Weekly Market Update (November 6 – November 10, 2017)

November 12, 2017

American equity markets reached another all-time high early in the week, before raising worries caused markets to close at a weekly loss – breaking the eight week rally for U.S. indices. The S&P 500 hit a new record high in the mid-week reaching 2,594, while dropping 2.32 on Friday for a weekly loss. Similarly, the DJIA hit 23,567, a record high for the index on Nov. 7 before receding later in the week. Energy stocks had a strong rally at the start of the week, following a sharp rise in oil prices – leading the market into the mid-week before uncertainty set in. This week the U.S. senate released their own tax reform plan, after last week’s release of the House’s tax plan. Both bodies cannot agree on a mutual effective date to enact the proposed tax bill, which will cut corporate taxes from 35% down to 20%. The House announced last week its plan would come into effect next year; however, the Senate stated that it would come into effect 2019. These conflicting dates from the House and the Senate precipitated the first market loss in 8 weeks, as a result of investor uncertainty. William Dudley, the New York Fed President unexpectedly announced his retirement this week, stating he would retire mid-2018 before his term has officially come to an end. Dudley was a key player in assisting the restructuring following the 2008 financial crisis. The investor uncertainty following this event, led 10-year U.S Treasury yields to rise to 2.40% on Friday, up from 2.34% the pervious week.

Mirroring U.S markets, Canadian indices pushed to record highs early in the week. The TSX composite fell 42.84 points on Friday (-0.27%), after most of the major banks and insurance companies posted losses for the week. Investors became less aggressive about another rate hike, staggering the financial industry later into the week. The initial record high push was boosted by the strengthening energy stocks – resulting from increasing oil prices. The Canadian health-care sector saw the best gains, supported primarily by a jump in Valeant Pharmaceuticals International Inc. share price, after a very positive earnings release. Valeant also announced a deal to sell one of their drugs back to the previous parent company for royalties on all sales of the product. The loonie was trading at an average price of 78.85 cents U.S over the week – a raise of 0.06 cents U.S following news of increasing oil prices.

Oil prices rose to 2-year highs – from $54.60 a barrel to $57.20 a barrel after the Saudi Arabian government started cracking down on corruption in the region, leading to uncertainty in one of the largest oil producing nations in the world. Potential that Venezuelan’s state oil company would default on further debt, also helped push up oil prices. Moody’s downgraded the state oil company to “Ca” after they could not pay the interest on their debt. It’s estimated that Venezuelan’s state oil company will likely default on other debt in the near future.

European markets also posted losses over the week, as corporate earnings were below expectations. U.S tax reform uncertainty also supported bearish movement in Europe. Eurozone government bonds were sold off later in the week, as large positions in German bund futures were closed before expiry – pushing the 10-year yield up 0.38% at Thursday’s close. Japanese markets trended higher again this week, marking the ninth consecutive week of gains for the Nikkei. The Nikkei 225 hit a 26-year high on Nov. 7, gaining 332 points for the week (+1.4%). Third quarter earnings estimates are expected to be very positive, pushing the already undervalued market up.

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