Weekly Market Update (November 27 – December 1, 2017)

December 3, 2017

American markets experienced increased volatility this week, leading up to the Senate’s vote on the new tax reform policy. U.S. stocks ended higher, with the DJIA passing the 24,000 mark for the first time in history. This comes only 32 days after the index crossed the 23,000 – a sign of a strong bull market. The S&P 500 similarly gained over 3%, over the previous 12 trading days. Stocks in the NASDAQ recorded losses, after hitting intraday highs on Tuesday before receding. Investors kept a close eye on the Senate’s move to pass legislation with regards to corporate tax cuts, making significant progress early on in the week. It was announced Thursday that a vote would take place later in the week, with speculators believing it would take place as soon as Friday. Early morning Saturday, it was released that the Senate passed the bill in a 51-49 vote, pushing it one step closer to becoming law. Tech stocks were hurt slightly by a sell off, as the tax reform would not affect stocks who already pay low effective tax rates. Investor sentiment surrounding tech companies who would not benefit from the tax reform caused sector stocks to drop in price, with Netflix falling 6%, followed by NVidia dropping over 7%. Bond yields across the curve rose, as increased sentiment surrounding the “potential” tax cuts pushed yields higher. Strong economic GDP of 3.2% QoQ annualized, and a positive Markit PMI release supported increased yields. Michael Flynn, a former member of the Trump administration prepared to testify against President Trump in the near future. This added to the already volatile market, as Flynn would testify to the fact that Trump directed him to make contact with Russians during his candidacy period. The investigation into Russian involvement in the election has been ongoing, causing a reversal in the early week gains the market had seen.

The Canadian market was down slightly for the week, a reoccurring sight for the TSX which has lagged behind other major markets this year. Technology stocks performed the worst this week, caused by the biggest drop in Shopify Inc stock. The index slipped Friday following early week gains, after Gold, Tech, and Telecomm sectors posted losses offsetting any gains from energy stocks. Over the week, 7 out of 10 sectors closed down. The CAD was unaffected by the market performance, trading at 78.76 cents U.S. – the largest gain it has seen in 21 months against the greenback. Stronger than expected employment data (rose 79,500 in November), and a flatter yield curve from rising expectations regarding a rate hike, caused the pair to trade higher. OPEC’s decision to continue its supply cut of 1.8M barrels per day until the end of 2018, resulted in rising oil prices. January Crude futures rose 1.7% ($58.36 a barrel) later into the week. Rising oil prices continued to support the appreciation of the CAD against other currencies.

European markets mirrored Canadian markets, closing lower at the end of the week. Uncertainty surrounding the U.S. tax reform bill and weaker inflationary data were the primary causes of a bearish movement in the Eurozone. Inflation in the region was weaker than expected, with the Nov CPI YoY hitting 1.5% against the consensus of 1.6%, and the core inflation reaching 0.9%, well below the 1.1% expectation. Continuing Brexit talks caused UK bond yields to recede, as expectations of UK’s economic outlook improved. Bitcoin, the primary cryptocurrency widely talked about, passed the $11,000 mark recently. The currency continued as high as $11,427, before the “inherent” volatility took over causing it to drop below $9,000. Gold prices similarly experienced large gains later in the week, before closing down. After U.S. inflationary and economy data came out strong, gold prices began to drop.

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