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Economic

Stock Markets Speed Along, Oblivious to Blind Spots

Alex Carrick
Stock Markets Speed Along, Oblivious to Blind Spots

U.S. Economy Stumbling Blocks

A year and a half into the coronavirus health crisis, the economies of the U.S. and Canada have been running into some stumbling blocks. In the U.S., GDP growth in Q1 and Q2 of this year, at +6.3% and +6.5% respectively (quarter to quarter annualized), were looking pretty good, and not far out of line with the +7.0% forecast figure for the full year adopted by many analysts. But the third quarter has not been looking as sparky.

Stock Markets Speed Along, Oblivious to Blind Spots Text Graphic

Shortages of components and labor have cut into production across a wide swath. With some major automakers, motor vehicle assembly lines have temporarily ceased operations because computer chips have not been arriving from China as contracted.

With major retailers, imported consumer goods are not making it to the interior of the country because of tie-ups at the ports. There’s a logjam of container ships off the coast of California.

The cost of shipping goods from overseas has risen dramatically. When firms turn to the air as an alternative means of moving cargo, they’re finding there hasn’t yet been a sufficient increase in capacity.

General price inflation has climbed to +5.0% year over year. Wages have also been catching fire. They’re within sight of +5.0% year over year, both hourly and weekly.

But the biggest negative has been the resurgent coronavirus, with the Delta variant causing a fourth wave and a level of infections in August reminiscent of previous peak months. One consequence has been a blow to consumer confidence. The University of Michigan’s ‘Sentiment Index’ has fallen to 70.3 from 81.2 in the prior month. The current reading is lower than it was a year ago (70.3 versus 74.1).

Graph 1: U.S. ‘Real’ GDP Growth, Y/Y & Q/Q
Latest GDP forecasts: 2021 = +7.0%; 2022 = +4.3% (ConstructConnect/Oxford Economics)
‘Real’ is after adjustment for inflation.
Data source: Bureau of Economic Analysis (BEA).
Chart: ConstructConnect.

Canadian Economy Suffers Q2 GDP Setback

The Canadian economy has been more prescient in reflecting the inhibiting influences presently underway. After a GDP climb of +5.6% in Q1, Canada’s economy shrank by -1.1% in Q2.

Again, a largely unexpected upsurge in C-19 has been the culprit, leading to re-imposition of some restrictions, or the exercise of more caution in re-opening drives.

Graph 2: Canada ‘Real’ GDP Growth, Y/Y & Q/Q
Latest GDP forecasts: 2021 = +6.8%; 2022 = +3.9% (ConstructConnect/Oxford Economics)
Data source: Statistics Canada Table 36-10-0140-01.
Chart: ConstructConnect.

The Stock Markets Pay No Heed

As Table 1 points out, however, the stock markets are having none of it. They’re discounting the questionable news and staying onboard with what they believe will hold true.

The four North American indices showcased in Table 1 all set new record highs in August. The long-term histories (from January 1991 onwards) of the index values for the DJI, S&P 500, NASDAQ and TSX appear in Graphs 7 through 10 at the end of this article.

A fifth North American index, the Russell 2000 (for firms with smaller capitalizations), has just turned in the biggest year-over-year increase among stock market indices worldwide, +45.6% (see Graph 3 and Table 2).

The runner-up to the Russell 2000 for y/y climb in August was the ‘iShares 100 Frontier Pre-emerging Economies’ index, +33.8%.

STOXX Europe managed a y/y gain (+28.9%) that was almost a match for NASDAQ (+29.6%) and the S&P 500 (+29.2%).

As for performances over a shorter time frame, the Shanghai Composite index was the leader at +4.3% month to month. China’s GDP growth this year is expected to be around +8%.

China’s Q1 2021 GDP increase was +18.3% (not annualized, but rather compared with Q1 2020). 2021’s Q2 (vs 2020’s Q2) GDP result wasn’t quite as strong, but it was still noteworthy, +7.9%. In Q1 2020, China’s GDP shrank by -6.8%, but the entire year still came in at +2.3%, the only increase among major nations.

With an eye to emulating the success of NASDAQ, Beijing is planning on setting up a new index for SMEs, small and medium-sized enterprises with a need for venture capital.

Finally, as a point of interest, the Toronto Stock Exchange, which has struggled to make significant headway over the past many years, beat (although just barely) the Dow Jones Industrials index on a y/y basis as of August’s closings. The TSX was +24.6% y/y to the DJI’s +24.4%.

The TSX is being given new life by the improved prospects for commodities markets. For the construction sector, higher demand and prices for raw materials will translate to more onsite activity. Historically, many of the projects reaching ‘mega’ status have been resource-extraction projects.

Table 1: Stock exchanges – performances of key indices – August 31, 2021
In August, the remarkable string of successes achieved by the major stock market indices featured above continued with all four of them  ̶  i.e., the DJI, S&P 500, NASDAQ and TSX  ̶  establishing new record highs.
Sources: New York Stock Exchange (NYSE), Standard and Poor’s (S & P), National Association of
Securities Dealers Automated Quotations (NASDAQ), Toronto Stock Exchange (TSE) and Reuters.
Table: ConstructConnect.
Graph 3: Stock Market Performances: U.S. & Canada vs Rest of World
Year over Year as of Month-end Closings, August 31, 2021
Over a shorter time frame than y/y, the indices with the highest m/m gains in August were the Shanghai Composite, +4.3%; NASDAQ, +4.0%; and iShares Frontier 100 Pre-emerging, also +4.0%. Only one index recorded a m/m decline in August, the Hong Kong Hang Seng, -0.3%.
iShares is a web site that specializes in “exchange traded funds”, or ETFs, managed by BlackRock Investments LLC.
Data Source: ‘finance.yahoo.com’
Chart: ConstructConnect.
Table 2: Key Domestic & International Stock Market Indices – August 31, 2021
The Russell 2000 led all world markets year over year with a gain of +45.6%.
‘"Ticker symbols" are in brackets. MSCI (formerly Morgan Stanley Capital International) is a leading provider of investment decision support tools, with indices as one specialty. "iShares" is a web site that specializes in "exchange traded funds", or ETFs, managed by BlackRock Investments LLC.
Data Source: ‘finance.yahoo.com’
Table: ConstructConnect.
Graph 4: Performances of key stock market indices during latest 12 months
Over the past 12 months, the 4 indices have displayed nearly identical patterns of change. (It's rare that they move as closely in tandem.)
Data sources: New York Stock Exchange (NYSE), Standard and Poor’s (S & P), National Association of
Securities Dealers Automated Quotations (NASDAQ), Toronto Stock Exchange (TSE) and Reuters.
Chart: ConstructConnect.
Graph 5: Performances of key stock market indices since 2008-09 downturn
As of Aug. 31 2021 closing values, % increases of key stock market indices since their February 2009 major troughs have been:  NASDAQ +1,007%; S&P 500 +515%; DJI +401%; & TSX +153%. NASDAQ's 12-year climb has been spectacular! Without question, the U.S. economy gains a tremendous advantage from the strength of its high-tech sector.
Data sources: New York Stock Exchange (NYSE), Standard and Poor’s (S & P), National Association of
Securities Dealers Automated Quotations (NASDAQ), Toronto Stock Exchange (TSE) and Reuters.
Chart: ConstructConnect.
Graph 6: U.S. Stock Markets − August 31, 2021
As of closing Aug. 31, 2021, NASDAQ was +29.6% year over year and +45.0% compared with its 52-week low.
Latest data points are for August 31, 2021.
Red vertical lines denote Feb 2009 major ‘troughs’ for the indices.
Data sources: New York Stock Exchange (NYSE), Standard and Poor’s (S & P), National Association of
Securities Dealers Automated Quotations (NASDAQ), Reuters & Yahoo.
Chart: ConstructConnect.
Graph 7: New York Stock Exchange: Dow-Jones Industrials (30)
Upon closing, Aug. 31 2021, the DJI was +1.2% m/m and +24.4% y/y. Compared with its all-time high of 35,631 just recently reached on Aug. 16, 2021, the DJI ended the month -0.8%.
Areas of gray shading denote century’s 2 prior recessions (‘dot.com’ collapse in 2001 & Great Recession Q1 08 to Q2 09). The chart shows month-end closing figures. The latest data point is for August 31, 2021.
Data sources: New York Stock Exchange (NYSE), Standard and Poor’s (S & P), National Association of
Securities Dealers Automated Quotations (NASDAQ), Toronto Stock Exchange (TSE) and Reuters.
Chart: ConstructConnect.
Graph 8: New York Stock Exchange: Standard and Poor’s (500)
Upon closing, Aug. 31 2021, the S&P 500 was +2.9% m/m and +29.2% y/y. Compared with its all-time high of 4,537 just recently reached on Aug. 30, 2021, the S&P 500 ended the month -0.3%.
Areas of gray shading denote century’s 2 prior recessions (‘dot.com’ collapse in 2001 & Great Recession Q1 08 to Q2 09). The chart shows month-end closing figures. The latest data point is for August 31, 2021.
Data sources: New York Stock Exchange (NYSE), Standard and Poor’s (S & P), National Association of
Securities Dealers Automated Quotations (NASDAQ), Toronto Stock Exchange (TSE) and Reuters.
Chart: ConstructConnect.
Graph 9: NASDAQ Composite Index
Upon closing, Aug. 31 2021, NASDAQ was +4.0% m/m and +29.6% y/y. Compared with its all-time high of 15,288 just recently reached on Aug. 30, 2021, NASDAQ ended the month -0.2%.
Areas of gray shading denote century’s 2 prior recessions (‘dot.com’ collapse in 2001 & Great Recession Q1 08 to Q2 09). The chart shows month-end closing figures. The latest data point is for August 31, 2021.
Data sources: New York Stock Exchange (NYSE), Standard and Poor’s (S & P), National Association of
Securities Dealers Automated Quotations (NASDAQ), Toronto Stock Exchange (TSE) and Reuters.
Chart: ConstructConnect.
Graph 10: S&P/TSX Composite Index: Toronto Stock Exchange
Upon closing, Aug. 31 2021, the TSX was +1.5% m/m and +24.6% y/y. Compared with its all-time high of 20,704 reached on the same day, Aug. 31, 2021, the TSX ended the month -0.6%.
Area of gray shading denotes Canada’s earlier recession in current century (Q4 2008 to Q2 2009; no ‘dot.com’ collapse). The chart shows month-end closing figures. The latest data point is for August 31, 2021.
Data sources: New York Stock Exchange (NYSE), Standard and Poor’s (S & P), National Association of
Securities Dealers Automated Quotations (NASDAQ), Toronto Stock Exchange (TSE) and Reuters.
Chart: ConstructConnect.

Alex Carrick is Chief Economist for ConstructConnect. He has delivered presentations throughout North America on the U.S., Canadian and world construction outlooks. Mr. Carrick has been with the company since 1985. Links to his numerous articles are featured on Twitter @ConstructConnx, which has 50,000 followers.

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