Weekly Market Update (January 22 – January 26, 2018)

Equity markets in America continued their early year growth this past week, marking the fourth week in a row of broad market gains. Market gains pushed all three major US indices to record highs, with the Dow Jones closing at 26,616 (+2% for week) and the S&P 500 closing at 2,872 (+2.23% for week). A strong start to earnings season drove primary market momentum, with companies composing roughly one-fifth of the S&P’s market capitalization reported results through this past week. Netflix beat predicted subscriber growth, gaining 10% in stock value; while large-cap pharmaceutical company Johnson & Johnson also beat revenue expectations. Alongside positive earnings growth, early week M&A activity stimulated market growth. Markets rebounded after last weekend’s government shutdown, when Congress passed a temporary bill to fund government services for the next three weeks. The budget will only last until a longer-term funding agreement is reached between the two Congressional parties. 10-year treasury yields moved to over 2.66%, the highest they have been since four years ago. Rising yields were primarily affected by the depreciation of the USD, following comments by the Treasury Secretary stating a weaker dollar was good for the US. Depreciation in the dollar caused a small bond sell-off in the market, lowering prices and increasing yields. The USD later rebounded after President Trump reassured that a strong dollar was more beneficial.

Canadian equity markets continued to lag behind American counterparts, trading lower at close on Friday. The TSX’s weakest performing sector this week was the industrials sector – which is heavily export oriented, performing better with a weaker CAD. Canadian officials announced on Tuesday that Trudeau signed a new and “better” trade agreement with the Pacific Rim. Canada signed on the 11-country Trans-Pacific Partnership (without the inclusion of the US), which will result in less tariffs between member countries. Analysts expect that the agreement should allow increased export opportunities for Canadian businesses who are confident going global. The sixth round of NAFTA negotiations took place in Montreal – insiders close to the negotiations have said that not much progress was made, with the US still not budging on its demands. Comments from Treasury Secretary Mnuchin led the loonie to gain a whole cent on the USD. The CAD continued to gain strength as WTI crude rose to $66 a barrel, as OPEC agreed to continue its supply cuts/production limits.

Europe’s STOXX closed modestly lower – after mid-week gains into the 403’s. The Euro gained strength against the greenback, rising to three-year highs following Treasury Secretary Mnuchin’s comments. UK’s GDP announcement showed that the British economy grew 2.0% in Q4 2017 – totaling 1.8% economic growth for all of 2017. Economic conditions caused the UK Pound to gain ground against other major currencies. The ECB announced it would keep it’s monetary policy stable, and leave its bond buy-back program unchanged. In Japan, interest rates stayed at -0.1% after the BoJ announced it is not ready to change them just yet. Bank officials said they are aiming for 0.00% yields soon, and thinks with the current monetary policy inflation will still reach 2.0%.