Global Equity Weekly

January 19, 2024 | 16:27

Chasing Records

Economist

Robert Kavcic

Senior Economist and Director
Economics

Robert has been with BMO Capital Markets since 2006. He plays a key role... (Read more)

Robert Kavcic

Senior Economist and Director
Economics

Robert has been with BMO Capital Markets since 2006. He plays a key role... (Read more)

Equity markets were mixed this week, but U.S. stocks powered higher with the S&P 500 closing at a record high. The index rose 1.2% on the week, led by a strong 4.3% rally in technology, while energy, materials and utilities lagged. The Nasdaq added 2.3% on the week and now almost 20% in the last three months alone. Meantime, the TSX dipped 0.4% and continues to lag over the past three months. As usual, it's a story of little exposure to what's working (tech), and a lot of exposure to what's not (energy and materials).

Economic data were mixed this week, but overall portrayed a growth and inflation backdrop that is proving, yet again, resilient. That led to higher bond yields and some pushback on the idea that the Fed and Bank of Canada are closing in on near-term rate cuts.

U.S. retail sales rose a stronger-than-expected 0.6% in December, with core sales rising by the same amount. That leaves core retail spending up 6.6% in the past year and a sturdy 5.9% in the latest three months, hardly portraying a slowdown. Meantime, initial jobless claims faded to just 187k in the January 13th survey week, the lowest since September. Again, hardly portraying a slowdown. Consumer confidence also popped in January, with the University of Michigan measure rising to 78.8 versus a seven-month of low of just 61.3 two months prior. While the run in stock markets no doubt had an imprint on confidence coming into 2024, inflation expectations also continued to fade, which is good news.

In Canada, while November data flow was very much mixed, it was the December CPI report that reiterated sticky inflation. Headline inflation accelerated to a firmer-than-expected 3.4% y/y, while most core inflation metrics are also proving stubborn. That applied some upward pressure to bond yields in Canada as well, and took some of the recent momentum out of rate-sensitive sectors.

We’re also getting deeper into the Q4 earnings season, and so far the results have been sturdy. With just about 10% of the S&P 500 reporting, 85% have topped expectations, according to Refinitiv’s tally. Overall, consensus bottom-up earnings growth is now pegged at 4.5% y/y, down from 7.5% y/y in the prior quarter and from firmer expectations of around 10% y/y late last year.

Major Index Performance

North American Sector Performances

(% change over period)

Table 1 - S&P 500 Sector Performance

Source: BMO Economics, Bloomberg

Table 2 - TSX Sector Performance

Source: BMO Economics, Bloomberg

TSX Relative Sector Performance

(relative to the index, year-ago = 100; dashed line = 200-day m.a.)

S&P 500 Relative Sector Performance