Weekly Market Update: Equity Markets Rise, AI Enthusiasm Drives Growth, and Central Banks Surprise with Rate Hikes

  • North American equity markets rise modestly ahead of Federal Reserve meeting, driven by enthusiasm for AI and economic resilience.
  • Market breadth improves with small and mid-cap indices outperforming Nasdaq and S&P 500, and value stocks surpassing growth stocks.
  • Australian Central Bank and Bank of Canada surprise markets with rate hikes, supported by strong economy and tight labor market.

Except for the S&P/TSX, North American equity markets finished the week modestly higher ahead of next week’s Federal Reserve policy meeting and rate announcement. The rally continues to be fueled by enthusiasm for artificial intelligence (AI) and the economic resilience of the U.S. and Canadian economies.

During the week, there was a noteworthy improvement in market breadth as the small and mid-cap indices surpassed the Nasdaq and the S&P 500, while value stocks outperformed growth stocks. The S&P 500 outperformed the cap-weighted S&P 500 for the first time in eight weeks. Also of note, the S&P 500 is up more than 20% from its lowest point, sparking many analysts to debate whether we have entered a new bull market. After the OPEC meeting over the weekend, oil rose Monday but finished the week lower. Outside of Italy’s FTSE MIB index, which was up 0.35%, the other major European indices were modestly lower out of caution ahead of the central bank meetings in Europe and the U.S.  

With little economic data in the week, the Australian Central Bank and the Bank of Canada surprised the market by hiking their policy rate by 25 basis points after pausing rate hikes during the previous meeting. The catalyst for the shift was a buoyant economy, the tight labor market and even a bounce in the housing sector, all of which could prevent inflation from returning to the 2% target1.

On Monday, the U.S. Department of Commerce released the final orders for manufacturing durable goods, which rose 0.4% in April – primarily driven by the transportation sector. In April, there was a 0.1% decline in new orders for nondurable goods, a 0.7% decrease in shipments of manufactured goods primarily driven by transportation, a 0.8% increase in unfilled orders for manufactured durable goods and a corresponding 0.8% increase in inventories of manufactured durable goods. Inventories of manufactured nondurable goods, down five of the last six months, decreased 0.3%2. Also, on Monday, the Institute for Supply Management reported that the economy’s service sector expanded in May for the fifth consecutive month. However, the pace of growth slowed from April’s 51.9 to 50.3. The U.S. ISM Manufacturing Supplier Deliveries Index decreased by 0.9% to 47.7, the Prices Index was down 3.4% to 56.2 and the Inventories Index expanded in May after contracting in April3.

On Wednesday, the Federal Reserve reported consumer credit increased at a seasonal rate-adjusted annual percentage of 5.7%. Revolving credit increased at an annualized rate of 13.1%, and non-revolving credit increased at 3.2%. The Fed data does not include mortgage data – the largest category of household debt4.

On Thursday, the Department of Labor reported initial unemployment claims increased by 28,000 to 261,000 for the week ending June 3. Continuing claims for all benefit programs for the week ending May 20 was 1,634,890 – a decrease of 2,105 from the previous week5

Cautious optimism abounds as equity markets continue to climb the “wall of worry.” Conflicting data points to a soft landing and mild recession in the later months of this year or early next. While earnings beat estimates, earnings are down but expected to improve once the central banks start the easing process. 







Important Information:

Warren Gerow is an independent investment wealth consultant to Sightline Wealth Management.

Sightline Wealth Management LP (“Sightline”) is an investment dealer and is a member of the Investment Industry Regulatory Organization of Canada (IIROC) and the Canadian Investor Protection Fund (CIPF). Sightline provides management and investment advisory services to high-net-worth individuals and institutional investors.

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