Market Insights: Third Year of New Presidential Cycle

Macroeconomic and Market Developments:

• North American markets were positive this week. In Canada, the S&P/TSX Composite Index was up 2.75%. In the U.S., the Dow Jones Industrial Average increased 2.00% and the S&P 500 Index was up 2.67%.
• The Canadian dollar rose slightly this week, closing at 74.65 cents vs 74.38 cents last Friday.
• Oil prices rallied this week. U.S. West Texas crude closed at US$79.86 vs US$73.76 last Friday, and the Western Canadian Select price closed at US$56.87 vs US$47.03 last Friday.
• The gold price jumped this week, closing at US$1,920 vs US$1,866 last Friday.
• The World Bank slashed its 2023 global economic growth outlook to 1.7% for 2023 from its earlier projection of 3.0%. The adjustment was led by a significant downgrade to its prospects for the U.S. economy, now forecasting just 0.5% growth, down from an earlier projection of 2.4%. The World Bank said this would mark “the third weakest pace of growth in nearly three decades, overshadowed only by the global recessions caused by the pandemic and the global financial crisis”.
• A management-led group at Canaccord Genuity (CF) has announced its intention to launch a takeover bid for the company at a price of $11.25/share in cash. The offer price represents a 30.7% premium to the closing price of the common shares on the day before the announcement.
• Calgary-based Tourmaline Oil (TOU) provided an operational update this week, showing guidance for free cash flow of $2.6 billion and capital expenditures of $1.86 billion. The company also announced a special dividend of $2.00/share.
• U.S. inflation data came in as anticipated this week. The U.S. Consumer Price Index (CPI) fell 0.1% in December from the previous month, with the annual inflation rate coming in at 6.5%. The core CPI, excluding volatile food and energy, rose 0.3% and is up 5.7% year-over-year. The biggest reason for the easing in overall inflation came from a sharp drop in gasoline prices, which are now lower on a year-over-year basis.
• Big U.S. banks kicked off earnings season on Friday with Bank of America, JPMorgan and Wells Fargo among the high-profile reporters:
  • Bank of America (BAC) released earnings of $0.85/share vs $0.77/share expected, with revenue of $24.66 billion vs $24.33 billion expected.
  • JPMorgan (JPM) reported earnings of $3.57/share, above the $3.07/share estimate after excluding one-time items, on revenue of $35.57 billion vs $34.3 billion estimated.
  • Wells Fargo (WFC) released earnings of $0.67/share compared with $1.38 a share a year ago. Revenue came in at $19.66 billion, below the $19.98 billion expected and 5.7% lower than a year earlier.
• Here is a link to a short video from Canaccord’s chief U.S. Strategist Tony Dwyer titled Inflation View and One Way We Identify Recession: Dwyer VLOG

 

Weekly Diversion:

Check out this video: Cute Bunny Jumping Competition!

Chart of the Week:

This week we wanted to present a chart that shows how the U.S. stock market has performed in each year of the four-year U.S. presidential cycle including data for a re-elected president and a new president. The second year of a new president has historically been bad for stocks, and that certainly played out in 2022. The positive news is that the third year has historically shown a bounce back in a major way. As you can see below, since 1950, the strongest returns for the S&P 500 have clearly been the third year of the cycle, but even more so under a new president like the current situation. In fact, the third year of a new presidential cycle has averaged a return of 20.1%, essentially double the average for all years combined.

Source: Ryan Detrick, Carson Investment Research

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: CNBC.com, Globe and Mail, Financial Post, Connected Wealth, BNN Bloomberg, Tony Dwyer, Canaccord Genuity, Bespoke Investment Group. First Trust, Seeking Alpha, @Ryan Detrick, Carson Investment Research