The Week in Review

Weekly Market Recap: U.S. and Canada

The week started with a flat Monday and a slight pullback early Tuesday, probably on the news that U.S. Consumer confidence fell sharply in August (more on this below), and then meandered a bit for the rest of the week, with the exception of the pop in the Nasdaq Thursday, which then retraced through Friday. The Dow Jones and S&P 500 both hit record highs during the week.

At the end of the week, the Nasdaq was up 1.1%, The S&P 500 and Dow Jones both gained around 0.6% and the TSX fell slightly, down 0.16%.

S&P 500 Returns | Week At-a-Glance

TSX Returns | Week At-a-Glance

Major Economic Stories This Week

On the economic front, we got the latest GDP numbers for both Canada and the U.S., and as mentioned above, the key economic data this week was the slowing of the U.S. Core PCE Index.

Here’s how it all played out.

Canada’s GDP Expected to Stall

Canada's economy is projected to remain unchanged in August, with gains in oil and gas extraction and the public sector being offset by declines in manufacturing and transportation.

However, July saw a 0.2% growth, which came in above market expectations, even factoring in disruptions from wildfires.

• August 2024 GDP expected to remain unchanged.

• July 2024 GDP grew by 0.2%, higher than the preliminary estimate.

• Services-producing industries grew 0.2% in July, led by retail trade (+1%).

• Goods-producing industries edged up 0.1% in July, with manufacturing and utilities as key contributors.

US Economy Grows at 3% in Q2

The US economy expanded by 3% in Q2 2024, consistent with earlier estimates and stronger than Q1’s 1.6% growth.

While private inventory investment and federal government spending saw upward revisions, consumer spending was slightly lower than expected.

• Q2 2024 GDP growth: 3%, unchanged from previous estimate.

• Upward revisions in private inventory investment (8.3%) and federal spending (4.3%).

• Downward revisions in consumer spending (2.8%) and nonresidential fixed investment (3.9%).

• Q1 2024 GDP growth revised up to 1.6% from 1.4%.

US Core PCE Price Index Slows

The core PCE price index in the US increased by 0.1% month-over-month in August 2024, lower than market expectations, indicating a continued slowdown in inflation.

The Federal Reserve will no doubt view this as a sign to support an aggressive rate-cutting cycle.

• Core PCE rose by 0.1% in August, below the 0.2% forecast.

• Inflation slowing supports the case for rate cuts by the Federal Reserve.

• Core PCE prices increased by 2.7% year-over-year.

• Personal spending rose by 0.2%, the smallest gain since January.

Key Takeaways From this Week’s Economic News

Canada's GDP Expected to Stall

To me, Canada’s economy is showing signs of mixed performance, with August's anticipated GDP stagnation raising a few concerns. Yes, gains in oil, gas, and the public sector are encouraging, but the declines in manufacturing and transportation point to deeper issues, possibly stemming from supply chain disruptions or the lingering effects of wildfires. As I see it, this says that while certain sectors are holding up well, others are struggling, which could impact overall economic momentum. If this stalling trend continues, I expect we’ll see the government and policymakers step in to support sectors under pressure, especially if these challenges persist into the fall.

US Economy Grows at 3%

The consistent growth in the US economy is a strong indicator of its resilience, and I find the upward revisions in areas like inventory investment and government spending particularly noteworthy. That said, we did see that slight downtick in consumer spending and that raises a bit of a caution flag—it could suggest that consumer confidence is not as strong as it seems, or that inflationary pressures are making people more cautious with their money. The strong growth in Q2, along with the revised Q1 numbers, shows that the US economy is on solid ground, better than expected, which gives the Federal Reserve more room to maneuver. But this also means the Fed needs to balance stimulating further growth while ensuring inflation doesn't re-accelerate.

US Core PCE Price Index Slow

The slowdown in the core PCE price index is definitely good news for the Federal Reserve, aligning with their view that inflation is easing. For me, this confirms the likelihood that we are looking at a continuation of rate cuts, which will lower borrowing costs and potentially spark more spending and investment. Ok, that’s good news, but as I just mentioned in the above paragraph, I can't ignore the dip in personal spending growth—it could be an early sign of consumer caution. While the overall inflation slowdown is positive, I think it’s crucial to keep an eye on consumer behavior in the coming months to gauge whether spending will rebound or continue to slow.

THIS WEEK’S POLL QUESTION
(Results in Next Week’s Newsletter)

Comments of the Week

✅ Just Right

“Elizabeth Warren was asking for a more aggressive cut of 75bp but I think that was thought to be too risky to trigger more inflation and 25bp

would not be enough considering layoffs are currently happening which cam easily cause a domino effect and put us in a recession (if we're not there already) or worse. Is this why Warren Buffet is still on the sidelines holding cash?” - forestkel123

❌ Too Aggressive

COMMERCE
Number of Active Businesses in Canada Sees Steepest Decline Since Pandemic

• About 5% of Canadian businesses closed in June 2023, the highest rate since 2020.

• Business closures outpaced new firm creation, leading to a net decrease in active businesses.

• High interest rates and looming loan repayment deadlines are impacting business sustainability.

• Government support program repayments contributed to the spike in closures.

Statistics Canada reports that the number of active businesses in the country dropped sharply in June, with about 5% of firms shutting their doors. This is the highest closure rate since the same month in 2020. The total number of active businesses fell by 1% to 929,173, the steepest monthly decline since the peak of COVID-19 lockdowns in May 2020. Business closures have been particularly concerning as new firm openings did not keep pace; only 4.2% of firms opened that month, the lowest rate since March 2023.

Factors Behind the Closures

A combination of economic challenges appears to be the main causes these closures. Even though rates have begun to come down, high comparative interest rates are increasing financing costs, while slowing consumer demand makes it harder for businesses to maintain profitability. Another factor is that  businesses are feeling the impact of the deadlines to repay loans from the Canada Emergency Business Account (CEBA) program. This support program provided over $49 billion in loans during the pandemic. While some loans were forgivable, firms faced multiple repayment deadlines, with the final one to qualify for partial forgiveness passing at the end of March 2024.

Loan Repayment Pressures and Future Outlook

The pressure to repay pandemic-era loans has had a big impact on the recent wave of business closures. The decline in active businesses, coupled with a spike in business insolvencies at the start of 2024, indicates that many firms struggled to recover even after receiving financial support. Businesses may face ongoing challenges in maintaining operations, especially those already burdened by debt and slower consumer demand.

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HOUSING
Mortgage Renewal Changes Aim to Ease Borrower Challenges

• OSFI to ease mortgage stress test for lender switches.

• Banks may offer more competitive rates due to policy change.

• Policy shift expected to stimulate the sluggish real estate market.

• Other government mortgage relaxations could impact housing affordability.

In what is a pretty big change, Canada’s banking regulator, the Office of the Superintendent of Financial Institutions (OSFI), will no longer require homeowners to pass a stress test when switching lenders at mortgage renewal. Effective November 21, the change will make it easier for borrowers with uninsured mortgages to move to different banks. Up ‘til now, homeowners had to prove they could handle payments at a rate 2% higher than their actual contract, which of course made it more difficult for those looking for better mortgage rates with another bank. 

Peter Routledge, OSFI Superintendent says that this change corrects an imbalance between insured and uninsured borrowers.

Potential Impact on Mortgage Market

By eliminating barriers for borrowers switching banks, the move is expected to motivate lenders to offer more competitive rates. The thing I like most about this is that it will provide greater choice and flexibility for homeowners, giving the borrower more leverage when negotiating renewal rates with their loan provider.

This change comes in addition to recent changes with other government policies, like allowing smaller down payments on homes valued over $1 million and extending mortgage payment periods for first-time buyers.

Challenges and Housing Market Outlook

So these are all calculated changes, but I’m not convinced that they will be overly effective in removing the challenges in the housing market. We’re still dealing with elevated interest rates (relative to the past few years) and a fast-growing population increase have outpaced new housing starts.

Overall, the relaxation of mortgage stress test rules and other policy changes may provide short-term relief for homeowners and introduce more competition among lenders. Personally, I’m skeptical they’ll be enough to have a significant impact the long-term structural issues of housing supply and affordability.

BANKING
TD Bank Nears Possible Guilty Plea in Money Laundering Probe

• TD Bank is close to a guilty plea in a U.S. money laundering probe.

• Investigation focuses on links to Chinese crime groups and illicit fentanyl sales.

• The bank has invested $400 million in anti-money laundering program upgrades.

• Potential legal resolution could cost TD Bank over $3 billion.

Rumblings are that we may be getting close to closing an ugly chapter in TD Bank’s storied history. The bank is reportedly close to entering a guilty plea in response to charges related to money laundering activities within its U.S. retail operations. The charges stem from the bank's alleged failure to prevent money laundering connected to Chinese crime groups and the sale of illicit fentanyl. Sources cited by The Wall Street Journal indicate that the bank is expected to enter a plea within two weeks, though neither TD Bank nor the U.S. Department of Justice (DOJ) have confirmed or commented on the developments.

Anti-Money Laundering Program Overhaul

Earlier in May, TD Bank announced that it had conducted a comprehensive overhaul of its anti-money laundering (AML) procedures and systems. The bank revealed an investment exceeding C$500 million ($400 million) in this effort, signaling its commitment to addressing regulatory shortcomings. This comes as both U.S. and Canadian authorities have scrutinized TD’s compliance programs. The U.S. authorities have accused TD Bank of "reckless" behavior in failing to establish and maintain adequate safeguards against money laundering.

Financial Implications and DOJ Investigation

TD has reportedly set aside more than $3 billion to cover potential costs associated with resolving the U.S. government investigations. The DOJ's probe was initiated after uncovering a money-laundering operation in New York and New Jersey, involving the processing of hundreds of millions of dollars in illicit narcotics proceeds through TD Bank and other financial institutions. If this looming guilty plea comes to fruition, it will be a significant moment in the bank's history, and will be a big step in its ongoing attempts to remedy its compliance failures and address potential legal consequences.

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AUTONOMOUS DRIVING
Can Tesla Really Deliver on Its Robotaxi Promise?

• Elon Musk’s dream of Tesla robotaxis is still far from reality.

• Tesla's Full Self-Driving (FSD) tech faces big challenges, including missing key sensors.

• Critics argue Tesla’s robotaxi claims are more hype than fact.

• Legal issues and regulatory hurdles add to the uncertainty.

Way back in April 2019, Elon Musk confidently declared that Tesla would have over a million self-driving "robotaxis" on the road by the next year. His idea? Cars equipped with "Full Self-Driving" (FSD) software, roaming the streets autonomously, and earning owners a passive income. But here we are, years later, and that fleet of robotaxis is still nowhere to be seen. Tesla’s FSD tech still requires an attentive driver ready to take control if things go wrong. Even so, Musk insists that Tesla is pushing full steam ahead on the robotaxi concept, though timelines keep shifting.

Can Tesla Really Pull This Off? Experts Aren’t Convinced

A lot of industry watchers are skeptical of Tesla’s claims. Dan O’Dowd, a tech entrepreneur and founder of the Dawn Project, believes that Tesla’s FSD software is far from safe for the road. His team’s experiments show Teslas running stop signs and ignoring school buses, and he argues the software just isn't ready.

Then there’s Mark Spiegel, a hedge fund manager who’s been betting against Tesla for years. He points out that for truly safe autonomous driving, most experts agree you need more than just cameras—you need sensors like LiDAR and radar. But Teslas only come with cameras, which Spiegel thinks is a huge problem.
[Editor’s Note]: Spiegel says Teslas ‘only come with cameras’, however although its cars rely mainly on camera-based vision, it also incorporates AI processing and ultrasonic sensors for close-range detection.

This has even led to a class-action lawsuit from customers who feel they were misled.

Legal Hurdles, Competition, and Growing Pressure

Tesla isn’t just facing skepticism—it’s also under government scrutiny. The National Highway Traffic Safety Administration (NHTSA) has been investigating Tesla's Autopilot, a less advanced driver-assist feature, to see if it’s really as safe as the company claims. On top of that, Tesla hasn’t applied for permits to run robotaxis in key states like California and Nevada, where other autonomous cars are already hitting the road.

Meanwhile, competitors like Waymo are way ahead in the robotaxi game, using more advanced sensor technology. Ed Niedermeyer, a journalist who’s written about Tesla, thinks that Musk’s robotaxi hype is just another way to boost Tesla’s stock price. He argues that Tesla is trying to build AI models to work “everywhere” using cameras only—a much tougher task than what other companies are doing.

In his latest iteration of a robo-taxi launch date, Tesla has an event scheduled for October 10th, 2024 to apparently reveal this new vehicle. Will this be another one of the many false starts, or will we actually see a working product ready to roll out? In what will surely bring Musk joy, we’ll just have to stay tuned.

OTHER NEWS FROM THE PAST WEEK

What Fueled This Week’s Record-Breaking Stock Rally
Strong economic data and a recent rate cut from the Federal Reserve have driven the S&P 500 and Dow to record highs. Optimism around a “soft landing” scenario and steady labor market performance have kept the rally going.

U.S. Fines Air Canada $250,000 Over Iraqi Airspace Flights
The U.S. fined Air Canada $250,000 for flying in prohibited Iraqi airspace in 2022 and 2023. Air Canada attributed the violations to unexpected factors but has since taken steps to avoid future incidents.

Google Files EU Complaint Over Microsoft’s Cloud Practices
Google filed a complaint with the European Commission, accusing Microsoft of anti-competitive practices in cloud services. Google claims Microsoft unfairly locks customers into its Azure platform and imposes hefty penalties on those using rival cloud services.

Trump Media's Decline Signals Trouble for Trump’s Future
Trump Media's stock price is plummeting, suggesting waning confidence in Donald Trump's political future. With debts exceeding assets and little revenue, investors seem skeptical about the company's growth prospects in a crowded social media landscape.

Missed Gains: Is It Time to Buy Stocks Now at Record Highs?
Investors who followed the “Sell in May and go away” strategy missed out on substantial market gains, with the Dow up 12.5% since May. Is now the right time to jump back in?

Market Movers

Top 10 Weekly Gainers

Top 10 Weekly Losers

10 Most Overbought Stocks

10 Most Oversold Stocks

The Relative Strength Indicator (RSI) can provide a signal that suggest a stock is either overbought or oversold.
📈A stock that has an RSI over 70 is considered to be in “overbought” territory. This might suggest that the stock is due for a pullback, however it is not a recommendation to sell.
📉A stock that is trading with an RSI below 30 is considered to be in “oversold” territory. This might suggest that the stock is due for a recovery, however it is not a recommendation to buy. Always perform your own due diligence.

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