Jump to Main Content

Monthly Market Insights: June


Data and opinions as of May 31, 2021


Markets trade in range on signs of U.S. growth slowdown

Markets consolidated in May and continued to process the strength of the economic recovery, a decline in global COVID19 cases, and the potential for inflation. Global stock markets were essentially flat, while bond indices rose as investors looked past historically high inflation readings and instead focused on disappointing employment data. Markets are currently in a holding pattern as they await direction from incoming economic data. Investors are positioned for a reflationary environment but due to a near-term peak in U.S. growth momentum, they may be evaluating the possibility of stagflation in the short-term. There have been positive surprises in European and Japanese economic data, and we believe those countries are positioned to benefit from improving economic sentiment and increased vaccination rates.


The NEI perspective

Commodity price correction. Commodities corrected last month as China clamped down on rising prices, though gold bounced back on stagflation concerns.

 

Slowdown in U.S. economic growth. The U.S. Federal Reserve is keeping policy easy as markets process historically high inflation and disappointing employment data. U.S. growth momentum may have peaked in the near-term.

 

Europe and Japan looking stronger. We expect the rest of the world to pick up the slack from slowing U.S. growth. Signs of economic strength are emerging in Europe and Japan as both regions try to accelerate vaccine distribution.

 

From NEI’s Monthly Market Monitor for June. Click here to get the full report (PDF, 284 KB)


Equity*

% return in C$

Canada monthly equity return is 3.5% and year to date equity return is 14.4%. US monthly equity return is -1.4% and year to date equity return is 5.8%. International markets monthly equity return is 1.4% and year to date equity return is 4.4%. Emerging markets monthly equity return is 0.5% and year to date equity return is 1.7%.

Fixed income and currency**

% return in C$

Canadian investment grade returns were 0.6% monthly, and -4.3% year to date. Global investment grade returns were 0.2% monthly and -2.0% year to date. U.S. high yield returns were 0.3% monthly and 2.2% year to date. US$ vs. C$ returns were -1.8% monthly and -5.2% year to date.

How base effects distort economic data

The Canadian Consumer Price Index (CPI) rose 3.4% in April, the fastest pace in almost 10 years, stroking inflation fears among investors. However, Statistics Canada was quick to point out that much of this rise can be attributed to “base effects” that are expected to be temporary. What are “base effects” and how are they distorting recent economic data?

The onset of the pandemic saw entire industries shut down and global economies suffered heavily. Less than a year later, vaccines were introduced, and economies are quickly recovering with the support of loose monetary policy and unprecedented amounts of fiscal spending. This extraordinary decline and ascent have resulted in large distortions in data due to base effects. Base effects refer to the impact that year-ago data has on the current year’s data. So when this month’s data is compared to an unusually low or high data point from the prior year, this will cause distortion that economists attribute to base effects. Base effects are impacting much of the data being released today, such as GDP and CPI. The weak readings in Q2 2020 result in unusually strong Q2 2021 data. This does not mean the latest data is wrong, but we need to look at month-over-month data to get a better understanding of near-term trends.


Inflation and GDP***

Indexed to 100 as of April 30, 2019

Comparison of Inflation and GDP in Canada from April 30, 2019 to April 30, 2021. Inflation increased 3.4% overall and GDP increased 19.1% overall.

  • Using StatsCan’s preliminary estimate for April 2021, GDP rose an incredible 19.1% year-over-year. However, when compared to pre-pandemic February 2020 levels, GDP is still down 1.9%.

  • CPI rose a solid 3.4% year-over-year in April, but when compared to pre-pandemic February 2020 levels, inflation has risen just 2.1%.


 
Meridian logo

Aviso Wealth logo

Legal

*Canada: MSCI Canada; U.S.: MSCI USA; International markets: MSCI EAFE; Emerging markets: MSCI Emerging Markets. Source: Morningstar Direct.

**Canada investment grade: Bloomberg Barclays Canada Aggregate; Global investment grade: Bloomberg Barclays Global Aggregate; U.S. high yield: Bloomberg Barclays U.S. High Yield. Source: Morningstar Direct.

***Source: Bloomberg, Statistics Canada. Data as of May 31, 2021.

Aviso Wealth Inc. (“Aviso Wealth”) is the parent company of Credential Qtrade Securities Inc(“CQSI”), Credential Asset Management (“CAM”), Qtrade Asset Management (“QAM”) and Northwest & Ethical Investments L.P. (“NEI”). NEI Investments is a registered trademark of NEI. Any use by CQSI, CAM, QAM or NEI of an Aviso Wealth trade name or trademark is made with the consent and/or license of Aviso Wealth. Aviso Wealth is a wholly-owned subsidiary of Aviso Wealth Limited Partnership, which in turn is owned 50% by Desjardins Financial Holdings Inc. and 50% by a limited partnership owned by the five Provincial Credit Union Centrals and the CUMIS Group Limited.

This material is for informational and educational purposes and it is not intended to provide specific advice including, without limitation, investment, financial, tax or similar matters. This document is published by CQSI, CAM and QAM and unless indicated otherwise, all views expressed in this document are those of CQSI, CAM and QAM. The views expressed herein are subject to change without notice as markets change over time. Views expressed regarding a particular industry or market sector should not be considered an indication of trading intent of any funds managed by NEI Investments. Forward-looking statements are not guaranteed of future performance and risks and uncertainties often cause actual results to differ materially from forward-looking information or expectations. Do not place undue reliance on forward-looking information.

The MSCI information may only be used for your internal use, may not be reproduced or re-disseminated in any form and may not be used as a basis for or a component of any financial instruments or products or indices. None of the MSCI information is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. Historical data and analysis should not be taken as an indication or guarantee of any future performance, analysis, forecast or prediction. The MSSCI information is provided on an “as is” basis and the user of this information assumes the entire risk of any use made of this information. MSCI, each of its affiliates and each other person involved in or related to computing, computing or creating any MCI information (collectively, the “MSCI Parties”) expressly disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits) or any other damages.