What is next after the “wild week” on the markets?

The past week was one of the most volatile on the stock markets in recent history.

Stocks slid on Monday, reacting to weaker-than-expected U.S. labour market data and an interest rate hike by the Bank of Japan. The S&P 500 index lost almost 3% in its worst day since 2022.

U.S. markets recovered some of their ground Tuesday before leaning back into the red on Wednesday. The fears about overvaluation of Artificial Intelligence stocks such as semi-conductors (AMD, NVDA, etc.) added to the decline of the markets.

But on Thursday, after a reassuring update on the health of the U.S. labor market, the S&P 500 rose 2.3%, which became the best single-day performance of this year. The S&P 500 finished the week with its best two-day gain of 2024.

Many market experts warn that heightened volatility will remain for the rest of the summer due to lower liquidity (many traders on summer vacations), continued uncertainty surrounding Fed policy, and the upcoming U.S. presidential election.

The Fed kept the interest rates unchanged on July 31 and many experts now expect that the rates will need to be cut in September. But others point to the fact that the U.S. economy has done fine with elevated interest rates. U.S. GDP continued a long period of steady expansion with 2.8% growth in the second quarter. Business activity, new orders, employment, supplier deliveries and corporate earnings in the U.S. are all painting a picture that is quite far from an onset of a recession.

Interest rate cuts have often been followed by weak equity markets in the past. This time, if interest rate cuts materialize in September, many market players expect that it will provide a boost for equities. Many experts also expect stock markets to remain volatile but within a range, without major ups and downs to the end of 2024.

During this past “wild week”, Canadian stocks followed their American “cousins” in a downward trajectory. That said, because Canadian shares are trading at lower valuations, and because of Bank of Canada’s interest rate cuts (twice in the past two Bank meetings), there are some who expect to see the S&P/TSX Composite Index outperform U.S. indices for the second half of 2024.

According to Bloomberg, Brian Belski, BMO Capital Markets’ chief investment strategist, has the year-end target for the S&P/TSX index at 24,500 implying an almost 10% gain for the rest of the year. “It’s exactly the wrong time to be negative on Canada,” Belski told Bloomberg, adding that stocks in Canada have been outperforming despite concerns about the economy. Even stocks in the retail sector, like Aritzia Inc. and Dollarama Inc., “are killing it at a time when the Bank of Canada is worried about the economy slowing down.”

The Wealth Strategies Group of Ukrainian Credit Union Limited is ready to help you make the most of the tumultuous stock markets. Our experienced investment professionals will assist you in setting and fulfilling your investment goals every step of the way. Call us today at 416.763-5575 to make an appointment with our specialist.

Michael Zienchuk, MBA, CIM
Investment Advisor, Credential Securities Inc.
Manager, Wealth Strategies Group
Ukrainian Credit Union
416-763-5575 x204
[email protected]
www.ukrainiancu.com

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