TORONTO – “We’re all in this together” has been a common refrain since the arrival of the COVID-19 pandemic last March, but the yawning chasm between dismal economic data and soaring stock market valuations suggests some Canadians are doing much better than others.
A large segment of the population is untouched financially by the crisis or in better shape. The housing market is strong and those able to work remotely have saved mountains of cash they are using to pump up stock markets.
Meanwhile, lockdowns have caused major disruptions for workers in the service sector and other parts of the economy that have been forced to rely on government support.
“All the jobs that were lost in the country since the beginning of the crisis — not some, all — were in low-paying sectors, low-paying occupations,” says Benjamin Tal, deputy chief economist for CIBC.
North American stock markets have been on a tear since March, setting record highs almost daily even while COVID-19 has battered the economy and produced lacklustre employment data.
Some individual stocks have soared amid the froth. Tesla shares are up about 1,160 per cent over the past year while Ottawa’s Shopify Inc. has risen 425 per cent to become Canada’s most valuable company by market capitalization.
The S&P/TSX composite is up 65 per cent from March 2020 lows and 6.5 per cent in February alone. The rebound has been even stronger in the U.S., with the Dow up 73 per cent, S&P 500 79.5 per cent and the tech-heavy Nasdaq composite up about 113 per cent.
Meanwhile, Canada’s unemployment rate climbed to 9.6 per cent in January as 212,800 jobs were erased that month.
The disconnect between so-called Main Street and Bay or Wall streets is not new, but has been accentuated during the most “asymmetrical recession” in Canadian history, said Tal.
Retail investors with healthy cash balances have increased market volumes and contributed to frenzied buying that propelled stocks like GameStop and BlackBerry Inc.
The TMX Group, which runs the Toronto Stock Exchange, has noted that amid an increase in volumes, the proportion of retail trading peaked at 45 per cent of total volume traded in January, compared with an average of 35 per cent a year earlier.
“The things that are underlying the strength in retail trading are drivers that are going to continue for some time,” TMX chief executive John McKenzie recently told analysts on an earnings call.
He pointed to the low interest rate environment that supports market valuations, a large work-from-home culture right now and continuing growth in retail trading applications.
Famed investor Jeremy Grantham, who has predicted some past bubbles, now says that the bull market that began in 2009 has “matured into a full-fledged epic bubble” featuring “extreme overvaluation, explosive price increases, frenzied issuance and hysterically speculative investor behaviour.”
“I believe this event will be recorded as one of the great bubbles of financial history, right along with the South Sea bubble, 1929, and 2000,” he wrote in a commentary posted on his company website.
“These great bubbles are where fortunes are made and lost – and where investors truly prove their mettle.”
While some stocks are overheated and could burst, Tal doesn’t see that happening for the whole market.
“I think that clearly we have to distinguish between the speculative pockets everybody’s talking about and the general market,” he said.
“Of course there’s always risks that it will be dragged into it but at this point it doesn’t seem to be a reasonable scenario.”
Massive fiscal and monetary stimulus is propping up markets, observers say, unless earnings collapse and central banks tighten their policies.
Yet Federal Reserve chairman Jerome Powell said last week that the U.S. central bank will remain dovish until employment fully recovers.
Erik Bregar, head of currency strategy at the Exchange Bank of Canada, thought that the GameStop Reddit frenzy might have taken some speculative excess out of the market.
“But as soon as those stocks crashed, everybody breathed a sigh of relief and bid the market up again,” he said in an interview.
“It’s hard to kill this thing … you can make lots of fundamental arguments that it shouldn’t be this high, but it hasn’t paid to bet against it just yet.”
He said there’s just too much positive news and widespread expectation that the global economy will be strong in the second half of the year as COVID-19 vaccinations progress.
“I continue to believe that stocks are going to represent good value as we move forward here throughout 2021,” said Mike Archibald, vice-president and portfolio manager with AGF Investments Inc.
He said unlimited liquidity and people putting their saved money into the stock market are key drivers for its growth.
In fact, the savings rate and cash deposits have increased by more than 10 per cent the last two quarters, the highest level on record, says Brian Belski, chief investment strategist at BMO Capital Markets.
“Yes, valuations appear stretched at first glance, but they also need to be considered within the context of historically low interest rates and little inflation, ingredients that are likely to persist throughout 2021 and beyond, in our view,” he wrote in a report.
“When viewed through this lens, we believe it is not unreasonable for market valuation to sustain (or even expand slightly) from its current level.”
Some areas of the market, including cannabis stocks, cryptocurrency and parts of technology are “frothy,” but other investments remain attractive, said Archibald.
“By and large if you look at what I would call solid, stalwart companies … those stocks still appear to be reasonably priced to me and I still think there’s good upside potential for a number of those businesses.”
It’s natural and healthy for markets to pause after strong runs. Stock markets are forward-looking and anticipate where things are going in the future, not where they stand now.
“If you can look beyond the next few months, the outlook is looking extremely bright,” said Candice Bangsund, portfolio manager for Fiera Capital.
A near-term correction of five to 10 per cent is possible and should be viewed as a buying opportunity, but massive spending is putting a floor under any big movements downward, she said.
Besides, we won’t know if we are in a sustained rally or a speculative bubble “until it is in the rear-view mirror,” Kristina Hooper, chief global market strategist at Invesco, wrote in a note.
“And it really doesn’t matter for longer-term investors. The reality is that market rallies and corrections occur, but the trend line for stocks over the long run is upward.”
This report by The Canadian Press was first published Feb. 14, 2021.
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.
