Weekly Market Update (February 25-March 1)

March 4, 2019

Written By: Steven A. Klos

Canadian and U.S stocks continued their bullish trend over the week but with less growth as markets consolidated recent gains. As February came to an end it marked the best start to the year for both the TSX and S&P 500 since 1987 with the indexes gaining 12.98% and 11.84% over the past two months respectively. The U.S government announced that it would delay the March 1st deadline for additional tariffs on Chinese goods, signaling progress in China-US trade talks. Despite the news, stocks reacted minimally as the delay was most-likely already priced-in, suggesting that investors are now focused on the materialization of the trade agreement.

Canada’s economic growth slowed in the fourth quarter delivering an annualized gain of 1.8% for 2018, weak in comparison to the 3% gain we saw last year. The economy expanded at a pace of 0.4% over the final three months of 2018, posting the weakest quarterly growth since mid-2016. Statistics Canada reported the slowdown was mostly due to a 2.7% quarter-over-quarter reduction in investment spending among falling oil prices. Another contributing factor was a reduction in consumption spending, which grew at the slowest pace in 4 years amid higher interest rates. The economic slowdown suggests that the Bank of Canada will leave interest rates on hold next week.

The impacts of cannabis legalization were reflected in Statistics Canada’s real GDP report for the first time on Friday. The federal government legalized the recreational use of marijuana on October 17th, and it currently accounts for a staggering 0.5% of total household spending. At an annual rate, household spending on marijuana totaled $5.9 billion following the fourth quarter – $1.2 billion of which was purchased legally. Non-medical cannabis use currently accounts for 11.2% of spending on recreational substances, and that figure is expected to rise over the coming year. The taxation on legal cannabis will be rated at 2.5% of the final sale price, not based on other metrics like the weight of the product sold. Additional taxation is based on specific provincial and territorial legislation. Actual tax revenues received by the provincial and federal government is excepted to rise as an increasing percentage of cannabis purchases are legitimized. As the Canadian government tightens its grip on illegal sales, cannabis is expected to contribute as much as $4.34 billion to the Canadian economy in 2019.

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