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The week in the markets –
August 4, 2023
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Ratings agency Fitch throws a wrench in the rally
- U.S. debt downgraded by the ratings agency Fitch.
- Nasdaq volatile on earnings and yields.
- Bank of England raises rates in an effort to fight inflation.
It has been quite the volatile week in equity markets, with the Nasdaq Composite Index hit hardest, driven by heavy selling in the semi-conductor sector. This happened after AMD and Qualcomm revealed earnings and guidance that fell short of expectations. The optimism about artificial intelligence wasn’t enough to compensate for the overall weakness in the sector (including Taiwan Semiconductor’s results, which we reported on last week). Meanwhile, a jump in long-term U.S. Treasury bond yields put extra pressure on tech companies.
Amazon and Apple (part of a small group in the S&P 500 that have been a driving force for U.S. equity returns so far this year) announced earnings Thursday. While Apple saw a decline in demand for most of its products, it expects improving results later in the year. Amazon once again benefited from the resilience of the U.S. consumer, with very strong results on both the top and bottom lines.
The situation got more complicated when Fitch, a credit rating agency, lowered the U.S.'s credit rating from AAA to AA+. The downgrade was attributed to a predicted increase in debt, unstable governance and an expected fiscal decline over the next three years. Goldman Sachs commented that this downgrade “does not reflect new fiscal information" and further suggested that the rating change should not have significant direct consequences on financial markets. Mohamed El-Erian, Allianz's chief economic advisor, called Fitch's decision "strange" and indicated that it would more likely be dismissed than cause any enduring disruptive impact on the U.S. economy and markets. Jamie Dimon, CEO of J.P. Morgan, called the downgrade ‘’ridiculous’’ and said it would have no impact, because the markets would dictate bond yields, not rating agencies.
The Bank of England (BoE) lifted its key interest rate a quarter point to 5.25% on Thursday, in line with expectations, warning markets that its fight against inflation may require additional measures over an extended period. The messaging around the decision suggests there is potentially a little further to go in its tightening campaign before the central bank feels comfortable pausing. The U.S. Federal Reserve, the Bank of Canada and the BoE are each slated to meet in September for their next monetary policy meetings.
This week's market closing value - week ending August 4, 2023
(As of 4:00 PM ET.*)
| EQUITY INDICES | Level | Change | WTD | YTD | 1-year | 5-year |
| CAD | CAD | CAD | CAD | |||
| S&P/TSX | 20,227.57 | -300.20 | -1.46% | 4.42% | 3.32% | 4.26% |
| S&P 500 | 4,477.45 | -99.67 | -1.08% | 15.69% | 12.19% | 10.18% |
| DJIA | 35,067.20 | -391.76 | 0.01% | 4.58% | 11.47% | 7.25% |
| FTSE 100 | 7,564.37 | -129.90 | -1.47% | 5.76% | 10.70% | -0.06% |
| CAC 40 | 7,315.07 | -161.40 | -1.21% | 14.82% | 25.50% | 5.53% |
| DAX | 15,951.86 | -517.89 | -2.21% | 16.41% | 30.47% | 4.38% |
| Nikkei | 32,192.75 | -566.48 | -1.13% | 12.89% | 12.41% | 2.93% |
| Hang Seng | 19,539.46 | -377.10 | -0.96% | -2.42% | 1.27% | -6.08% |
| CURRENCY RETURNS | CAD | Change | WTD | YTD | 1-year | 5-year |
| US$ | 1.3384 | 0.0149 | 1.13% | -1.14% | 4.03% | 0.60% |
| Euro | 1.4730 | 0.0141 | 0.97% | 1.61% | 11.75% | -0.40% |
| Yen | 0.0094 | 0.0001 | 0.61% | -8.50% | -2.47% | -4.17% |
| CANADIAN TREASURIES | Yield | Change | COMMODITIES | USD | Change |
|---|---|---|---|---|---|
| 3-month | 5.01 | 0.00 | Oil | $82.62 | $2.20 |
| 5-year | 3.87 | -0.05 | Gold | $1,941.31 | -$18.08 |
| 10-year | 3.55 | 0.03 | Natural Gas | $2.58 | -$0.06 |
| CANADIAN PRIME RATE |
|---|
| 7.20% |
*The data contained in the charts above is provided by Bloomberg as of 4:00 PM ET. Please note that the final closing market values may vary due to data delays and market settlement.
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