NEW YORK — A huge shift is underway within the stock market, one that might roil your 401(k) in the short term, but one that many professional investors also see leading to longer-lasting gains.
A surge of optimism that the pandemic is on the way out has convinced investors to revamp their playbooks for where to put money. Most stocks across the market are rising, with the biggest gains coming from companies that would benefit most from a healthier economy, such as airlines and banks, after they got pounded lower for much of the pandemic.
But all the hope at the same time is forcing a climb in bond yields, which in turn is sending a group of tech stocks back to earth after they carried the market for much of the pandemic. When bonds pay more in interest, investors are less willing to pay as high prices for stocks seen as the most expensive or to wait as long for their big growth forecasts to come to fruition.
Because of the way stock indexes are calculated, any weakness for the biggest stocks can mask strength that’s sweeping across the rest of the market. It’s why the S&P 500 is up less than 6% so far this year: Energy stocks have soared more than 38% and financial stocks have stormed about 17% higher, but tech stocks, which account for more than one-quarter of the index’s market value, rose less than 2%.
All that churning underneath the surface may sound inside baseball, but it has a big impact when 401(k) accounts are tied more than ever to the performance of the S&P 500 and other indexes. More than half the dollars in U.S. stock funds are directly mimicking indexes, according to Morningstar.
In other words, your 401(k) could fall even if the economy — and the majority of stocks in the market — are rising. It’s the mirror-image of what happened early in the pandemic, when the S&P 500 powered higher even though the economy was falling into a terrifying pit. And professional investors say this rotation among sectors still has room to run.
“It brings me back to business school, where we learned about how all the indices are different,” said Lamar Villere, a portfolio manager at Villere & Co. in New Orleans. “It seems so boring and academic, but there is not one monolithic thing called the stock market. It’s these hugely different areas of the market that are moving differently.”
Investors have already felt the moves in recent weeks, when expectations for coming inflation and economic growth suddenly hit an upswing as COVID-19 vaccines rolled out and Congress neared its $1.9 trillion economic rescue.
The Nasdaq composite tumbled more than 10% from February 12 through March 5, with its many tech stock holdings hurt by the sudden rise in yields. The S&P 500 also fell over that span, down 2.4%, but more than half the stocks within the index were rising during that time.
Marathon Oil and other energy producers led the way, with several up more than 20%. Cruise-ship operators were also steaming much higher. If the economy does roar back soon, as nearly everyone on Wall Street is anticipating, profits should jump much more for those types of companies than for big tech stocks, which had actually benefited from the stay-at-home economy.
That’s why if the S&P 500 falls because of drops for a just a few heavyweight companies, Wall Street should take it in stride. Many analysts and professional investors expect the improving economy to boost profits for companies enough to more than make up for any stumbles caused by rising rates in the near term, and they expect the S&P 500 to climb higher over the next year.
Since their recent tumble, tech stocks have come back as worries about inflation have been tamped down a bit. The revival for tech stocks helped the S&P 500 return to a record on Monday. And even if the shine never fully returns to tech stocks, many are continuing to produce huge profits that support their stocks, such as Apple and its nearly $29 billion in net income last quarter.
But many professional investors nevertheless expect the rotation out of tech stocks and into other beaten-down areas of the market to continue for a while longer. Tech and high-growth stocks continue to look much more expensive than the rest of the market, and higher interest rates make that gap look more glaring. That could keep the pressure on the S&P 500 and index funds that track it.
High-growth stocks had been largely pulling away from their more cheaply valued rivals, called value stocks, for much of the past 15 years, said David Joy, chief market strategist at Ameriprise. Over the long term, a reversal could last just as long.
Of course, within such long-term trends, the market can swing back and forth in momentum several times. For this most recent move into value stocks and out of high-growth tech stocks, Joy said he thinks there’s likely months left to go.
“If I had to guess, it’s halfway to maybe two-thirds done,” he said, “but it’s still the place to be.”
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
