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Market Brief - April 27, 2018

Erica Szczech - May 08, 2018
It was another unpredictable week in the equity markets with several hundredpoint intraday swings in either direction. We’ve seen this pattern for several weeks now and the million-dollar question is what will it take to make this stop. Perhaps inves

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It was another unpredictable week in the equity markets with several hundredpoint intraday swings in either direction. We’ve seen this pattern for several weeks now and the million-dollar question is what will it take to make this stop. Perhaps investors are concerned that the strength of markets is not sustainable, but we’ve seen some outstanding quarterly earnings released, mainly in the tech sector.


After a very quiet week for economic data on both sides of the border, we’ve finally got something to chew on this morning with American Q1 GDP numbers coming in at 2.3% while expectations were at 2%. After the healthy print of 2.9% in Q4, markets were calling for a significant drop off to around 2% but were pleasantly surprised to the upside.


Economists have often argued about the seasonality in the Q1 numbers, but for every economist saying you should add 0.9% to the number, there’s another saying it’s fine or you should adjust it the other way. The Canadian calendar remains quiet until next Tuesday when we get our own GDP numbers for February. Earnings will also remain in focus today with a couple heavy hitters like Amazon, Microsoft, and Intel all reporting positive results.

 

These positive signals often leave us wondering where we are headed, and we try to focus on some of the fundamentals which are relevant:


• Solid global growth albeit may be at a slightly slower pace this year
• Positive corporate activity in the US and Europe as evidenced by the current earnings season
• Record dividend payouts as well as share buybacks exceeding equity issuance
• Capital spending improving and infrastructure projects starting
• Increased home ownership and millennials moving into the market


All of these factors will contribute to continued positive growth in equity
markets.


In other geopolitical news, there were big things happening on the Korean Peninsula overnight where North Korean Supreme Leader Kim and South Korean President Moon Jae-In embraced after inking an agreement through a “common goal of realizing, through complete denuclearization, a nuclear-free Korean Peninsula.”. Kim made history as he crossed over a cement block and walked through the demilitarized zone to the Peace House, where they met face to face to discuss their plans; something no other North Korean leader
has done.

 

President Trump of course taking to Twitter to ‘congratulate’ the leaders in his own way, tweeting: “KOREAN WAR TO END!”. The leaders should be applauded because it’s a monumental step in the right direction. President Trump also taking some responsibility for the news and changing his tune from calling Kim ‘rocket man’ to being ‘open and honorable’. We wait to see what will come of their upcoming meeting sometime in May and how markets will interpret it.


The TSX experienced technical issues around mid-trading today and has shut down early, which has to be a first! We still aren’t sure as to what is the issue but stay tuned. Regular trading to resume on Monday.