Taper Time: Bank Of Canada Scales Back Asset-Purchasing Program

The tapering in asset purchases comes amid a slew of positive economic news for Canada, including improvements in the country’s labor market, GDP (gross domestic product), and housing market. “Canada’s housing market, in particular, is booming,” Roach noted, “with a new report showing that housing starts rose 21% in March on a month-over-month basis, hitting a record high of 335,200 units." Given the recent positive economic headlines from around the world, Roach said it’s not too surprising that at least one of the major central banks is taking the first step in moving away from an ultra-accommodative monetary policy.

Are markets shrugging off strong quarterly earnings?

Shifting to corporate earnings, Roach said that first-quarter earnings season continues to be off to an outstanding start, with growth estimates for S&P 500® companies now north of 30%. “The majority of companies that have reported so far are handily surpassing expectations,” she noted.

Despite the stellar results, stock prices, in general, haven’t reacted to the upside all that much, Roach said. “This is particularly true for companies in areas like home-building, restaurants, and banking—and I think it’s an indication of how expensive equity markets already are, and how much growth has already been priced in,” she stated. Ultimately, the bar for achieving a true earnings surprise at this point is rather high, Roach said.

She remarked that earnings results from the week of April 19 also sparked a few notable declines in stock prices, particularly for Netflix, which Roach characterized as the ultimate stay-at-home stock. “Netflix’s stock fell roughly 10% on April 21 when it announced that new subscriber growth had slowed more than anticipated,” she explained.

On the other side of the ledger, reopening stocks such as United Airlines and American Airlines also dropped after missing first-quarter expectations, Roach noted. “There’s a bit of concern among investors that demand for air travel may turn out to not be as robust as expected, especially given recent headlines around the surge in COVID-19 infections in countries like Japan, Canada, and India,” she noted.

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Disclosures:

These views are subject to change at any time based upon market or other conditions and are current as of the date at the top of the page.

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