coming in at $27.99/share vs $23.48/share expected and $65.12 billion in revenue vs $63.34 billion expected. Microsoft (MSFT) also reported on Tuesday, also beating expectations with $2.27/share earnings vs $2.07 expected and $45.32 billion in revenue vs $43.97 billion expected. Amazon (AMZN) reported on Thursday and missed on both earnings and revenue, with earnings coming in at $6.12/share vs $8.92/share expected on revenue of $110.81 billion vs $111.6 billion expected. And Apple (AAPL) also reported on Thursday, matching expectations on earnings with $1.24/share vs $1.24/share expected and slightly missing on revenue with $83.36 billion vs $84.85 billion expected.
• U.S. new orders for Durable Goods declined 0.4% in September; better than the expected decline of 1.1%. Durable Goods orders excluding transportation increased 0.4% in September, matching expectations. Orders are up 15.3% from a year ago, while orders excluding transportation are up 14.6%.
• U.S. Real GDP grew at a 2.0% annual rate in Q3, below expectations of 2.6% growth. The largest positive contributions to the real GDP growth rate in Q3 were inventories and personal consumption, with business investment in intellectual property and government purchases also making positive contributions. The largest drag on growth was net exports, with home building, business investment in equipment, and commercial construction also slowing.
• The overall PCE Deflator, the U.S. Federal Reserve’s preferred inflation gauge, rose 0.3% in September and is up 4.4% versus a year ago. The “core” PCE Deflator, which excludes food and energy, rose 0.2% in September and up 3.6% in the past year. After adjusting for inflation, “real” consumption rose 0.3% in September and is 6.2% from a year ago. If you look at price pressures over the last six months, which reduces the ‘base effect’ impact of COVID, it shows an even more profound rise in inflation, with overall prices up at a 5.6% annualized rate. In other words, inflation also reflects the loose stance of monetary policy in addition to the imbalance in supply and demand.
• Canadian Real GDP rose 0.4% in the month of August, below expectations of 0.7% growth. Statistics Canada also reported that preliminary data suggests real GDP was flat in September, resulting in an estimate of total Q3 GDP growing by 0.5%.
• Here is a link to a short video from Canaccord’s chief U.S. Strategist Tony Dwyer entitled Yield Curve Mythbuster: DWYER VLOG

Weekly Diversion:

Check out this video of a dog accepting full responsibility for their actions (make sure to turn up the volume).

Chart of the Week:

In light of All Hallows’ Eve, also known as All Saints’ Eve, arriving this weekend, we thought we would share a little lessor known market ‘phenomena’ called the Halloween Trade. We have a solid knowledge of seasonal patterns, as well as markets signals like the ‘Santa Claus Rally’ and the January Barometer (“so goes January, so goes the rest of the year”), as well as a plethora of others; however, we must admit we didn’t know much about this ‘Halloween Trade’ until we came across it courtesy of Jeff Hirsch, Editor of the Stock Trader’s Almanac. The following chart shows how the S&P 500 has performed in the last four trading days of October and first three trading days of November, and the data shows this period has a very positive track record. In the last 27 years, the market has only been down four times during this seven-day stretch. That is an 85%-win rate for an average gain of 2.08% and medium gain of 1.5%, far above the norm for seven-day periods. This trend extends to other markets as well like the Dow Jones Industrial Average (blue chip large caps), the NASDAQ (technology) and the Russell 2000 Index (small caps), all with average gains of 2% to 2.6%.

Source: @AlmanacTrader

We have discussed many times in the past that the seasonally strong six-month period for equities arrives late October and continues into early May. Perhaps this ‘Halloween Trade’ is the stretch that typically kickstarts this relatively positive time frame for risk assets. The specific period is known to be October 28th to May 5th for equities in general. However, the Stock Market Almanac has pointed out that this year, their proprietary Seasonal MACD Buy Signal actually triggered a buy signal back on October 8th. This indicator, in combination with what is typically the better six-month stretch, is an encouraging sign.

Happy Halloween!

 

Sources: CNBC.com, Globe and Mail, Financial Post, BNN Bloomberg, Tony Dwyer, Canaccord Genuity, First Trust, Stock Trader’s Almanac