What are the Stock Markets Saying? Investor Confidence is Riding High

Investment in the private sector, of which construction activity is a key component along with purchases of machinery and equipment, depends on a host of factors including the level of interest rates; utilization and vacancy rates; revenue flows and corporate profits; and the availability of risk capital and/or government funding help.

What are the Stock Markets Saying? Investor Confidence is Riding High Text Graphic

All these factors come together in a two-word phrase, ‘investor confidence’.

Currently, investor confidence is riding high.

One primary indicator of investor confidence can be found in the stock market. In North America at least, stock market indices are humming along more than just nicely.

NASDAQ took a breather in May, but in June it resumed its march upwards, again setting a record. The S&P 500 and the Toronto Stock Exchange (TSX) joined NASDAQ in climbing to new peaks in the latest month. Only the Dow Jones Industrials index, which established a record high in May, failed to scale to a new summit in June.

The DJI was the only one of the four principle indices shown in Table 1 to record a month-to-month decline in June and it was barely negative, -0.1%.

NASDAQ was +5.5% month to month in June and +44.2% year over year. As impressive as that y/y gain was, though, the Russell 2000 index, which captures the equity performances of small cap firms in the U.S., was +60.4% y/y.

With the exceptions of some iShares indices for emerging and pre-emerging markets, the five North American indices have again taken the lead on the world stage (see Table 2 and Graph 4).

The Nikkei 225, STOXX Europe, German DAX 30, Shanghai Composite, Hong Kong Hang Seng and London FTSE indices have recorded respectable year-over-year increases ranging from +14% to +29%. Nevertheless, they trail the smallest climb made by the five U.S.-Canada indices, the +30.0% y/y made by the TSX.

Construction-related Equities

If NASDAQ is +44.2% y/y and Apple (AAPL) is +50.2% y/y, an equity appreciation by half y/y would seem to be a good target to shoot for. How have publicly traded companies in construction-related areas been doing?

The following gives the y/y (i.e., June 2021 ‘closing’ versus June 2020 ‘closing’) share price results for a representative sample: United Rentals Inc. (URI), +114.0%; Caterpillar Inc. (CAT), +72.0%; Pulte Group Inc. (PHM), +60.4%; Stantec (STN), +44.6%; Armstrong World Industries (AWI), +37.6%; and The Home Depot Inc. (HD), +27.3%.

Table 1: Stock exchanges – performances of key indices – June 30, 2021

With the DJI as the exception, 3 of the 4 indices established record highs in June. Also, only the DJI recorded a m/m decline in June, albeit a small one, -0.1%. On June 1, the TSX rose above 20,000 for the 1st time in history.

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 1: U.S. Stock Markets − June 30, 2021

As of closing June 30, 2021, NASDAQ was +44.2% year over year and +44.3% compared with its 52-week low.

Latest data points are for June 30, 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 2: Performances of key stock market indices during latest 12 months

The indices stumbled in early Fall of last year, but have been mainly soaring since then.

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 3: Performances of key stock market indices since 2008-09 downturn

As of June 30, 2021 closing values, % increases of key stock market indices since their Feb. 2009 major troughs have been: NASDAQ +953%; S&P 500 +485%; DJI +389%; & TSX +148%. 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.

Table 2: Key Domestic & International Stock Market Indices – June 30, 2021

The Russell 2000 led all world markets year over year with a gain of 60.4%.

‘”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: Stock Market Performances: U.S. & Canada vs Rest of World
Year over Year as of Month-end Closings, June 30, 2021

With the exceptions of the 3 iShares indices, North American stock markets have been performing a little better y/y than the rest of the world. The indices with the highest month-to-month gains in June were NASDAQ, +5.5%, and iShares Frontier 100 Pre-emerging, +4.8%.

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.

Graph 5: New York Stock Exchange: Dow-Jones Industrials (30)

Upon closing, Jun 30 2021, the DJI was -0.1% m/m, but +33.7% y/y. Compared with its all-time high of 35,092 just recently reached on May 10, 2021, the DJI ended the month -1.7%.

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 June 30, 2021.

Graph 6: New York Stock Exchange: Standard and Poor’s (500)

Upon closing, Jun 30 2021, the S&P 500 was +2.2% m/m and +38.6% y/y. Compared with its all-time high of 4,302 just recently reached on June 30, 2021, the S&P 500 ended the month -0.1%.

Graph 7: NASDAQ Composite Index

Upon closing, Jun 30 2021, NASDAQ was +5.5% m/m and +44.2% y/y. Compared with its all-time high of 14,536 just recently reached on June 29, 2021, NASDAQ ended the month -0.2%.

Graph 8: S&P/TSX Composite Index: Toronto Stock Exchange

Upon closing, Jun 30 2021, the TSX was +2.2% m/m and +30.0% y/y. Compared with its all-time high of 20,295 just recently reached on June 16, 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 June 30, 2021.

Please click on the following link to download the PDF version of this article:
Economy at a Glance Vol. 17, Issues 105 and 106 – What are the Stock Markets Saying? Investor Confidence is Riding High – PDF

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.