You can’t blame anyone who throws their hands in the air and asks: Just what on earth is going on?
“It’s surprising how quickly they came back,” Robert Kavcic, senior economist at the Bank of Montreal, said of the markets.
In March stocks crashed. They fell so steep and so far that many assumed it would take years to rebound. In the end, the stock market recovery took just 150 days. Since it bottomed out on March 23 of this year, the broadest marker of the U.S. stock market — the S&P 500 — is up 44 per cent
So, what gives?
It’s always important to remember that the stock market is not the economy. Stocks are meant to reflect the future value of a given company’s stock, not the state of Main Street today.
Kavcic said the sharp rise in equities shows how the pandemic has hit different sizes of businesses in different ways. For the most part, the big fish are doing OK, but the little ones are hurting.
Technology stocks that primarily trade on the Nasdaq have been on a tear during the pandemic, as demand for digital services has boomed from milllions of people being locked down in their homes for months on end. (Michael Nagle/Bloomberg)
“If you look where most of the economic damage was, it was and still is in smaller businesses and Main Street-type businesses that don’t necessarily trade on the equity market,” Kavcic said. “You don’t have a hair salon or a restaurant trading on the Nasdaq.”
And yet, he said, digital companies like Netflix and Cisco and Microsoft have fared incredibly well. And those are the companies driving stock market gains.
The suffering is happening among small and medium-sized businesses, which make up 70 per cent of private-sector employment in Canada. They are most exposed to a lockdown at least in part because they have the least cushion to weather bad times.
Companies in the digital sphere have prospered throughout the lockdown.
By almost every measure, we live in a digital world. The stock market is just reflecting that.
Marc Benioff, CEO of cloud computing company Salesforce, said the world has turned digital.
Salesforce CEO Marc Benioff: “We’re in a new digital world, in an all digital world. The past is gone, it’s not coming back…We need to rebuild our companies, our organizations and ultimately we need to rebuild ourselves to be successful…” <a href=”https://t.co/zwuOIrIfxC”>https://t.co/zwuOIrIfxC</a> <a href=”https://t.co/nK2TeVqsmh”>pic.twitter.com/nK2TeVqsmh</a>
“We’re in a new digital world. An all digital world,” he said in an appearance on CNBC. “We are now in this new digital future, and we need to rebuild our companies and our organizations.”
Benioff didn’t mention the stock market. But he didn’t have to. Salesforce stock is up 74 per cent in the past six months.
Low rates fuelling the stock market fire
The other major factor driving equity gains is the sheer volume of cheap money out there.
Philip Petursson, chief investment strategist and head of capital markets research at Manulife Investment Management, said the world has never seen fiscal and monetary support like it’s seeing now.
“As of the end of July, global central banks had cut interest rates 164 times in 147 days and committed $8.5 trillion US in stimulus,” he said in a note to clients.
Petursson said investors were so sure stocks would remain low for a long time that they pulled staggering amounts of money out of markets. The Canadian mutual fund industry had its worst month ever in March, he said, with more than $14 billion Cdn in net redemptions — that’s people pulling their money out.
Investors pulled huge amounts of money out of the markets when the pandemic hit. The Canadian mutual fund industry had its worst month ever in March, with more than $14 billion Cdn in net redemptions. In the U.S., investors pulled $326 billion US from mutual funds and ETFs. (Cole Burston/Bloomberg)
“South of the border, investors pulled $326 billion US from mutual funds and ETFs, more than three times the $104 billion US in outflow in October 2008 during the Great Financial Crisis,” Petursson wrote.
But stock markets have a way of confounding even the best experts.
U.S. election volatility
And if you thought the wild ride was coming to an end, hold onto your hat.
The U.S. presidential election looms as the next major event on the volatility calendar.
No one knows what will happen on Nov. 3. And markets hate uncertainty. We also don’t really know how markets will react if either President Donald Trump, a Republican, or Democratic candidate Joe Biden wins.
When Donald Trump, right, won the 2016 U.S. presidential election, it was assumed to be bad news for stocks, but instead they continued their multi-year bull run. Regardless of whether Joe Biden, left, or Trump wins this November’s race, expect more of the unexpected on the markets. (Carlos Barria, Leah Millis/Reuters)
Kavcic said markets had it very wrong the last time, in 2016.
“Everyone thought Trump was negative for equities on election night, and it turned out to be the opposite,” he said.
Adding to this year’s uncertainty, there’s now a real possibility that the Democrats could sweep election night — winning the presidency and control of the House of Representatives and Senate.
Many Wall Street types have expressed concern that would lead to dramatic change, such as tax hikes that would hurt growth and slow markets.
But Frances Donald, managing director and chief economist at Manulife, said that may not be the case.
“While the popular perception is that a Democratic sweep would be broadly market negative,” she said in a report published this month, “we’d caution that we believe such fears are likely exaggerated.”
Donald said 2021 will be another “exceptionally challenging” year for the economy, with high levels of unemployment and an ongoing health crisis.
This year started out as another bull run for stock markets, but in March stocks crashed as the COVID-19 pandemic took hold of the economy. Many assumed it would take years for the market to rebound, but the recovery took just 150 days. (Mark Lennihan/The Associated Press)
“It isn’t likely to be an environment that can plausibly absorb higher tax rates on either the corporate or individual level,” she wrote. “Rather, it will be an environment that necessitates large-scale, continuous stimulus.”
That’s music to the ears of investors who are driven by hopes of further fiscal and monetary support.
Expect the unexpected
One final note of weirdness.
Stock markets have begun to show some jitters this week.
Some of that has been an overstretching of valuations of those tech companies that have performed so well since the pandemic struck.
But Kavcic has another theory.
He said traditionally, equity markets reflect a bet on what will happen in the future. So maybe some of the spring’s bull run was a reflection of how much things would improve over the summer.
“And maybe what we’re seeing today is reflective of what we’re going to see in the winter, which might be a rolling back of the economy again at least in some parts,” he said.
Winter, as they used to say, is coming. It will bring a whole host of unknowns and challenges. Whether the cold months to come will bring investors an icy chill or warm glow from fiery markets is anyone’s guess, but one thing is for certain: Even in the worst economic crisis since the Great Depression, hope springs eternal.
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.
