Market Commentary

Making Cents of the Markets

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The first week of September is in the books and last week’s rally continued with the S&P 500 gaining 1.8% and the TSX gaining 0.6%. Trade positivity led the way, despite new tariffs going into place on September 1. On Thursday, China’s Commerce Ministry issued a statement saying that they had spoken with the US and agreed to hold another round of trade negotiations in Washington, D.C., towards the beginning of next month. Consultations will also be made in mid-September in preparation for the meeting, and a report from “reliable China insiders” has noted that China thinks this round of trade talks could lead to a breakthrough. The report noted that it’s “very likely” there will be “new developments” in the upcoming trade talks. That’s good to hear, but we will have to be patient and see what actually materializes. We maintain our stance that, President Trump will be looking for a deal to flaunt on the campaign trail.

We had double jobs day in North America on Friday, with the US and Canada both reporting their August numbers. The US had a gain of 130,000 jobs in August, in large part due to the temporary hiring of Census workers, which was short of Wall Street estimates for a 150,000 gain. The unemployment rate did stay at 3.7%, and wages increased more than expected by 0.4%; 3.2% higher than last year. We take this number at face value as the market did, with a muted response. While it was disappointing, it does leave the door open for the Federal Reserve to provide some stimulus in the form of a rate cut. In Canada, we had a reversal of the trend from the month prior with a big beat; 81,000 jobs gained versus about 20,000 expected, and unemployment was steady at 5.7%. This was an impressive beat, but note that part-time jobs accounted for most of the increase. This will likely give credence to the neutral stance the Bank of Canada took on Wednesday at their policy rate announcement, when they elected to maintain their benchmark interest rate. Consumers in both the US and Canada seem to be on stable footing.

Our Strategy

The S&P 500 finally broke out of a trading range it was stuck in since August 1, between the 50 day moving average (DMA) of 2945 and the support level of 2822 on the downside. Positive developments in the Hong Kong protest situation, and the trade de-escalation with a meeting set for October allowed the markets to get boosted to the upside. While this was positive, we have to remain at least a little cautious here, given that trade improvement will be tough to come by despite the optimism over the short term. Remember that the last few sticking points are going to be the hardest for both nations to overcome, with intellectual property protection rights, restrictive Chinese laws that need to be changed, and the reality that the US does not want to lose its #1 ranking on top of the world economic powerhouse anytime soon. This is something that China aspires to take over, and current projections have it happening eventually.

That said, we maintain our positive outlook, knowing short-term volatility will remain. We have a solid consumer backdrop, a supportive Fed and global central bankers, and a US President who is watching the stock market ahead of his election campaign. A major weakness in the economy is clearly manufacturing, but remember that makes up about 11% of GDP. Services, on the other hand, make up about 89% of GDP and continue to be strong. We do not believe we are in for another plunge like the fall of 2018, as some people may be concerned about, because of the major differences to last year. Remember the Fed was hiking rates in the midst of trade tensions – they had planned on 3 hikes in 2019 as of September right before the big drop – instead of the easing mode they are currently exhibiting. Some quick stats from Raymond James & Associates (USA) on re-election campaigns that the President has to be aware of. “Since World War II, there have only been two incumbents that lost re-election, Carter in 1980 and Bush Sr. in 1992. Both times the economy was in contraction, unemployment was rising, and real disposable income growth was below 1% y/y. President Trump knows he needs a good economy and stock market over the next year.”

Chart of the Week

From Credit Suisse, an update on their “Recession Dashboard” comparing several metrics to prior recessions, and what signals they are showing right now. Yes, the yield curve inversion was a negative signal. But the rest of the data simply isn’t at a breaking point:

Beyond the Markets

This weekend is all about our furry friends! On Saturday, head down to David Lam Park at 10:00am and register for the BC SPCA Paws for a Cause to raise money for BC SPCA branches across the Lower Mainland. Walk the beautiful Seawall all while supporting the animals that have yet to find their forever home.

Or if you have a mixed-breed dog that might just be a superstar, make your way to Kerrisdale for the Kerrisdale Mutt Show! This paw-tastic dog show will judge the widest variety of mutts in unique categories such as: waggiest tail, best singer, and most unidentifiable mix! The event organizers will also be accepting donations on behalf of the BC SPCA so however you choose to spend your Saturday, you will have the chance to give back!

Listen to this week’s Making Cents of the Markets on CKNW. We talked all about the Bank of Canada rate announcement, Canadian GDP, and US/China talks. Listen here.

Click here to read our latest North Shore News article where we touch on financial planning after losing a loved one. The article dives deeper into how to lessen your burden and the appropriate steps to take after such a life-changing event.

This commentary has been prepared by Pinkowski Wealth Management. It is for informational purposes only. Raymond James Ltd. believes this information to be reliable but does not guarantee its accuracy or completeness and is not responsible for any errors or omissions. Raymond James Ltd, member Canadian Investor Protection Fund. This email may provide links to other Internet sites for the convenience of users. Raymond James Ltd. is not responsible for the availability or content of these external sites, nor does Raymond James Ltd endorse, warrant or guarantee the products, services or information described or offered at these other Internet sites. Users cannot assume that the external sites will abide by the same Privacy Policy which Raymond James Ltd adheres to.