The Week in Review

Weekly Market Recap: U.S. and Canada

I’d forgive you if you thought I’d just flipped last week’s chart upside down and slotted it in here, because the markets just reversed course and following last week’s big slide, picked right back up again like nothing had ever happened.
After leading the way down last week, the Nasdaq powered back with a gain of almost 6% this week, pushing back against the narrative that tech stocks have peaked for this cycle. The S&P 500 finished the week up 4%, the TSX rose 3.26% and the Dow Jones gained 2.60%

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

TSX Returns | Week At-a-Glance

Major Economic Stories This Week

It wasn’t a huge week for economic news, but next week we get the latest Canada inflation numbers. The forecast is for a slight decline to 2.4% YoY. In the US, it’s a big day Wednesday, with the Fed Interest Rate Decision, as well as the FOMC Economic Projections.

Here’s what happened this week:

Canada's Wholesale Sales Up 0.4%

Wholesale sales in Canada increased by 0.4% in July, outperforming the expected 1.1% decline.

Growth was driven by the agriculture supplies and food, beverage, and tobacco subsectors. However, the personal and household goods sector saw a notable decline, while Ontario was the only province to report a drop in sales.

• July sales rose 0.4% month-over-month, reversing June’s decline.

• Agriculture supplies led gains with a 9.2% surge to $3.5 billion.

• Seven provinces saw increases, with Quebec and Alberta up 2.0%.

• Ontario was down 0.7%.

US Inflation Slowed to 2.5%

The US annual inflation rate fell to 2.5% in August, the fifth consecutive decline.

A big drop in energy costs drove the deceleration, although shelter costs continued to edge higher. Monthly inflation held steady at 0.2%, while core inflation nudged slightly above expectations.

• Inflation rate at 2.5%, lowest since February 2021.

• Energy costs dropped 4%, led by gasoline prices down 10.3%.

• Monthly core inflation rose 0.3%, exceeding forecasts.

• Shelter costs remained a key driver of inflation, rising 0.5%.

US Consumer Sentiment Hits 69

The University of Michigan's consumer sentiment index for the US rose to 69 in September, its highest level since May.

The increase was led by better buying conditions for durable goods and improved personal finance expectations, although concerns about the labor market persisted.

• Consumer sentiment increased to 69, beating expectations.

• Buying conditions for durable goods improved.

• Year-ahead inflation expectations fell to 2.7%.

• Five-year inflation outlook edged up to 3.1%.

Key Takeaways From this Week’s Economic News

Canada's Wholesale Sales Bounce Back

First off, the 0.4% rise in wholesale sales is a promising rebound after June’s decline and came as a surprise against the forecasted drop. We saw strong growth in agricultural supplies, and this is a reflection of resilience in essential industries, while the performance across most provinces signals broad economic health. Ontario's dip, though, does raise some questions about regional economic disparities. This growth could suggest rising demand in key sectors, a hint that there may be some potential short-term economic stability in Canada.

US Inflation Slows, But Shelter Costs Still Rising

While the headline inflation rate in the US continues to ease, the steady rise in shelter costs is keeping overall inflation pressures alive. It suggests that while consumers might benefit from lower energy and transportation costs, housing affordability could remain a concern. The slight uptick in core inflation above expectations signals that inflationary pressures aren’t entirely behind, possibly impacting future Fed decisions on interest rates.

Improving US Consumer Sentiment Amid Price Stability

Rising consumer sentiment in the US, led by improved purchasing conditions and better economic expectations, is a positive sign for overall economic health. With inflation expectations easing slightly, it suggests that consumers are feeling less pinched by rising prices. That said, the uptick in long-term inflation expectations could mean people remain cautious, especially as labor market concerns persist. This mixed sentiment may influence future spending behaviors.

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

Comments of the Week

🛒 Controlling Inflation

“With the cost of living so high, wages are no where close to keeping up ,producing minimum wage jobs won't help.” - storierod

“Both are important but inflation hurts everyone and needs to be stabilized.” - syoungconsultinginc

“Inflation affects everyone, job creation affects a few.” - keenrg

INTEREST RATES
Canada's Path to Taming Inflation

• Inflation in Canada has dropped to 2.5%, with efforts to further lower it.

• Risks now focus on avoiding economic slowdown and deflation.

• Immigration is critical for Canada’s productivity and economic growth.

• Pension funds face obstacles in investing domestically, but solutions are in progress.

Canada is making steady progress in bringing inflation under control, says former Bank of Canada Governor Stephen Poloz. With inflation down to 2.5%, its lowest since March 2021, Poloz is optimistic about the country’s trajectory. However, he notes that the focus is now shifting to downside risks. As inflation approaches the 2% target, Poloz and current Bank of Canada Governor Tiff Macklem are watching for potential economic slowdowns, and caution that “we need growth to pick up so inflation does not fall too much.”

Recession Concerns and Productivity Gaps

One key concern is navigating the balance between inflation control and ensuring the economy doesn’t overcorrect into recession. Poloz emphasizes that Canada should prepare for a recession, even though he doesn't predict one imminently: “We should be prepared for one and not pretend it can’t happen.”

Productivity remains a long-standing issue. Canada has fallen behind its global peers, showing little growth over recent decades. Poloz attributes this to a lack of a favorable investment environment. He says Canada doesn’t present a favourable environment for investment, and adds that immigration will play a crucial role in boosting the workforce and productivity.

Immigration and Pension Investments: A Focus for Growth

Poloz also highlights the importance of immigration, calling it “integral” to economic growth. While challenges like housing exist due to rapid immigration, he believes these are “bumps along the way” that Canada must endure to ensure future growth.

This is no doubt a controversial point of view, given the times we’re living in.

Pension Investments

On the investment front, Poloz is working on making it easier for pension funds to invest in Canadian businesses, identifying barriers that have limited domestic investments. “It’s about looking for impediments,” he says, aiming to create more home-grown investment opportunities for pension funds.

IN PARTNERSHIP WITH HARVEST ETFs
Rate Expectations | How Falling Rates Could Bolster Harvest Covered Call ETFs

The Federal Reserve rate decision will be announced at 2:00PM EST on Wednesday, September 18th, and markets are expecting a cut.

The Largest Covered Call Bond ETF Lineup in Canada

In late 2023, as central banks approached the end of a rate-tightening cycle aimed at cooling inflation, an opportunity emerged in the fixed income space. US Treasury ETFs are well-positioned to benefit from this policy shift.

Harvest Premium Yield Treasury ETF (HPYT:TSX) & Harvest Premium Yield 7-10 Year Treasury ETF (HPYM:TSX)

• Potential for attractive capital appreciation, if rates fall

• Tax efficient high monthly income

Rate-Sensitive Harvest ETFs Hit Annual Highs in August

Rate-sensitive Harvest ETFs also offer exposure to global utilities, global real estate/REITs, and US banks.

Utilities may benefit from rate cuts due to lower borrowing costs, which bring in higher profitability and the potential for dividend growth.

ETFs to consider

Harvest Equal Weight Global Utilities ETF (HUTL:TSX)

Real Estate Investment Trusts (REITs) are highly sensitive to interest rates because they often carry significant debt. Lower rates reduce their borrowing costs and make real estate investments more attractive compared to fixed income securities.

Harvest Global REIT Leaders Income ETF (HGR:TSX)

Lower rates can compress net interest margins, and they can also stimulate borrowing and economic activity. That benefits banks through increased loan growth and financial transactions.

Harvest US Bank Leaders Income ETF (HUBL:TSX)

Together, these sectors are well-positioned to thrive in a lower-rate environment.

Disclaimer:
Quick reminder: Commissions and management fees and other expenses may be associated with investing in Harvest ETFs. Their values change over time and past performances may not be repeated. Please read the relevant prospectus before investing.

TRANSPORTATION
Air Canada Looks for Government Help in Pilot Dispute 

• Air Canada anticipates government intervention in its pilot labor dispute.

• The pilots’ union is against arbitration, citing past unfavorable deals.

• A strike could start mid-week if no agreement is reached.

• The impact of a strike is cushioned by other airlines in the off-peak season.

Air Canada is potentially relying on the federal government to step in and resolve its ongoing labor dispute with its pilots, according to aviation expert John Gradek. The airline's negotiations with the pilots' union have stalled over wage demands, with a potential full-scale strike looming mid-week. Gradek, a lecturer at McGill University, suggests that Air Canada has been anticipating government intervention from the start, similar to how disputes with WestJet mechanics and railway companies were handled recently.

Wage Disagreements at the Heart of the Dispute

Gradek predicts that Air Canada prefers binding arbitration over direct negotiations. Arbitration, he believes, would likely lead to more modest wage increases than those the union might secure through negotiation.

The pilots’ union, however, is opposing arbitration, pointing back to the outcome of their last arbitrated contract in 2012, which only offered 2% annual raises over ten years—compensation they argue was below market value. In that case, the arbitrator sided with Air Canada.

Possible Work Stoppage and Financial Impact

While a strike could begin as soon as Wednesday if no deal is reached, the federal government might not jump in immediately. It’s not peak travel season, and other airlines like WestJet and Porter can absorb some of the passenger load. Still, the financial pressure on Air Canada could mount quickly, with the airline losing $50-60 million in daily revenue during a work stoppage.

As Gradek predicts, a work stoppage may last a week or 10 days at most before cooler heads will start to prevail.

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BANKING & TECHNOLOGY
TD Enters E-commerce, Targets Shopify

• TD Bank has launched an e-commerce platform to compete with Shopify.

• The platform, created with BigCommerce, targets small businesses.

• TD aims to expand beyond traditional payment processing into online sales.

• The move strengthens TD’s position in online payments and counters Shopify’s dominance.

Interesting news coming out of the banking sector this week. TD Bank has launched a new e-commerce platform, designed for small businesses, and is directly competing with Shopify, Canada’s leader in the online sales space. The arrangement will see TD partnering with U.S.-based BigCommerce to launch the first venture of its kind by a Canadian bank. The platform builds on TD's existing payment processing services but shifts the focus to online retail.

Competing with Shopify

TD's partnership with BigCommerce looks to equip businesses with powerful store-building tools, rivaling Shopify’s offerings. E-commerce expert Rick Watson says this is a smart move for TD, allowing the bank to gain a foothold in online payment processing, which is crucial in a market where Shopify dominates through its partnership with Stripe.

Challenging Shopify’s Revenue Model

You probably know Shopify its store-building tools, but the majority of its revenue—$1.5 billion in Q2 alone—comes from merchant solutions, such as payment services. TD’s e-commerce initiative reflects its intent to capture part of this growing market, as the bank seeks to expand beyond traditional point-of-sale systems and into the digital marketplace.

CONSUMER DEBT
U.S. Retail Credit Card Rates Hit Record

• Retail store credit card rates hit a record high of 30.45%.

• Interest rates can exceed 35%, leading to significant long-term costs.

• Deferred interest promotions can retroactively charge interest if not paid off.

• Paying balances in full can still offer perks like cashback for loyal shoppers.

Retail store credit card interest rates in the U.S. are skyrocketing, reaching an average of 30.45%, according to a recent Bankrate study. The rates, which have risen sharply from 24.35% in 2021, now pose a significant cost to consumers who don’t pay their balances in full. Some of the highest rates, up to 35.99%, are seen with cards from stores like Academy Sports, Petco, and Burlington. This trend is well above the average for general credit cards, which currently hovers around 21%.

The Cost of Carrying a Balance

One of the things I find most annoying, is when paying for something at the checkout, you might get a tempting discount on your purchase. The pressure from the sales associate can be relentless, and it drive me nuts. But it can get worse, because if you do sign up for the discount and then don’t pay off the card right away, carrying a balance can make any savings vanish quickly. For example, buying something for $1,000 with a 20% discount might save you $200 upfront.

“There are narrow circumstances in which retail cards can work for you,” said Ted Rossman, a senior analyst at Bankrate. "For instance, Amazon and Target cards offer 5% cashback for loyal shoppers. But it’s crucial to pay your balance in full to avoid high interest charges."

0% Promotions and Alternatives

Store cards often come with deceptive promotional offers, like 0% interest for a limited time. But if the balance isn’t paid before the promotion ends, interest is applied retroactively. While some retailers, such as Costco or IKEA, offer rates similar to regular credit cards, others go far beyond, so it’s important to be cautious.

 Rossman’s advice?

OTHER NEWS FROM THE PAST WEEK

Energy Deflation Looms Regardless of 2024 Election Outcome 

Energy prices are set to drop sharply regardless of whether Trump or Harris wins in 2024, according to industry analysts. Weak demand, especially from China, is driving the deflation, boosting consumer sentiment.

Berkshire Exec Ajit Jain Sells Shares 

Warren Buffett’s top insurance exec Ajit Jain has sold 55% of his Berkshire shares, banking $139 million. Despite his stock sale, Berkshire shares remain steady, and Jain continues to hold a significant stake.

Trump Media Shares Jump as Trump Refuses to Sell 

Shares of Trump Media soared 29% after Trump said he won’t sell his stake when lockup restrictions lift. Despite challenges with Truth Social’s revenue, Trump emphasized its value as a platform for his voice.

Campbell Soup Company Drops ‘Soup’ From Its Name 

Campbell Soup is dropping "Soup" from its name, rebranding as "The Campbell’s Company." This reflects its shift toward snacks, which now outpace soup sales, and aligns with its recent acquisitions of popular food brands.

Keurig to Pay $1.5M Over Misleading Recycling Claims 

Keurig will pay $1.5 million to settle charges over misleading statements about the recyclability of its K-Cup pods. Despite earlier claims, major recycling facilities raised concerns about the commercial feasibility of curbside recycling.

Red Lobster to Keep Canadian Restaurants Open Amid Bankruptcy 

Red Lobster’s Canadian restaurants are safe as the chain exits bankruptcy, with a restructuring plan approved by courts in Canada and the U.S. The company aims to keep 544 locations open, backed by $60 million in new funding.

And, to wrap things up for this week….

Best Time to Book Holiday Travel is Fast Approaching 

Holiday travel deals are just around the corner! Experts suggest booking in October to secure the lowest prices for Thanksgiving and Christmas. If you miss the window, Travel Tuesday offers last-minute bargains.

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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