The S&P 500 on the Longest Bull Market Run in History

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1 WEEKLY NEWSLETTER The S&P 500 on the Longest Bull Market Run in History #1 BEST OVERALL FORECASTER - HIGHLIGHTS ff United States: Home sales fall again in. ff Canada: Wholesale and retail sales lost ground in. A LOOK AHEAD ff Growth in U.S. real consumption likely slowed in. ff Canada: Real GDP by industry could increase somewhat in. ff Canada: The second quarter as a whole should end with real GDP growth of around 3%. FINANCIAL MARKETS ff The U.S. stock market was on an upswing this summer. ff The prospect of an upcoming rate hike by the Bank of Canada has boosted Canadian bond yields. ff The turbulence on currency markets in emerging countries has eased. CONTENTS Key Statistics of the Week... 2 United States, Canada A Look Ahead... 4 United States, Canada, Overseas Financial Markets... 3 Economic Indicators of the Week... 6 Tables Economic indicators... 8 Major financial indicators...10 François Dupuis, Vice-President and Chief Economist Carine Bergevin-Chammah, Economist Mathieu D Anjou, Senior Economist Benoit P. Durocher, Senior Economist Francis Généreux, Senior Economist Hendrix Vachon, Senior Economist, Economic Studies: or , ext desjardins.economics@desjardins.com desjardins.com/economics NOTE TO READERS: The letters k, M and B are used in texts and tables to refer to thousands, millions and billions respectively. IMPORTANT: This document is based on public information and may under no circumstances be used or construed as a commitment by Group. While the information provided has been determined on the basis of data obtained from sources that are deemed to be reliable, Group in no way warrants that the information is accurate or complete. The document is provided solely for information purposes and does not constitute an offer or solicitation for purchase or sale. Group takes no responsibility for the consequences of any decision whatsoever made on the basis of the data contained herein and does not hereby undertake to provide any advice, notably in the area of investment services. The data on prices or margins are provided for information purposes and may be modified at any time, based on such factors as market conditions. The past performances and projections expressed herein are no guarantee of future performance. The opinions and forecasts contained herein are, unless otherwise indicated, those of the document s authors and do not represent the opinions of any other person or the official position of Group. Copyright 2018, Group. All rights reserved.

2 Key Statistics of the Week UNITED STATES ff Sales of existing homes were down 0.7% in, while the consensus called for growth of around %. This was the fourth straight month of falling home resales. Annualized sales edged down from 5,380,000 units in to 5,340,000 in, the lowest figure since February In, sales of existing single-family homes retreated, while sales of multi-unit housing fell by 4.8%. ff Retail sales fell in. New car dealer sales (-%) and service station sales (-%) lost ground during the month. However, a increase has been noted in other sectors. In real terms, sales are down. ff Sales of new single-family dwellings dropped for a second straight month in. The 1.7% decline follows a % decrease in. At 627,000 units (annualized) in, sales are down significantly from the recent high of 712,000 units reached in November s decline occurred mainly in the northeastern United States. ff Wholesale sales retreated 0.8% in. Motor vehicle and auto parts sales (-%) posted a third straight decline. However, the other sectors posted a % drop. This is the first decrease in nine months. In real terms, sales fell %. On the other hand, inventory increased % so that the total impact of wholesaling on economic growth will be slightly positive for. Benoit P. Durocher, Senior economist ff New durable goods orders dipped 1.7% in after a 0.7% increase in and a drop in. The dip was largely due to a 35.4% slide in civil aviation. Excluding transportation, new orders were up. Excluding aviation and defence, new capital goods orders were up for a fourth consecutive month, with a gain of % in. Francis Généreux, Senior economist The sum of retail trade indicates an increase in consumer spending in the second quarter Real retail sales In 2007 $B 49.0 Quarterly averages JAN APR. JUL. OCT. JAN APR. Sources: Statistics Canada and, Economic Studies 2

3 Financial Markets A Tough Summer for Emerging Country Currencies Escalating trade tensions with China and signs that the Chinese economy may be starting to weaken affected stock markets. Strong economic data and corporate results in the United States drove the stock market higher. The S&P 500 marked its longest bull run in history on Wednesday, exceeding 3,453 consecutive days. Since our last Weekly Newsletter dated 6, the S&P 500 has increased by 3.6%. It softened a bit this week, with new tariffs between China and the United States taking effect on Thursday. By Friday morning, the weekly gain was about 0.9%. On the opposite end of the spectrum, Canada s stock market has been trending slightly lower since mid-. Price declines for oil and industrial metals held sway over Canada s stock market. The S&P/TSX was more or less stable this week, with a slight weekly gain of at the time of writing. Bond yields in the United States remained at relatively high levels between the end of and mid-august, only to fall back to the level seen early this summer. The U.S. 10 year yield topped 0% only once, on August 1st. Today, it sits below 5%. The 2 year yield performed somewhat better, reaching about 2.60% on Friday morning. Unlike its U.S. counterparts, Canadian bond yields were on an uptrend this summer, with the 10 year yield showing some weakness recently. Expectations of a third key rate increase in 2018 in Canada have kept yields at high levels. The 2 year yield is now below 2.15%, while the 10 year yield is below 0%. GRAPH 1 Stock markets Index Index 2,875 16,600 16,500 2,850 16,400 2,825 16,300 2,800 16,200 2,775 16, /07/ /07/ /07/ /08/ /08/ /08/23 S&P 500 (left) S&P/TSX (right) Sources: Datastream and, Economic Studies GRAPH 2 Bond markets 10-year yield In % points -0 In % The currency market was hectic this summer, especially in emerging markets, but the situation now seems calmer. The sharp rise of the U.S. dollar raised concerns about the stability of some economies, namely Argentina, Brazil and Turkey. Political tensions between Turkey and the United States exacerbated the depreciation of Turkey s currency. The Turkish lira lost 45% of its value in the first two weeks of August. It has since recovered somewhat, but it remains much weaker than at the beginning of summer. The U.S. dollar shed some of its gains when Donald Trump expressed his disagreement with the Federal Reserve s monetary tightening. The euro was up sharply this week and is currently at around US$6. The loonie showed some resistance this summer, though it has weakened since Thursday. It is at about US$0.76 today /07/ /07/20 Spread (left) 2018/07/ /08/07 United States (right) 2018/08/ /08/23 Canada (right) Sources: Datastream and, Economic Studies GRAPH 3 Currency markets US$/C$ US$/ Carine Bergevin-Chammah, Economist /07/ /07/ /07/ /08/2018 Canadian dollar (left) 15/08/ /08/2018 Euro (right) Sources: Datastream and, Economic Studies 3

4 A Look Ahead UNITED STATES TUESDAY August 28-9:00 y/y 6.43% 6.60% 6.51% S&P/Case-Shiller index of existing home prices () The monthly change in the S&P/Case Shiller index slowed at the beginning of spring. The average increase in April and was, much lower than the average of 0.7% recorded in the first quarter. We expect an increase of for. A base effect should see the annual change in the S&P/Case Shiller index tick up from 6.5% to 6.6%. TUESDAY August 28-10:00 August Conference Board consumer confidence index (August) After losing 1.7 points in, the Conference Board confidence index moved up 0.3 points in. Another slight increase is expected for August. Gas prices have dipped slightly since the beginning of the month, the stock market is up more than 1.5% and new jobless claims are at historic lows. The other confidence indexes are sending mixed signals, however. The University of Michigan index fell to its lowest level in almost a year and the Bloomberg weekly index has been down slightly for the last two weeks, while the TIPP reached a peak not seen in 14 years. All told, the Conference Board s consumer confidence index should reach THURSDAY August 30 - m/m Consumer spending () Consumption growth was very strong in the second quarter of 2018, with an annualized gain of 4.0% the best result since the end of The increase started to slow in, however. We do not expect real consumption to post a major increase in either. The decline in new automobile sales and the modest rise in retail sales point to a weak advance in the consumption of goods. On the services side, a surge in food services will be partially offset by a slowdown in demand for energy. All in all, real consumption growth should come in at only. The gain should reach in current dollars. The annual change in the deflator should rise from % to %, while the core deflator, which excludes food and energy, could reach 2.0%. WEDNESDAY August 29 - Q $B Q Current account (Q2) According to the data on international merchandise trade, the value of exports climbed by 6.0% in the second quarter. This growth clearly outpaced import growth (+3.2%), thus allowing the trade balance to improve significantly for the period. This paves the way for a drop in the current account deficit. THURSDAY August 30 - m/m % Real GDP by industry () The economic results were fairly mixed in. The good news is that the increase in exports for the month gave manufacturing sales a huge boost. What s more, the month of ended with a net rebound in housing starts. Now the bad news: the volume of wholesale and retail sales declined, and the number of hours worked in the services sector fell by. The magnitude of the negative impact due to the oil production interruption at the Syncrude oil sands complex in Alberta remains to be seen. The bottom line is that real GDP by industry is expected to show some positive growth in. THURSDAY August 30 - Q ann. rate % % Q % Real GDP (Q2) Real GDP by industry was up in April and % in, meaning that the carryover is quite high. Factoring in the increase expected for, the second quarter should post an annualized gain of about % overall. Not only did consumption spending gain strength, but international trade is also set to make a big contribution to growth, fuelled by the sharp rise in exports. 4

5 OVERSEAS DURING THE WEEK : Economic indicators Several major indicators for will be released in the next few days. Their readings will show if the thrust that began in the second quarter with real GDP growth reaching an annualized gain of % will extend into Q3. Retail sales figures will be made public on Wednesday evening. On Thursday evening, the figures for industrial production, housing starts, unemployment rates, and the consumer price index will be announced. THURSDAY August 30 - : Confidence indicators Most of the confidence indexes in the euro zone are trending downwards. The declines are quite modest however, and they reflect weaker real GDP growth, but no marked downturn in the economic environment. The August numbers for most of these indexes will be released on Thursday. The preliminary version of the consumer confidence index declined once again, from - to -, the lowest level since For its part, the PMI composite index stabilized instead in August, after spiking temporarily in followed by a dip in. Among the other indicators to be released next week, the advance estimate for inflation in August and the unemployment rate for will be released on Friday. The German Ifo business climate index comes out Monday. 5

6 Economic Indicators Week of August 27 to 31st, 2018 Day Hour Indicator Period Previous data UNITED STATES MONDAY 27 TUESDAY 28 9:00 10:00 Goods trade balance preliminary (US$B) Retail inventories preliminary (m/m) Wholesale inventories preliminary (m/m) S&P/Case-Shiller home price index (y/y) % % % WEDNESDAY 29 10:00 Real GDP (ann. rate) Pending home sales (m/m) Q2s 4.0% % 4.1% 4.1% 0.9% 215, , ,000 % 2.0% % 2.0% % % THURSDAY 30 Initial unemployment claims Personal income (m/m) Personal consumption expenditures (m/m) Personal consumption expenditures deflator Total (m/m) Excluding food and energy (m/m) Total (y/y) Excluding food and energy (y/y) FRIDAY 31 9:45 10:00 Chicago PMI index Michigan s consumer sentiment index final MONDAY 27 TUESDAY 28 WEDNESDAY 29 Current account balance ($B) Q THURSDAY 30 Real GDP by industry (m/m) Real GDP (ann. rate) Q2 % % % % FRIDAY 31 Industrial product price index (m/m) Raw materials price index (m/m) % % Note:, Economic Studies are involved every week in the Bloomberg survey for Canada and the United States. Approximately 15 economists are consulted for the Canadian survey and a hundred or so for the United States. The abbreviations m/m, q/q and y/y correspond to monthly, quarterly and yearly variation respectively. Following the quarter, the abbreviations f, s and t correspond to first estimate, second estimate and third estimate respectively. The times shown are Daylight Saving Time (GMT - 4 hours). Forecast of, Economic Studies of the Group. 6

7 Economic Indicators Week of August 27 to 31st, 2018 Country Hour Indicator Period m/m (q/q) y/y Previous data m/m (q/q) y/y OVERSEAS DURING THE WEEK Retail sales - 1.2% 1.2% MONDAY 27 Ifo survey Business climate Ifo survey Current situation Ifo survey Expectations TUESDAY 28 France Italy Italy 2:45 Money supply M3 Economic confidence WEDNESDAY 29 France France 1:00 2:00 2:45 2:45 19:50 Personal consumption expenditures Real GDP preliminary Retail sales Sept. Q % THURSDAY 30 South Korea United Kingdom China China -- 8:00 19:01 19:30 19:30 19:50 21:00 21:00 Bank of Korea meeting Business climate final Industrial confidence Services confidence Economic confidence Consumer price index preliminary Consumer price index Tokyo Unemployment rate Industrial production preliminary PMI manufacturing index PMI non-manufacturing index % FRIDAY 31 United Kingdom France Italy Italy Italy 1:00 2:00 2:45 6:00 Housing starts Nationwide house prices Consumer price index preliminary Unemployment rate Consumer price index estimate Unemployment rate Consumer price index preliminary Real GDP final Q2-4.3% 2.6% % % 10.8% 2.1% 8.2% % % % % 1.7% 1.2% 2.0% % % 2.6% 5 4.4% % % 1.8% 2.0% 0.9% % -1.8% % % -0.9% -7.1% 2.5% % 2.1% 8.3% 1.5% % Note: In contrast to the situation in Canada and the United States, disclosure of overseas economic fi gures is much more approximate. The day of publication is therefore shown for information purposes only. The abbreviations m/m, q/q and y/y correspond to monthly, quarterly and yearly variation respectively. The times shown are Daylight Saving Time (GMT - 4 hours). 7

8 UNITED STATES Quarterly economic indicators REF. QUART. Gross domestic product (2009 $B) Consumption (2009 $B) Government spending (2009 $B) Residential investment (2009 $B) Non-residential investment (2009 $B) Business inventory change (2009 $B)1 Exports (2009 $B) Imports (2009 $B) Final domestic demand (2009 $B) GDP deflator (2009 = 100) Labor productivity (2009 = 100) Unit labor cost (2009 = 100) Employment cost index (Dec = 100) Current account balance ($B)1 1 VARIATION (%) LEVEL ANNUAL VARIATION (%) Quart. ann. 1 year ,507 12,848 3, , ,574 3,424 19, Statistics representing the level during the period; * New statistic in comparison with last week. UNITED STATES Monthly economic indicators REF. MONTH Leading indicator (2010 = 100) ISM manufacturing index1 ISM non-manufacturing index1 Cons. confidence Conference Board (1985 = 100)1 Personal consumption expenditure (2009 $B) Disposable personal income (2009 $B) Consumer credit ($B) Retail sales ($M) Excluding automobiles ($M) Industrial production (2007 = 100) Production capacity utilization rate (%)1 New machinery orders ($M) New durable good orders ($M) Business inventories ($B) Housing starts (k)1 Building permits (k)1 New home sales (k)1 Existing home sales (k)1 Commercial surplus ($M)1 Nonfarm employment (k)2 Unemployment rate (%)1 Consumer price ( = 100) Excluding food and energy Personal cons. expenditure deflator (2009 = 100) Excluding food and energy Producer price (2009 = 100) Export prices (2000 = 100) Import prices (2000 = 100) 1 VARIATION (%) LEVEL -1 month -3 months -6 months -1 year ,886 14,350 3, , , * * * , ,852 1,937 1,168 1, ,340-46, , ,158 1, ,380-43, ,276 1, ,450-47, ,334 1, ,380-51,889 1, ,185 1, ,420-44,803 2, Statistic shows the level of the month of the column; 2 Statistic shows the variation since the reference month; * New statistic in comparison with last week. 8

9 Quarterly economic indicators REF. QUART. Gross domestic product (2007 $M) Household consumption (2007 $M) Government consumption (2007 $M) Residential investment (2007 $M) Non-residential investment (2007 $M) VARIATION (%) LEVEL ANNUAL VARIATION (%) Quart. ann. 1 year Current account balance ($M)1 1,877,388 1,077, , , ,573 15, , ,364 1,875, , , , , , ,526 Production capacity utilization rate (%)1 Disposable personal income ($M) Corporate net operating surplus (2007 $M) ,242, , Business inventory change (2007 $M)1 Exports (2007 $M) Imports (2007 $M) Final domestic demand (2007 $M) GDP deflator (2007 = 100) Labour productivity (2007 = 100) Unit labour cost (2007 = 100) 1 Statistics representing the level during the period; * New statistic in comparison with last week. Monthly economic indicators REF. MONTH Gross domestic product (2007 $M) Industrial production (2007 $M) Manufacturing sales ($M) Housing starts (k)1 Building permits ($M) Retail sales ($M) Excluding automobiles ($M) Wholesale trade sales ($M) Commercial surplus ($M)1 Exports ($M) Imports ($M) Employment (k)2 1 Unemployment rate (%) Average weekly earnings ($) Number of salaried employees (k)2 Consumer price (2002 = 100) Excluding food and energy Excluding 8 volatile items Industrial product price (2002 = 100) Raw materials price (2002 = 100) Money supply M1+ ($M) 1 VARIATION (%) LEVEL -1 month -3 months -6 months -1 year 1,781, ,769 58, ,092 50, * 37, * 63, ,724-4, , ,824 50,699 51, , , , * Statistic shows the level of the month of the column; 2 Statistic shows the variation since the reference month; * New statistic in comparison with last week. 9

10 UNITED STATES,, OVERSEAS Major financial indicators PREVIOUS DATA ACTUAL LAST 52 WEEKS IN % (EXPECTED IF INDICATED) month -3 months -6 months -1 year Higher Average Lower United States Federal funds target Treasury bill 3 months Treasury bonds 2 years Treasury bonds 5 years Treasury bonds 10 years Treasury bonds 30 years S&P 500 index (level) DJIA index (level) Gold price (US$/ounce) CRB index (level) WTI oil (US$/barrel) ,874 25,768 1, ,850 25,669 1, ,819 25,451 1, ,721 24,753 1, ,747 25,310 1, ,443 21,814 1, ,874 26,617 1, ,682 24,348 1, ,444 21,753 1, Canada Overnight target Treasury bill 3 months Treasury bonds 2 years Treasury bonds 5 years Treasury bonds 10 years Treasury bonds 30 years Spread with the U.S. rate (% points) Overnight target -0 Treasury bill 3 months -6 Treasury bonds 2 years Treasury bonds 5 years -0 Treasury bonds 10 years -5 Treasury bonds 30 years S&P/TSX index (level) Exchange rate (C$/US$) Exchange rate (C$/ ) 16, , , , , , , , , Overseas ECB Refinancing rate Exchange rate (US$/ ) United Kingdom BoE Base rate Bonds 10 years FTSE index (level) Exchange rate (US$/ ) , , , , , , , , , Bonds 10 years DAX index (level) , , , , , , , , ,787 BoJ Main policy rate Nikkei index (level) Exchange rate (US$/ ) 22, , , , , , , , , CRB: Commodity Research Bureau; WTI: West Texas Intermediate; ECB: European Central Bank; BoE: Bank of England; BoJ: Bank of Note: Data taken at markets closing, with the exeption of the current day where they were taken at 11:00 a.m. 10