Author: Pamela Heaven

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The last time the S&P 500 posted back-to-back annual returns above 20 per cent was in the 1990s, and this raises the question — how long will it last?

Recession is the most common driver of significant losses in the stock market; you only have to look as far back as 2020 and 2008 to see that. But today with no signs of a slowdown on the horizon and leading indicators looking up, the good times should just keep rolling, right?

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Not necessarily, says a report from Deutsche Bank Research. There are times when markets have toppled into a serious decline without a recession, and though they are “pretty infrequent,” their researchers found eight examples in the past 75 years that reveal common themes.

Sometimes it doesn’t take a recession, it just takes the fear of a recession.

That’s what happened in 2022, when the Federal Reserve began to clamp down on soaring inflation with aggressive interest rate hikes. Growth slowed as well, with GDP in the United States dropping from 5.7 per cent in the fourth quarter of 2021 to 1.3 per cent a year later.

A U.S. recession became the consensus forecast among economists and that’s all it took. The S&P 500 fell by 25 per cent from peak to trough.

“Ultimately, this episode is a good example of equities selling off based on fears of a recession, rather than the reality of one,” said Henry Allen, Deutsche Bank macro strategist.

Now let’s travel back to Black Monday in 1987 when the S&P 500 fell 20 per cent in one day. The carnage on Oct. 19 was part of broader decline which saw the index lose 33 per cent in less than four months, said Deutsche.

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Many of the factors behind that fall exist today and one of the big ones was concern about high valuations. When it peaked in August, 1987 the S&P 500 was up 39 per cent year over year.

Today, as Noah Solomon points out in his column for the Financial Post, the S&P 500 is at its highest multiple in the postwar era, except for the tech bubble in the late 1990s.

“The four largest debacles in the history of modern markets were all preceded by peak valuations,” says Solomon.

In 1987, there were also fears about trade and budget deficits, both on the minds of investors today as president-elect Donald Trump prepares to enter the White House.

The one component that existed then and not now was a hawkish Fed.

One of the biggest falls outside of a recession was in 1961, when the S&P 500 shed 28 per cent.  Again there were growing concerns about extended valuations with the CAPE ratio hitting its highest level since 1937. Growth was slowing, but was far from contracting.

Deutsche says two themes emerge from its examples: Slowing growth raises fears of recession, even if there isn’t one, and the Fed tightens monetary policy.

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“So if growth remains strong and the Fed don’t start hiking rates again, it’s not implausible that elevated valuations continue for some time,” wrote Allen.

“But history demonstrates that if signs of a slowdown do emerge or rate hikes move back on the table, then it’s possible for equities to experience a notable decline, even without a recession.”

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Rarely does trade data ignite such a reaction. News this week that Canada’s trade surplus with the United States had widened to $8.2 billion sent president-elect Donald Trump into another tariff tirade.

“We don’t need anything they have,” Trump said of Canada on Tuesday, characterizing the trade deficit as a subsidy. “We have more than they have.”

Canada’s exports to America rose 6.8 per cent in November, and imports increased 4.1 per cent. Our southern neighbour is by far our largest trading partner, accounting for 76 per cent of exports and 64 per cent of imports.

Oil, gas and metals mainly drove gains in November. Copper ore shipments surged almost 39 per cent and exports of gold/silver/platinum soared 21 per cent to an all-time high of $4.9 billion, said National Bank of Canada.

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• U.S. markets will be closed today to observe a National Day of Mourning for former President Jimmy Carter.
• Today’s Data: United States wholesale trade
• Earnings: Aritzia Inc.

Career change is now a defining feature of modern working life, with 42 per cent of Canadians contemplating changing jobs. But before you take the plunge, there are financial implications you need to consider. Lynn MacNeil outlines some practical steps to take so that your career transition aligns with your long-term financial goals. Read more

Calling Canadian families with younger kids or teens: Whether it’s budgeting, spending, investing, paying off debt, or just paying the bills, does your family have any financial resolutions for the coming year? Let us know at wealth@postmedia.com.

McLister on mortgages

Want to learn more about mortgages? Mortgage strategist Robert McLister’s Financial Post column can help navigate the complex sector, from the latest trends to financing opportunities you won’t want to miss. Plus check his mortgage rate page for Canada’s lowest national mortgage rates, updated daily.

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Financial Post on YouTube

Visit the Financial Post’s YouTube channel for interviews with Canada’s leading experts in business, economics, housing, the energy sector and more.

Today’s Posthaste was written by Pamela Heaven, with additional reporting from Financial Post staff, The Canadian Press and Bloomberg.

Have a story idea, pitch, embargoed report, or a suggestion for this newsletter? Email us at posthaste@postmedia.com.

Bookmark our website and support our journalism: Don’t miss the business news you need to know — add financialpost.com to your bookmarks and sign up for our newsletters here

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It’s been another banner year for investors, despite last week’s stumble. The S&P 500 is headed for the finish line up 25 per cent, following a more than 20 per cent gain the year before.

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As the final trading days of 2024 wind down, BMO Capital Markets economist Robert Kavcic takes a look at the year’s hits and misses.

The markets

The S&P 500 is up 25 per cent since the end of 2023 with the top seven biggest technology stocks accounting for more than half of that advance.

The Nasdaq has led the gains so far, up 30 per cent after a stunning 43 per cent rise in 2023. If this year’s advance holds, it will be only the third back-to-back increase this high since the late 1960s, said Kavcic.

The TSX has also had a solid year, up 17.4 per cent.

Most improved

The United States’ robust economy, interest rate cuts and a steepening yield curve made bank stocks a winner this year, said Kavcic. The U.S. sector rallied 34 per cent after the bank failures of 2023. Earnings results among Canadian banks were more “hit-and-miss” but the sector still managed a 16 per cent gain, up from 3.6 per cent the year before.

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Underperformers

It was a tough year for resources and U.S. energy and materials are down on the year, said Kavcic. The rally in gold prices helped Canada, but oil prices are wrapping up the year about where they started with West Texas Intermediate at around US$70.

Worst performers

Canadian telecoms were the worst performers in North America, pressured by tougher competition, high debt loads and Ottawa’s new caps on population growth, said Kavcic. The sector is down more than 20 per cent and the hits keep coming.

Telecom companies were the biggest losers on the TSX yesterday, which one analyst attributed to tax-loss selling at the end of the year. Rogers Communications Inc. fell 0.7 per cent Monday after the Competition Bureau Canada said it was suing the company for allegedly making misleading claims about its infinite wireless plans.

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BCE Inc. was down almost 1.4 per cent and Telus Corp. dropped 0.9 per cent.

“It’s been a tough year for the communication services sector,” Kevin Burkett, a portfolio manager at Burkett Asset Management, told The Canadian Press.

And then there’s bitcoin …

It’s been a year of milestones and records for the digital currency. Bitcoin ETFs began trading in the United States on Jan. 11, 2024, and by March the price had hit a new record of US$73,000 as investors poured in. (Note: Bitcoin ETFs launched in Canada in February 2021, the first in the world.)

But there were more records to come. The election of Donald Trump, known for his pro-crypto policies, pushed the currency over US$100,000 this month for the first time.

That rally has since flagged, with bitcoin trading at US$93,944 this morning

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Happy holidays from all of us at the Financial Post. Posthaste will take brief break and return on Jan. 2

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A pause or a cut? Gross domestic product data that came out Monday evoked a mixed reaction from economists, who were eager to see how the latest numbers would affect the Bank of Canada’s next decision.

GDP grew by 0.3 per cent in October, stronger than expected, but Statistics Canada’s early estimate for November suggested the economy shrank by 0.1 per cent, the first contraction this year.

Oxford Economics says the reading shows the economy is not firing on all cylinders and predicts the central bank will press on with four more 25-basis-point cuts to bring the interest rate to 2.25 per cent by mid-2025.

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Capital Economics, however, had a more upbeat take on the economy. Stephen Brown said the hit to November’s GDP was hardly surprising considering the impact of two earlier port strikes and the Canada Post walkout that started Nov. 15.  Even with November’s dip, fourth-quarter GDP growth will be close to the Bank of Canada’s forecast of 2 per cent annualized, he said, increasing the odds that the bank will pause next month.

• The TSX closes at 1 p.m. ET for Christmas Eve
• Today’s Data: United States building permits, durable goods orders, new home sales

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From a drug smuggling CEO to smoking senior executives, five unusual tales from portfolio manager Peter Hodson take a look at the lighter side of his career in the investment and portfolio management industry. Read more 

As inflation and the cost of living soar for Canadians, consumers are getting ‘justifiably angry’ about junk fees — We look at what the problem is, and what are some solutions. Read more 

McLister on mortgages

Want to learn more about mortgages? Mortgage strategist Robert McLister’s Financial Post column can help navigate the complex sector, from the latest trends to financing opportunities you won’t want to miss. Plus check his mortgage rate page for Canada’s lowest national mortgage rates, updated daily.

Article content

Financial Post on YouTube

Visit the Financial Post’s YouTube channel for interviews with Canada’s leading experts in business, economics, housing, the energy sector and more.

Today’s Posthaste was written by Pamela Heaven, with additional reporting from Financial Post staff, The Canadian Press and Bloomberg.

Have a story idea, pitch, embargoed report, or a suggestion for this newsletter? Email us at posthaste@postmedia.com.

Bookmark our website and support our journalism: Don’t miss the business news you need to know — add financialpost.com to your bookmarks and sign up for our newsletters here

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