Recap: Week Ending October 23, 2015

October 24, 2015

Equities across the globe soared higher last week as news out of major central banks sent dovish tones through markets. Last week the NASDAQ 100 index rallied 4.18% to close at 4,624 as major tech plays beat earnings. On the flip side, the S&P 500, which represents a broader view of the market, was the laggard in the United States last week, closing up only 2.07% to settle Friday at 2,075. North, the Toronto Stock Exchange Composite Index, or TSX, closed the week 0.84% to settle Friday at 13,953 as energy continues to weigh down the Canadian-based index. A major factor in regards to the rally is the notion that the European Central Bank announced last week that it would increase its bond-buying program in an attempt to further boost the economy. The notion of such a move was even more amplified when one takes into consideration the idea that the United States Federal Reserve may not be willing to raise its rates if other major central banks are loosening their policy. Furthermore, The Bank of China announced on Friday that they would cut their one-year lending rate to 4.35%, a decrease of 0.25%. To assist their economy even more, the Chinese central bank also stated that they would decrease their required reserve ratio by 0.50% for qualified investors with the intention of increasing money flow and investment in their economy. Such further dovish announcements sent equities higher once again with the Dow Jones closing up 157 points Friday to settle the week above its 200-day simple moving average, a technical indicator zone that has not been seen since the start of August. To add more fuel to the upwards buying pressure, US earnings season is in full effect with about 42% of companies reporting earnings last week. Large tech companies such as Microsoft, Amazon as well as Alphabet propped the market higher and even sent the S&P 500 back into the green for the 2015 calendar year. The overall trend is earnings per share are beating expectations; however, sales are missing company estimates. As earnings season continues next week, it will be important to see if such upside activity can continue if companies continue to report good earnings.

The Canadian equity market was not as rosy as that in the United States as the price of North American crude fell four out of the last five trading days. Last week crude settled down $3 or 6.29% to close Friday at $44.73. The move lower in crude is harmful to many Canadian companies that rely on crude as a product. Crude has settled lower for two weeks straight and is once again in an area of acceptance that it has established for the past few months. Like crude, gold settled lower last week, closing down by $13.40 or 1.14% to finish Friday at $1,164. The move lower in the precious metal comes after a two-week rally that saw the price hit its 50-day moving average, an area that has caused previous resistance. The last time that gold hit its 50-day moving average a large sell-off occurred and the price of the metal fell by about $160. The Toronto Stock Exchange was also hit hard by a large fall in the price of Valeant, an international pharmaceutical company. Last week claims were made against Valeant, a Canadian based company, stating that they are engaging in improper accounting causing fraud like profits to be reported. As a result of the news, shares fell 32.85% last week on the TSX, falling from $220 to settle Friday at $152.69, good enough for a loss of $74.71. Following the report, Valeant called the view to be full of errors and is hosting a press conference on Monday, October 26 to cover such claims made against them. It will be important to watch the movement in Valeant as any large move in its price can have serious implications for the value of the TSX and overall tone in Canadian equities.

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