Weekly Market Update (March 25-March 29)

Written By: Samuel Buddy-Wiseman Barker & Steven A. Klos

North American indices ended the week positively with the TSX gaining 0.08%, the S&P 500 rising 0.85%, and the Dow Jones Industrial Average up 1.32%. Both the S&P 500 and the TSX finished Q1 with their strongest quarterly performance in nearly a decade, gaining 13.07% and 12.6% respectively. Despite continued struggles with the new NAFTA deal, market growth over the quarter was driven by higher than expected earnings results, the Bank of Canada and U.S. Federal Reserve’s hold on interest rate hikes, and strong hope for a US-China trade deal in the coming weeks. Commodities performed quite well, WTI Crude oil closing at $60.14, surging 30% over the week amid OPEC’s production cuts.

The Canadian federal deficit is expected to total nearly $19 billion at the end of the fiscal year, higher than what we saw previously. There was nearly $23 billion in new government spending this year, the increase is believed to be a compensation for slower projected growth in the economy. Government spending will be able to control a recession until the Bank of Canada feels as if it is safe to raise interest rates again. Although this is alarming, Canadian debt-to-GDP ratio remains fairly healthy, with the debt projected to total $705 billion, accounting for roughly 30% of overall GDP. This ratio is desirable considering it is the lowest in the G7, followed by Germany who’s debt accounts for 40%, and the US who’s debt is closer to 80%. The new budget assumes 1.8% GDP growth in 2019 and 1.6% in 2020, nonetheless, investors are extremely concerned about the growing pile of household debt in Canada. Canadian reverse mortgage debt has nearly tripled in the past five years, $3.51 billion of which was reported in January alone. With housing demand drastically declining, these high households debts are worrying investors about the health of the Canadian economy.