The Week in Review
Markets Eke out Gains
Lots of ups and downs out there this week but as the markets closed on Friday all major North American indices were in positive territory, led by the S&P500, up just over 1%.
There was also a ton of news that came out this week, and I'll highlight what I think is most relevant to investors. We've got economic news, company news and a few more light-hearted stories woven in to the mix.
And, as always, we have the Winning & Losing stocks of the week.
I wouldn’t want to be Jerome Powell and his crew these days trying to figure out what to do with interest rates, with the job numbers coming out in the US are making their job next to impossible.
First off, ADP reported this week that payrolls rose 89,000 in September, which was way below the 160,000 estimated by economists. In addition, wage growth slowed to 5.9%, extending the slowing trend to 12 consecutive months.
So, you’re Jerome and the gang and of course this news will lead you to consider pausing further interest rates. Looks like the job market is slowing.
Then, just when they figure they’ve got things figured out, the US Labor Department says that job openings for August were 9.6 million, up from 8.9 million in July. So these numbers tell them that the US labour market is actually still strong, and suggests a rate hike would be in order!
No doubt this type of conflicting and confounding economic information will continue to present challenges to the policymakers as we get closer to the end of this economic cycle. Good luck figuring this puzzle out.
Off the Charts
As tough as things are for the US Fed, things seem just as challenging right here in Canada when it comes to the job market. Statistics Canada reported Friday that Canada’s job growth came in at around TRIPLE what had been expected.
There was a net gain of 64,000 jobs in the month, up from an increase of 40,000 in August, blowing past an estimate of 20,000 from Bay Street economists. Unemployment was steady at 5.5% as the strong employment gains are offset by immigration-lead population growth.
Also according to StatsCan, job vacancies fell by 55,500 (-6.6%) to 780,200 in the second quarter, the fourth consecutive quarterly decrease in the job vacancy rate. As of the end of Q2 2023, the job vacancy rate (the number of vacant positions as a proportion of total demand for labour), stood at 4.4%.
On a year-over-year basis, job vacancies in the second quarter declined by 210,700 (-21.3%) from the record high of 990,900 unfilled positions reached in the second quarter of 2022.
So what do Tiff and his crew do as they make the tough decision on whether to hold or raise rates when it next announces on October 25th? Will this recent news, combined with a renewed uptick in inflation, force them to resume interest rate hikes, or will they be able to keep things on hold for the time being?
If we use interest rate swaps as a guide, the markets are pricing in around a 40% chance that the Bank of Canada will raise rates a quarter point this month, up from 28% odds just a week ago. Buckle Up.
Tesla Price Cuts
Just prior to announcing third quarter earnings on October 18th, and after missing market delivery expectations, Tesla has cut prices of it’s Model 3 and Model Y vehicles sold in the United States. Since the start of 2023, Tesla has dropped prices on its Model 3’s by 17%, and on the Model Y long-range variant, more than 26%. The standard Model 3 sedan is now $1,250 cheaper at $38,990, while the Model Y long-range variant costs $2,000 less at $48,490 according to Tesla’s website.
With three months remaining in the fiscal year, Tesla has to deliver a record 476,000 vehicles in three months to meet it’s target of delivering 1.8 million vehicles.
Strike End Near?
The ongoing auto strike in the US could be nearing an end. On Friday, UAW President Shawn Fain said that Ford, General Motors and Stellantis will all avert an expansion of the UAW’s work stoppages at this time, suggesting a deal is imminent.
A key discussion point has been how jobs will be protected as the industry shifts from traditional gas-powered cars to electric vehicles.
Also key in the negotiations is fixing the problem that workers in battery facilities are not actually GM employees and earn about one third less than members are currently paid. In the past, GM has insisted that the battery workers are not included in the labour agreement but now says that it agrees to have workers at future EV battery plants covered by the national labor agreement.
The concession is a major breakthrough on the union’s key demand that there be a “just transition” from gasoline powered cars to EVs, which are seen as a threat to union jobs.
Canadians Feeling the Pinch
Financial stress is on the rise with our fellow Canadians. According to the annual survey of working Canadians from the National Payroll Institute, 37% of Canadians consider themselves financially stressed, up 20% from last year. This stress level is now at the highest level in the 15 years the survey has been around.
Sixty three percent of the those who are deemed to be financially stressed live paycheque to paycheque, with 50% over that group feeling overwhelmed by debt. To make matters even worse, there's also an increase in Canadians using debt to finance their essential needs such as food and accommodation.
The major contributing factors to these problems are current high interest rates and inflation.
According to a recent Equifax report, consumer debt in Canada has reached $2.4 trillion with credit card debt alone hitting an all-time high of $107.4 billion.
When it comes to financial security, insurance plays a big role in ensuring that if something really bad happens you and your family will be protected from catastrophic financial losses. But, if you’re not a sophisticated consumer you might have fallen prey to unscrupulous insurance agents.
In two separate compliance reports released this week the Financial Services Regulatory Authority of Ontario (FSRA) announced actions against 65 life insurance agents at three Managing General Agencies, known as MGAs.
The reports focused on agents working at World Financial Group Insurance Agency of Canada, Greatway Financial Inc., and Experior Financial Inc. Combined, these three MGA’s represent about 20% of the agents in Ontario.
The big problem with the industry today is agencies that use a tiered recruitment business models, also referred to as multilevel marketing or network marketing. In these cases, in addition to their duties as life insurance agents, advisers are asked to recruit new advisers, in many cases from their own client base.
Being an insurance professional is serious business and you are often guiding clients to make important and expensive decisions. To me, this should be a full-time job but in a lot of cases insurance reps are recruited by others inside this network marketing structure into part-time positions while they continue to hold other full-time jobs, only selling insurance on the side. In many of these cases the focus on the agent is on recruiting 'downline' advisors rather than properly managing their insurance book of business, As shown by these probes, this leads to unprofessional behaviour and poor advice.
I applaud the regulators for putting more focus here and hope it's not just another toothless exercise that doesn't yield results.
Where am I Gonna Live?
Pretty much everywhere you look these days you’ll hear stories of people struggling to find proper housing. I know in my community I’m always seeing online posts from families almost begging for a place to live. So why is this happening?
There’s a trend in Ontario for landlords to change their long-term rental units into short term leases and a lot of them are pointing directly at the Ontario Landlord Tenant Board as the reason. Apparently, it takes landlords eight months just to book an appointment with the tribunal if tenants are giving them troubles such as not paying their rent or causing damage to the property.
In many of these cases landlords get stuck paying mortgages to the bank without the cash flow that would come in if the tenants were living up to their end of the bargain.
Largely because of this challenge, a lot of landlords know that if they have a short-term rental, such as an Airbnb for example, they’re removed from the oversight of the Landlord Tenant Board and the rights get shifted back into their favor. They have more control over their properties and probably the biggest thing is that they can actually make more money. It’s more profitable for them.
With the challenging economic conditions we’re facing today, more and more tenants are failing to pay their rent, and this further puts landlords into a bind. The irony here is that people who actually are able to provide housing aren't being incentivized to operate long term rental properties, and are, in fact, being pushed in the other direction.
In another example, according to a recent report issued by McGill University, the number of short-term rentals in British Columbia took 16,810 housing units off the market. This of course takes the available housing away from long-term British Columbia residents, further exacerbating the crisis.
Weekly Winners & Losers
The major indices eked out small gains this past week.
The Top Gainers were:
PDD Holdings (PDD), up 7.72%
CrowdStrike Holdings (CRWD), up 5.56%
Palo Alto Networks (PANW), up 5.23%
Eli Lilly (LLY), up 5.23%
Alphabet (GOOG), up 5.22%
It wasn't a great week for energy stocks, with a number of big names clocking in with steep losses. Here are the biggest losers of the past 5 trading days.
The Biggest Loser were:
Danaher (DHR), down 12.44%
NextEra Energy (NEE), down 12.31%
Exxon Mobil (XOM), down 8.85%
Mondelez (MDLZ), down 8.70%
Lucid Group (LCID), down 8.23%
Airbnb (ABNB), down 7.91%
Cenovus Energy (CVE), down 6.82%
West Fraser Timber (WFG), down 6.42%
Imperial Oil (IMO), down 6.36%
Suncor Energy (SU), down 5.74%
In Other News this Week
💰 Canada's GDP numbers show a slight increase in August, gaining 0.1%.
🏗️ Financial Regulators have approved the launch of two new alternative investments run by Obsiido Alternative Investments Inc. This will open up investments normally available only to large pension funds and institutional managers.
🧑🤝🧑 Alberta set a new record for net interprovincial population gains, adding 184,400 residents to the province.