Market Update: August 28th, 2023
The Market Cools as Consumer Spending Continues to Slow
The biggest dragging factor of this market the consumer is spending less than they have in the past and is this leading to a potential drop in unemployment as celebrating the Day of Labour approaches?
“Want” Sectors Continue to Fall
Companies like Nike, Foot Locker, Starbucks, Ford, Target, Canada Goose, etc. are all down on the year. With the market signaling that they do not believe that the consumer will continue to spend and maybe the economy is not as strong as it seems. If you notice all those names, they are the brands people can live without when they tighten their wallets. What’s not great is that these companies have also reported that they do not expect a quick turnaround in the coming quarters as supplies build. This is spreading to travel also as Airbnb, Expedia, Delta Airlines, Carnival, etc. have all been declining since July.
“57% of Canadians say they have no interest in traveling internationally this year..”
Job Gains? Or Job Loss?
In both the US and Canada, you are seeing positives and negatives in the jobs data. In Canada, over the past few months, you have seen a total increase of 36,200 jobs but at the same time, the unemployment rate has jumped from 5.0% to 5.5%.
In the US, you have seen the unemployment rate hovering around 3.5%-3.6% all year but you have seen jobless claims consistently grow over the past year and the new jobs growth slow.
Bond Yields Rise, Along with Mortgage Rates
The long-term bond yields continue to increase there are two factors at play here. The first is the obvious that people now believe rates will be higher for longer. The second is the large issuance of government bonds in the US due to funds concerns. The US plans to issue $1 Trillion in bonds to cover expenses when in May they felt $733 Billion would be enough. This increase has caused a large rise in yields in the month of August. Canada is facing a similar battle, as spending continues to grow past even the COVID years. While it is not a headline story, we are starting to have to pay for the money spent during COVID by issuing more debt.
Mortgage rates are based on long-term bond rates so along with it they have grown. We will need to see bond rates decline in order to see mortgage rates come down. The federal governments do seem to be very stubborn about keeping rates higher and we will need to see more consistent data for them to change their mind.
Looking Forward
Overall, consumer spending and job hiring are starting to slow. On top of this employees are demanding more pay (i.e. Strikes from Writers/Actors, Auto Workers, Metro Employees, etc.), which signals wage growth ahead. Not the best environment to justify higher rates in the future.
Thanks,
Justin, Konrad, and Merriel
More articles and information are available at www.lkwealth.ca
Content Sources: Bloomberg, Trading Economics, Yahoo Finance, BCA Research
Disclaimer: This newsletter is solely the work of Justin Lim and Konrad Kopacz for the private information of their clients. Although the author is a registered Investment Advisor with Echelon Wealth Partners Inc. (“Echelon”) this is not an official publication of Echelon, and the author is not an Echelon research analyst. The views (including any recommendations) expressed in this newsletter are those of the author alone, and they have not been approved by, and are not necessarily those of, Echelon.
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