Global Equity Weekly

May 20, 2022 | 16:44

Dollars Flow but Volumes Slow

Economist

Senior Economist and Director
Economics

Robert has been with the Bank of Montreal since 2006. He plays a key role in analyzing regional economic, fiscal... (Read more)

Robert Kavcic

Senior Economist and Director
Economics

Robert has been with the Bank of Montreal since 2006. He plays a key role in analyzing regional economic, fiscal... (Read more)

Equity markets continued to slump this week with little to change the narrative on stubborn inflation, tightening monetary policy and cooling growth. The S&P 500 fell 3.0% on the week, while the Nasdaq gave back another 3.8%. Canadian stocks held up, however, with the TSX adding 0.5%. The outperformance was largely because of less exposure (and less weakness) to consumer stocks that got clobbered this week. And so the valuation reset continues.

This week, saw number of key data releases in the U.S. and Canada. U.S. retail sales rose 0.9% as expected in April, though prior-month revisions were positive. But, month-to-moves are getting clawed back by inflation, and the 8.2% y/y gain just about matches the growth in headline CPI. So while the dollars are flowing, volumes are slowing. Earnings reports from Target and Walmart also caught the market’s attention this week, highlighting margin pressure from rising input costs, but also a sign that perhaps inventory stocking was overdone now that demand is cooling off. Consumer discretionary stocks in the S&P 500 are down 32% on the year, the worst performing sector of the market

Elsewhere, tighter monetary policy is biting housing activity and prices, with sales in both Canada and the U.S. down meaningfully from their highs alongside higher mortgage rates. See this week’s Focus feature for more on the Canadian situation.

Table 1 - Market Performance

Source: BMO Economics, Bloomberg

Regional Fed surveys were mixed, with Philly improving but Empire cooling on an ISM-adjusted basis—both are still in expansion territory. All in, unfilled orders and delivery times seem to be improving, at least a little bit.

Finally, inflation in Canada didn’t let up at all in April, with the headline rising to a 39-year high of 6.8% y/y. Core inflation is not letting up either on a shorter-term basis, with price gains widespread across categories. So, on both sides of the border, central banks are still in a dogfight and we continue to see aggressive rate hikes through the summer. As Fed Chair Powell said this week, it is going to take “clear and convincing” signs that inflation is easing before central banks will back off their tightening stance. We’ll be waiting…

Major Index Performance

North American Sector Performances

(% change over period)

Table 2 - S&P 500 Sector Performance

Source: BMO Economics, Bloomberg

Table 3 - 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