August 2023 Market Update
Stock Market Overview:
The current year-to-date return for the NASDAQ 100 Index is 38.47% as of August 23rd, 2023, and the S&P 500 total years-to-date returns are 15.54% as of August 23rd, 2023. Gains in markets this month have been mostly driven by the technology sector with Nvidia having strong quarterly revenue forecasts. Internationally, the debt crisis of the large China property developers started unfolding in mid-2021 and on August 18th Evergrande filed for US bankruptcy protection as part of a mega debt restructuring. The debt issues with Evergrande and the China real estate giant Country Garden are no surprise. Yet markets had pulled back slightly from some of the gains experienced in July. The People's Bank of China (PBoC) cut its 1-year loan prime rate by 10bps to a record low of 3.45%. The Chinese Yuan has lost about 2.4% against the dollar since this month, and 6% since the start of the year. This drop in the value of the Yuan means that it is cheaper to purchase Chinese goods, thus reducing some inflationary pressures which is good news for the North American Economy while supply chains attempt to reduce a dependence on Chinese goods. North American Markets, on the other hand, continue to have a very strong year with excellent opportunities to invest in the NASDAQ 100 and S&P 500 to achieve very solid gains this year.
The inflation rate in Canada grew to 3.3% in July from 2.8% in June. The mortgage interest cost index had a record year-over-year gain and is the largest contributor to inflation. Housing affordability remains a large problem with the average cost of monthly rent in Canada at $2002 in April 2023 significantly up compared to $1662 in April 2021. Increases in the prices for groceries still feel high but somewhat slowed (8.5% vs 9.1%) due to fresh fruit and bakery products. The US inflation rate also rose slightly to 3.18% in July from 2.97% in June. The higher rate of inflation has caused some speculation in both Canada and the US that there may be further rate hikes before the end of 2023. The next Bank of Canada Interest Rate announcement is Wednesday, Sept 6th.
Job Creation US & Canada:
The July U.S. payroll growth totalled 187,000 jobs, which was slightly lower than the expected by the Dow Jones estimate of 200,000 jobs. The unemployment rate in Canada rose slightly by 0.1 percentage points to 5.5%. Full-time employment was slightly up 1.7k and part-time employment down 8.1k. Decreasing employment numbers can be seen as a sign of a slowing economy, however, the numbers are not significant enough for Central Banks to cease any further rate increases.
US & Canadian Economies:
Although inflation in both Canada and the US has risen slightly the economies are resilient with modest GDP growth and job creation. Consumer spending is still strong despite higher interest rates and a slight increase in inflation. The U.S. and Canadian exposure to the Chinese Real Estate Debt crisis is relatively small in the grand scheme of things. A significant amount of money has moved back into the North American markets from the lows experienced last year and will continue to do so as emerging markets are a less attractive option.
This commentary represents Westgroup Financial Management Inc.'s views at the date of publication, which are subject to change without notice. Furthermore, there can be no assurance that any trends described in this material will continue or that forecasts will occur; economic and market conditions change frequently. This commentary is intended as a general source of information and is not intended to be a solicitation to buy or sell specific investments, nor tax or legal advice. Before making any investment decision, seek input from your financial advisor. You may not reproduce, distribute, or otherwise use any of this article without the prior written consent of Westgroup Financial Management Inc.