Author: Danny Popescu | September 7, 2021
Happy back to school day,
Equity indices continued to drive ahead again last week. Unfortunately, the thirty corporations that comprise the Dow Jones Industrial Average (Dow or DJIA) lost ground. After maintaining value for the first four days, twenty of the thirty Dow firms lost value on Friday. That is, the one-day performance of only twenty firms, albeit large companies like Amex, IBM, Coca-Cola and 3M, caused the Dow index to finish in negative territory for the week.
A growing concern is the trajectory of this success. “Will it continue, how long will it continue, what will occur if it doesn’t continue”, are popular questions from investors. Forecasts for corporate growth and profitability continue to rise while Gross Domestic Product (GDP) growth forecasts are beginning to flatten. Since GDP is a fair proxy for aggregate of corporate performance the forecasts are starting to contradict each other. The typical response to this contradiction has been increased volatility.
The increasing number of Covid-19 hospitalizations and severe sickness related to the highly contagious Delta variant as in-person schooling, dining and entertainment resume could lead to a renewed round of economic effects that could also contribute to greater swings in capital markets. As always, a healthy allocation to asset classes that are uncorrelated to public markets is key to manage volatility.
This week, the economic news will be the Bank of Canada’s policy announcement on Wednesday. On Friday the Canadian employment report for August will be released.
In the U.S., we should see the July jobs report, producer price index, wholesale trade and the most recent weekly jobless claims later in the week.
Globally, China is scheduled to announce consumer and producer inflation, trade surplus and foreign reserves. Eurozone factory orders, Q2 Gross Domestic Product, and Germany’s industrial production and trade surplus will be released. The European Central Bank will hold a monetary policy meeting on Thursday.
Have a great week.
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