27 Nov This Week in the Markets – November 24, 2017
Global equities continue to run up to new record highs
After a slight pullback last week on the heels of a tremendous bull run throughout the majority of 2017, most major Canadian and U.S. benchmarks once again continue their march toward record highs, save for the Canadian S&P/TSX Composite as it did not break a new record. That being said, the S&P/TSX Composite, S&P 500 and the Dow Jones Industrial Average closed up 0.68%, 0.45% and 0.39% respectively at the end of this shortened week. Both the Dow Jones and the S&P 500 set records throughout the week with the Dow Jones cracking 26,590 and the S&P 500 closing above 2,600 for the first time since inception.
U.S. equities closely followed the technology sector as a rally in tech lifted the broader market, with large-cap companies such as Apple, Facebook, Amazon, Netflix and Amazon leading the charge. The tech sector rally may be partially attributed to companies receiving a boost ahead of the holiday shopping season, as consumers hit the stores and scour the internet in search of Black Friday and Cyber Monday deals. In addition, earning seasons continued in full force as many of the America’s biggest companies posted strong earnings; Medtronic, Hormel Foods and Dollar Tree all beat on quarterly estimates which resulted in share price increases of 4.8%, 3.4% and 2.4% respectively.
Goldman Sachs has stated that this run is expected to continue as the investment banking giant is suddenly bullish on the market, stating the S&P 500 will hit 2,850 contingent on Congress successfully passing tax reform. If tax reform were to fail, a 5% pullback is considered likely and thus, the tax reform issue is of utmost importance, especially as the Senate is set to vote on tax reform in the upcoming week. The Federal Reserve released their meeting minutes for the meeting held on October, 31st on Wednesday, with officials preparing to raise interest rates in December. While employment and growth have been healthy and stead, inflation has been oddly low and this will continue to be a worry for the central bank moving forward.
Shares of energy companies climbed as U.S. oil prices rose to their highest levels in the last two years, closing on Friday at 58.66. Oil prices rose due to a drop in U.S. crude stockpiles, as the U.S. Energy Information Administration reported on Wednesday that crude inventories fell by 1.9 million barrels for the week of Nov. 17, exceeding analyst predictions of a decrease of 1.5 million barrels. In addition, the TransCanada Keystone pipeline experienced disruptions in the last week, as the pipeline leaked approximately 5,000 barrels of oil. The Keystone pipeline was producing 590,000 barrels per day before its closure. This event factored into the declining stockpiles of crude oil, resulting in an increase in oil price. Looking forward, OPEC will meet on November 30 to discuss its ongoing production cuts, with the question of extending production cuts in mind. OPEC’s production cuts have been key to stabilizing the price of oil as U.S. production and supply continue to grow at high levels. If the outcome of the meeting were to fall below expectations, declining oil prices and increasing volatility is likely to occur. The surge in oil prices helped lift the S&P/TSC Composite but the largest factor contributing to the index’s rally was Valeant Pharmaceuticals International Inc. and medical marijuana producer Canopy Growth Corp. There is an increasing focus of mergers and acquisitions in this space as investors grow increasingly bullish on the prospects of medical marijuana with projected legalization looming closer and closer.