Robert Kavcic, Senior Economist August 12, 2016 A Penny and Some Thoughts Equity markets were mostly higher this week, with the three major U.S. equity indices famously closing at simultaneous record highs at one point, a feat last seen at the height of the madness in 1999. But the U.S. is the exception, not the norm, on this front, with most other major equity markets still well below this cycle s peak level, be it in local currency or US$-terms. In the spirit of Rio, here are some of the best and worst recent performances, none of which hold a candle to the girl power in the pool this week: Gold: With the Dow, S&P 500 and Nasdaq all punching new record highs this week, something is going right in the United States. After a tepid first half that saw real GDP grow just 1% a.r., the economy looks like it will rebound with some vigour in the second half. We currently see 2.8% Market Performance as of August 12, 2016 Current Performance (percent) Price 1 Week 1 Month 3 Months 1 Year YTD 2015 NIKKEI 225 16,920 4.1 5.1-17.0-11.1 9.1 DAX 10,713 3.3 7.5 8.6-1.9-0.3 9.6 China CSI 300 3,294 2.8 0.6 6.6-18.0-11.7 5.6 CAC 40 4,500 2.0 3.9 4.8-8.6-3.0 8.5 FTSE 100 6,916 3.5 13.3 5.2 10.8-4.9 S&P/TSX 14,747 0.7 1.9 7.0 2.8 13.4-11.1 NASDAQ 5,233 0.2 4.2 10.5 3.7 4.5 5.7 Dow Jones 18,576 0.2 4.8 6.7 6.6-2.2 S&P 500 2,184 0.1 5.8 4.7 6.9-0.7 Source: Bloomberg growth in Q3, led by another strong consumer spending performance. All the while, the Fed s once-a-year tightening cadence and rock-bottom longer-term yields are giving investors some justification for current high valuations. Silver (in comeback fashion): The U.K. economy was thrown a big wrinkle with the Brexit vote, and indeed we re forecasting no growth through the second half of the year. Stocks, however, brushed off the early jitters thanks in part to a weaker currency and BoE easing the FTSE is up 11% on the year and also setting record highs. The performance has been much more modest in US$-terms, however, hence the ranking behind their U.S. counterpart. Bronze: Being careful not to go all Friedman-like and botch the call, we do indeed see Canada on the podium right now, thanks to an impressive 25% rally in the TSX from its January lows. Not coincidentally, the index has also followed oil prices higher from their early-year low, and is still outperforming the U.S. by a wide margin this year. But, Canadian stocks remain down from pre-financial crisis levels of 7 years ago (as well as their 2014 high), while the S&P 500 has rallied 40% past that mark. Just missed: Brazil is actually atop the pack of larger equity markets this year, despite ongoing challenges in that country. Stocks are up more than 30% on the year (and doubling in US$-terms). Much of the bad news had already been priced into the Bovespa, while the turnaround also coincides with the bottom in crude. But, zooming out leaves Brazil s market still struggling with longer-term downward momentum. Middle of the pack: Other commodity-heavy indices in Mexico and Australia have also notched positive performances this year, even as the CRB index has faded recently. Failed to qualify: Europe and Japan continue to struggle, with most markets in those regions anywhere from flat to down 20% so far this year. Growth in Japan is middling and expected at just 0.6% for the year, while investors have not rolled out the endorsements for negative interest rate policies European banks have been especially large drags against that backdrop. 1-800-613-0205 economics.bmocapitalmarkets.com
TSX Sector Performance (Relative to the index, dashed line = 200-day m.a.) Consumer Discretionary 3.6 Consumer Staples 3.2 1.3 2.8 1.1 2.4 2.0 Energy Materials 1.0 Industrials 0.18 Technology 1.7 Health Care 1.1 Telecom 2.6 2.0 1.0 0.9 0.8 0.2 0.8 1.7 Financials Utilities 1.3 Page 2 August 12, 2016
S&P 500 Sector Performance (Relative to the index, dashed line = 200-day m.a.) Consumer Discretionary Consumer Staples 0.31 0.30 0.26 0.29 0.27 0.22 Energy Materials 0.15 0.13 0.20 0.25 Industrials 0.36 Technology 0.35 0.23 0.34 0.22 0.33 0.21 0.44 Health Care 0.09 Telecom 0.42 0.40 0.08 0.38 0.07 0.36 0.34 0.06 0.17 Financials 0.13 Utilities 0.11 0.15 0.10 0.09 Page 3 August 12, 2016
North American Sector Performances as of August 12, 2016 S&P 500 Sectors 1 Week 1 Month 3 Months 1 Year YTD 2015 Energy -2.5 3.4-1.1 13.3-23.6 Cons Staples 0.7-0.9 2.1 9.5 8.7 3.8 Cons Discretionary 0.5 0.6 3.8 5.5 4.8 8.4 Industrials 0.2 0.4 4.9 9.0 9.4-4.7 Telecom Services 0.2-0.8 6.4 18.4 19.9-1.7 Information Technology 0.1 6.0 1 10.7 8.4 4.3 Utilities -0.1-2.1 2.6 12.5 17.0-8.4 Financials -0.6 2.2 3.0-4.4-0.1-3.5 Health Care -0.6 8.0-0.7 3.7 5.2 Materials -0.9 0.6 4.1 6.0 10.7-10.4 Banks -1.3 3.7 2.7-1 -7.4-1.1 S&P 100 Large Cap 0.0 5.5 5.2 6.0 0.3 S&P 600 Small Cap -0.2 0.7 9.2 6.2 10.9-3.4 S&P 400 Mid Cap -0.3 0.9 7.2 4.4 1-3.7 S&P 500 0.1 5.8 4.7 6.9-0.7 TSX Sectors Health Care 3.6-1.0-4.3-85.7-70.0-15.8 Energy 2.2 1.0 9.9 4.9 2-25.7 Gold 2.1 18.1 90.3 104.8-14.3 Materials 1.0 3.6 19.0 42.0 63.1-22.8 Banks 0.8 3.2 8.1 9.7-8.5 Cons Discretionary 0.7 4.5 5.2-3.6 6.7-3.5 Cons Staples 0.6 3.4 6.3 8.7 9.0 11.0 Telecom Services 0.6 2.5 8.2 15.1 18.2-1.0 Industrials 0.1 2.9 6.9 3.7 12.1-12.5 Financials 0.0 0.5 3.0 5.6-5.5 Information Technology - 7.0 7.7 10.4 2.9 14.8 Utilities - -0.7 4.8 1 16.4-7.8 REITs -2.1-4.1 5.0 15.4-10.1 Income Trusts -2.3-2.7 6.1 12.5-5.2 S&P/TSX Small Cap 2.9 13.0 23.0 36.0-15.8 S&P/TSX 60 Large Cap 0.9 1.9 6.7 12.2-10.6 S&P/TSX Mid Cap 0.1 1.9 7.6 7.1 17.2-12.7 TSX 0.7 1.9 7.0 2.8 13.4-11.1 Source: Bloomberg. Page 4 August 12, 2016
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