Key Takeaways
- North American stocks set new records
- Fed governor’s removal sparks legal battle
- U.S. unemployment rate in focus
On this week’s edition of Market Week in Review, Senior Investment Strategist and Head of Canadian Strategy, BeiChen Lin, explained key factors fueling the strong performance in North American stock markets. He also assessed the latest U.S. Federal Reserve (Fed) developments and shared upcoming watchpoints for the U.S. and Canadian labor markets.
Records on Repeat
The final week of August was another banner week for stocks, with both the TSX index in Canada and the S&P 500 in the United States setting new record highs. The reasons for the strong performance, however, varied among the two countries, Lin said.
He explained that in the U.S., solid macroeconomic data—like the upward revision to second-quarter GDP—was a key driver. “U.S. growth was actually stronger than first reported, coming in at 3.3% year-over-year. In addition, some of the underlying components of GDP, including personal consumption expenditures, were also quite strong,” Lin remarked.
He said that in Canada, the market rally was largely powered by better-than-expected corporate earnings. “Unlike the U.S., the Canadian economy is in a much weaker spot, with growth potentially contracting last quarter. But recent earnings reports from several large Canadian banks suggest businesses have been able to withstand some of these challenges,” Lin explained.
He noted many Canadian companies earn a big chunk of their revenue from outside of Canada, which could explain why earnings haven’t taken a hit. Year-over-year earnings growth for the TSX is tracking around 8%, which is in line with longer-term averages.
Lin said despite the latest round of stock market records, Russell Investments’ proprietary measure of investor attitudes shows sentiment remaining near neutral. “This suggests markets could possibly climb even higher in the weeks ahead,” he said.
