Sept. 14-18, 2020

What happened last week

A U.S. Federal Reserve policy update stalled market rally, mid-week

Coming off a two-week decline – which saw the S&P 500 slide more than 5%, the Nasdaq drop more than 10%, and North American tech giants lose more than US$1 trillion in combined market capitalization – was much-needed reprieve within the markets. This began with a bounce-back on Monday, led by two major acquisitions in a suddenly volatile tech sector.

Oracle beat out rival Microsoft for the lead in negotiations over the U.S. operation of Chinese-based social-media app TikTok (owned by ByteDance). The pending sale of the U.S. operation has been in the news since U.S. President Donald Trump threatened to shut it down, citing national-security concerns. The second deal was Nvidia Corporations’ purchase of Arm Ltd. (SoftBank Group Corp.’s chip division) for US$40 billion – the largest-ever deal in the semiconductor industry. A Bloomberg report said the deal gives Nvidia control over some of the most widely used technology in the electronics industry.

Optimism around a vaccine also played a part in Monday’s rally: Pfizer Inc.’s chief executive officer, Albert Bourla, told CBS’s Face the Nation that it’s “likely” a COVID-19 vaccine – which Pfizer is developing in partnership with BioNTech SE – would be publicly available before the end of the year. He added that he’s “quite comfortable” the vaccine is safe.

Equity markets continued to claw back on the previous two weeks’ losses. On Tuesday, market activity rose, based on U.S. manufacturing data that saw output climb for the fourth straight month (though the 1% increase in August was far below the 3.9% reading in July); there was also upbeat data, out of China, that had industrial production reaching its highest level in eight months, and retail sales growing for the first time in 2020. Canadian-manufacturing sales were also up 7% (for the month of July), according to Statistics Canada.

Investors wanted more on stimulus plans from U.S. Federal Reserve

On Wednesday, in a decision that came as no surprise, the U.S. Federal Reserve announced that its benchmark short-term rate will be left unchanged at 0.25%, adding that it will likely stay there for at least three years. What did seem to surprise investors – and which led to a pull-back in the markets, before the closing bell – was a lack of fresh stimulus plans. Instead, the central bank reaffirmed its commitment to using its full range of tools to support economic recovery. The central bank will also continue buying Treasuries and mortgage-backed securities “at least at the current pace to sustain smooth market functioning.”

Addressing reporters after the two-day meeting, Federal Reserve Chair Jerome Powell spoke highly of what he’s seen, so far, with the economic recovery, while noting that there’s still a long way to go before the U.S. has a fully functioning labour market. “Maximum employment isn’t something that can be reduced to a number the way inflation can,” Powell said. “It’s a range of factors. We’re not looking at a rule. We’re looking at a judgmental assessment.”

On Thursday, amplified by Powell’s comments, markets continued to fall. The weekly jobless-claims data – while lower than the week before – remained alarmingly high, with 860,000 Americans filing for unemployment benefits.

Heading into Friday's sessions, investors were bracing for a market phenomenon known as "quadruple witching." Each quarter, this happens on the day that options and futures on stocks and indexes expire, typically bringing higher trading volumes and intraday volatility.


The stock and bond market*
INDEX CLOSE WEEK YTD
S&P/TSX Composite 16,198.96 -0.14% -5.07%
Dow Jones Industrial Avg. 27,657.42 -0.03% -3.09%
S&P 500 Index 3,319.47 -0.64% 2.75%
NASDAQ Composite 10,793.28 -0.56% 20.29%
S&P Global 1200 Index 2,619.81 -0.24% -0.34%
10-yr GoC Yield 0.57% 0.02% -1.13%
10-yr U.S. Treasury Yield 0.70% 0.03% -1.22%
WTI Crude Oil (US$/bbl) 41.11 10.13% -32.67%
Canadian Dollar US$0.7573 -0.21% -1.62%
Bank of Canada Prime Rate 2.45%

*Weekly performance ending September 18, 2020. Source: Bloomberg.


What’s ahead

Speech from the Throne: On Wednesday, September 23, investors will be watching closely, as a new session of the Parliament of Canada opens. The customary Speech from the Throne, delivered by the Governor General, is expected to focus on the government’s plans for managing the current public-health crisis and rebuilding the economy once it’s over.

Circle these dates

  • Oct. 12: Canadian markets closed for Thanksgiving holiday
  • Oct. 19: Bank of Canada “business and consumer” survey results released
  • Oct. 28: Bank of Canada interest-rate announcement and monetary policy report
  • Nov. 3: U.S. presidential election

Key take-away

Remember that volatility is a normal part of investing. Markets often react to economic indicators, central bank policy announcements, and national events – like a throne speech, which can produce political tailwinds. Keeping your emotions in check – and staying focused on a plan that’s geared toward your goals and risk tolerance – can be essential to your long-term investing success.


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