Weekly Market Update (November 13 – November 17, 2017)

November 19, 2017

American markets ended the week flat to modestly lower, after steep drops in the market midweek. The S&P 500 dropped 0.7% early in the week, with the Dow following suit, falling 0.9%. Declining oil prices caused energy stocks to lead the major market decline into the midweek. The heavily weighted General Electric (GE) announced Monday morning it would be halving its dividend; a move that caused investors to quickly lose confidence in the company. GE stock fell 7.2% on Monday, and continued to decline an additional 5.7% on Tuesday – supporting the drop in U.S. markets. The tech heavy NASDAQ was unaffected by market conditions, and hit another record high this week – breaching above 6,800 for the first time in history. Positive economic data changed investor sentiment on Thursday, causing markets to rally as optimism returned. Retails sales increased in October by 0.2%, with housing starts having an unexpected increase of 12.7%. A marginal increase in inflation of 0.1%, has led to speculation that further increases in interest rates are unlikely in the near future. House Republicans passed a new tax reform plan Thursday, which was similar to their last bill to lower corporate tax rates from 35% to 20%. The U.S. Senate is also in the process of forming a relatively different tax reform bill – which repeals the state/local income and property tax deduction, and cuts health care in order to pay for the corporate tax cut. House representatives stated they do not want to make these cuts, but still want a new tax law in place. Investors are still unsure whether the bill will pass, or which version would be finalized.

Canadian stocks were lower over the week – with markets declining up until Thursdays rebound. The TSX fell 0.9% on Wednesday, and closed up on Friday at 15,998 (+0.40%) after a late week rally. Similar to the American market, Canadian energy stocks took the largest hit as oil prices declined, after a release which stated an unexpected rise in U.S. oil stockpiles. Lowering oil prices also hurt the CAD, which is closely tied to the commodity – before trading higher on Friday to 78.34 cents U.S. The health care sector also experienced large drops, after both Valeant Pharmaceuticals and Canopy Growth Corp stock dropped in price. Round five of NAFTA talks began Thursday in Mexico City. Canada and Mexico have said they would be flexible with the terms of the agreement to keep it enacted, while the U.S. remains inflexible to change its position. Rising threats that a deal would not be met and the potential Trump would ditch the agreement entirely, continued to cause worries in the Canadian markets. October inflation rose 1.4% year-over-year, in line with the BoC’s target inflation – leading many to expect that interest rate hikes in the next few months would be highly unlikely.

Equity markets in the Eurozone also ended lower for the week, as disappointments in corporate earnings continued. Strengthening of the Euro and UK pound, hurt large-cap stocks listed on the major European indices. Europe’s major oil and gas index fell, after the Norwegian central bank proposed dropping oil and gas companies from Norway’s main index. Government bonds across the Eurozone followed U.S. treasuries with lower bond yields across the curve. German 10-year bunds fell 0.36% over the week. Japan’s Nikkei 225 decline this week, ending its 9-week streak of consecutive gains; despite GDP growth of 1.4% annualized – which marks seven periods of economic expansion. A slowing Chinese economy supported the decline in major world markets, following releases that industrial output and retail sales have slowed down. The Chinese government has mentioned it would focus on the quality of its economic expansion, and not the pace of its growth; stating there would be less economic stimulus in the future.

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