Market Insights: Markets Pull Back This Week

Macroeconomic and Market Developments:

• North American markets were down this week. In Canada, the S&P/TSX Composite Index declined 2.63%. In the U.S., the Dow Jones Industrial Average decreased 2.77% and the S&P 500 Index retreated 3.37%.
• The Canadian dollar fell this week, closing at 73.26 cents vs 74.25 cents last Friday.
• Oil prices contracted this week. U.S. West Texas crude closed at US$71.48 vs US$80.22 last Friday, and the Western Canadian Select price closed at US$43.60 vs US$51.66 last Friday.
• The gold price was unchanged this week, closing at US$1,797.
• The Bank of Canada delivered a seventh consecutive increase to interest rates on Wednesday, while opening the door to a pause in its hiking cycle. The central bank raised the benchmark overnight lending rate by 0.50% to 4.25%, largely in line with expectations, to the highest level since the beginning of 2008. BOC governor Tiff Macklem stated that the “Governing Council will be considering whether the policy rate needs to rise further to bring supply and demand back into balance and return inflation to target”.
• The U.S. ISM Non-Manufacturing (Services) index increased to 56.5 in November, well above the expected 53.5 (levels above 50 signal expansion, levels below signal contraction). The major measures of activity moved mostly higher in November and all stand above 50, signaling growth. The business activity index increased to 64.7 from 55.7, while the new orders component decreased to 56.0 from 56.5.
• Dollarama (DOL) reported inline earnings this week, with earnings of $0.70/share vs $0.70/share expected, with better-than-expected revenue of $1.29 billion vs $1.23 billion expected. The company also announced the acquisition of three contiguous industrial properties in Mount Royal, Quebec, for a total cash consideration of $87.3 million.
• TC Energy (TRP) shut down the Keystone Pipeline this week, which transports 622,000 bpd, as it responds to an oil spill in a creek about 20 miles south of Steele City, Nebraska. The company said it isolated the affected segment of pipeline and deployed booms to control movement of the oil.
• Crescent Point Energy (CPG) and Paramount Resources (POU) struck a deal this week that will see Crescent Point acquire certain Kaybob Duvernay assets from Paramount for cash consideration of $375 million. Crescent Point also announced an increase to the quarterly base dividend of 25% to $0.10/share, while Paramount plans to declare a special dividend of $1.00/share.
• Costco (COST) reported slightly lower than expected results after the market closed on Thursday, with $3.07/share in earnings vs $3.12/share expected on $53.44 billion in revenue vs $54.68 billion expected.
• Here is a link to a short video from Canaccord’s chief U.S. Strategist Tony Dwyer titled Market and Economic Release Reinforce Gameplan: DWYER VLOG

 

Weekly Diversion:

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Chart of the Week:

Equity markets pulled back this week after a strong November. Unfortunately, this has brought the S&P 500 Index below its 200-day moving average (DMA). Since the S&P 500 peaked on January 4th, there have been three occurrences where the index has moved above its 200 DMA, just to eventually be rejected and move back down below it. Certainly, the downtrend is not complete until it can sustain a longer period above this level, and for its 50 DMA to continue its positive trend since early November. It will be a good sign if we can see the S&P 500’s 50 DMA move back above its 200 DMA (known as a golden cross and a positive technical indicator), but we will first need to see some additional strength for that to occur.

Last week, we discussed breadth, with an emphasis on long-term breadth and the positive developments of late. This week we wanted to highlight another positive development, focusing on shorter-term breadth. At the end of last week, the percentage of stocks in the S&P 500 Index above their 50 DMA had spiked from under 3% to over 90%. You can see these instances in the chart below, noted by the red circles and the corresponding points in time on the chart. Stocks have always been higher 6 - 12 months after following such an occurrence. Although markets pulled back this week, at least we are seeing some stronger overall underlying metrics today compared to March and August this year. Back in August, there was strong positive short-term breadth, but not longer-term breadth. In our comments last week, we showed that the longer-term breadth has since improved. We will take this as positive.

Source: Game of Trades, SentimenTrader, Fidelity, Bloomberg

DISCLAIMER: Investing in equities is not guaranteed, values change frequently, and past performance is not necessarily an indicator of future performance. Investors cannot invest directly in an index. Index returns do not reflect any fees, expenses, or sales charges.

Sources: Game of Trades, SentimenTrader, Fidelity,CNBC.com, Globe and Mail, Financial Post, Connected Wealth, BNN Bloomberg, Tony Dwyer, Canaccord Genuity, First Trust, Game of Trades, SentimenTrader, Fidelity