indicatorMarket Commentary

Commentary for November

By ATB Investment Management Inc. 3 December 2021 3 min read

Towards the end of the month, a new COVID-19 variant dubbed Omicron brought uncertainty to markets. Broad equity markets finished the month down slightly, but due to a weak Canadian dollar, returns (in Canadian dollar terms) added roughly 3% to foreign equities, pulling US stocks back to positive territory. As equities sold off near month-end, investors turned to buying bonds instead, leaving fixed-income returns positive for the month. Below are total returns in Canadian dollar terms for November and year-to-date respectively:

Index November, 20211 Year-to-date, 20211
S&P/TSX Composite Index -1.6% 21.4%
S&P 500 Index 2.7% 23.7%
MSCI EAFE Index -1.4% 6.3%
FTSE Canada Universe Bond Index 0.9% -4.1%

When news of the Omicron variant broke on Nov. 26, markets had their most unstable day since Evergrande unfolded in early fall. Equities sold off, bonds rallied, and, notably for Alberta, oil prices fell nearly $10 per barrel to prices not seen since the summer. Vaccine manufacturers are gathering data on current vaccine efficacy, but in the interim, governments have already expanded travel bans as an initial response to the new variant.

Third-quarter earnings reporting continued through the month. According to Bloomberg, 98% of S&P 500 companies had reported Q3 earnings by Nov. 30, and of those, over 80% outperformed earnings expectations. Year-over-year, sales and earnings for Q3 were up 17% and 40% respectively. Canadian and overseas equities haven’t seen the same surprise upside to sales and earnings, but are still on par with expectations. All industry sectors saw a lift and were fairly even in terms of positive earnings. Energy was a notable outlier in terms of consistency of sales and earnings growth across the sector. Virtually all reporting energy companies saw improvements from this time last year—understandable given recent strong commodity prices compared to the lows of 2020.

On the economic front, the first week of November saw positive job numbers released in both Canada and the US. We mentioned last month that Canada had closed the gap on jobs lost during the pandemic—Canada in aggregate employs more people now than February 2020. The US is further behind on a full recovery, but at the current pace of 500,000 to 600,000 new jobs per month in 2021, the US could close the four-million gap by mid-2022.

In the second week of November, the US reported headline CPI at 6.2% on a year-over-year basis—the highest since October 1990. Despite the uptick, inflation is averaging roughly 3.05% over the last three years—not much higher than the US Federal Reserve’s (Fed) 2% target—and still viewed as transitory despite the persisting supply chain issues. Although calls for the Fed to address inflation are starting to become louder, the Fed has not wavered in its approach to monetary policy, which seeks to maximize employment and moderate long-term interest rates. Fed chair Jerome Powell did, however, comment at a Nov. 30 Senate banking committee that “it’s also the case that price increases have spread much more broadly in the recent few months.” He recognizes in other words that price increases have begun to persist beyond pandemic-related items in recent months. The Fed meets again in mid-December and may be moving up the timeline on tapering asset purchases to zero.

President Biden was able to get his Infrastructure Investment and Jobs Act bill signed this month. The legislation approves $1.2 trillion in total spending, of which $550 billion is earmarked for a wide range of infrastructure projects such as roads, bridges, and water systems over the next eight years. The party will next look to pass the Build Back Better Act—President Biden’s social infrastructure bill—which focuses on family care, health care, and climate change. This bill passed the House in November with the Senate set to address it in December.


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