November 30th Bi-Weekly Market Update

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The Top-Line

In the Macro
  • Federal Reserve chairman re-nominated for a second term
  • The housing boom continues across North America
In the Micro
  • Omicron causes Black Friday selloff 

The Bottom-Line

In the Macro

Federal Reserve chairman re-nominated for a second term

For months investors have been speculating if President Biden would re-nominate Jerome Powell for another term as Federal Reserve chairman. The Republican chair was initially nominated by President Trump in 2018 and has been criticized by politicians on both sides of the aisle. Lael Brainard, the sole Democratic governor at the central bank, was thought to be a contender for the position of chair, but in the end, the President chose to nominate her as vice-chair, keeping Powell as head of the central bank. Citing stability, Biden suggested that his choice would help maintain “the independence and credibility of the Federal Reserve” through a time of economic uncertainty. 

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Source: New York Times

Both Powell and Brainard had been instrumental in the Fed’s pandemic response, and Biden’s re-nomination has eased the mind of investors who now have inflation on their minds. The central bank recently began winding down its $120 billion monthly bond-buying program. Still, with persistent inflation concerns, higher interest rates are anticipated as the next step from Powell and the Fed. 

The housing boom continues across North America

Home sales across the United States are rising and are on track for the greatest number of sales in 15 years. Lawrence Yun, NAR’s chief economist, expects sales could exceed 6 million homes by year’s end. In October, existing-home sales marked their second month of gains, surprising economists by rising 0.8% over the month. According to the Wall Street Journal, economists had anticipated a decline of 1.4% on average.

Demand from buyers continues to exceed available homes for sale, with inventory dropping for three consecutive months now. As a result, the median sale price climbed to $353,900, a 13% jump since the same month last year.

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Source: National Association of Realtors

The real estate market is also thriving in Canada, where home sales for the first ten months of 2021 have already surpassed the record set for the full of 2020. Throughout the pandemic, the country has seen a housing boom that slowed throughout this summer. Sales have picked up again, and it appears that the market will maintain its growth trend a while longer. According to the Canadian Real Estate Association, home sales rose 8.6% during October in the most significant monthly increase since the housing boom began in July 2020.

Supply remains low, causing bidding wars and pushing the MLS Home Price Index higher by 2.7% in October. This is the largest monthly increase in prices since earlier this year when February and March posted back-to-back gains of 2.9% during each month. 

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Source: Financial Post

According to RBC economist Robert Hogue, activity in the housing sector may be temporarily propped up by buyers looking to close before an interest rate hike. Many, however, including an economist from TD, believe that housing prices will continue to rise in Canada due to increasing demand amidst dwindling inventories.

In the Micro

Omicron causes Black Friday selloff 

As you probably know by now, a new Covid-19 variant was identified last week by scientists and was declared to be a variant of concern by the World Health Organization. The Omicron variant caused a wave of border closures and flight restrictions sending global financial markets into a tailspin on Friday, November 26.

European countries, already reeling from a fresh wave of Covid-19 cases, saw stocks close between 3% and 5% lower on Black Friday. As the American stock markets re-opened after Thanksgiving, the Dow dropped 900 points and had its worst day so far this year, while the S&P500 tumbled 2.3%. Canada‘s main index saw its greatest single-day decline in over a year, with the TSX falling over 487 points. 

Oil also took a beating, and WTI futures fell 13% during the Black Friday selloff. As of November 30, oil is on track for nearly a 20% drop for the month. This marks the largest monthly decline since the pandemic began. According to analyst Giovanni Staunovo, “there is elevated uncertainty on how omicron impacts oil demand, which is likely to keep oil prices volatile over the coming weeks.”

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Source: BNN Bloomberg

Scientists expect it will take several weeks before more information is known about the seriousness of the variant and the impact that the vaccines have on its transmission. In the meantime, it is not unreasonable to expect more volatility in oil prices and the stock markets in general. Regardless, economic indicators show growth remains strong, and the year-to-date performance for the major US and Canadian indices is still well into the double digits. 

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Source: CNBC

There is every reason to believe the pullback from Omicron will be temporary, just as we saw with the initial wave of the pandemic and again with the Delta variant. Our advice for all investors is to take a deep breath and walk away from your newsfeed. There is no reason to turn from your long-term investment strategy, regardless of the current market noise. Stay patient and stay invested; it really will pay off in the long run. 

As always, if you have any questions or would like to discuss further, please do not hesitate to reach out. Feel free to share with your friends and family too, as referrals are the best compliment we can receive.

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