The week in the markets –
June 28, 2024


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Strength in banking but weakening real estate

 

  • Federal Reserve stress test results: U.S. banks considered strong enough.
  • Surprise market reaction to tech stock fluctuations.
  • U.S. pending home sales decline.

The U.S. Federal Reserve (the Fed) just finished its stress test on the 31 largest U.S. banks. According to the Fed, the results concluded that they’re in a strong enough position to handle a severe recession. This year's stress test (which included the usual big names, like JPMorganChase, Goldman Sachs and American Express, as well as smaller regional banks) assumed some pretty harsh scenarios: 10% unemployment, a 40% drop in commercial real estate values and a 36% decrease in housing prices.

Even in these tough conditions, all the banks would be able to keep their capital levels above the required minimum, even with hypothetical losses hitting nearly $685 billion. However, the overall capital levels did drop by 2.8 percentage points, a bigger decline than last year. This is mainly due to more consumer credit card loans, downgraded corporate bonds and tighter lending margins.

The Fed also ran an “exploratory analysis” of the eight biggest banks to see how they’d handle a trading meltdown and funding stresses. The results were positive, showing they could withstand major shocks and a surge in deposit costs during a recession. Keep an eye out for the banks' latest share repurchase plans coming soon, which could provide a nice boost to the financial sector.

After briefly becoming the world's most valuable company last week, the world’s most important company (NVIDIA) dropped more than 15% in a matter of days, before rebounding this week. We normally wouldn’t mention this, but the interesting part about this little contained crisis is not what happened but what didn’t happen: the markets didn’t flinch. It was interesting to see that, at least this time, the markets could withstand a sentiment switch on AI stocks without breaking a sweat.

In May, pending home sales in the U.S. unexpectedly fell by 2.1%, marking a new record low. Analysts had predicted a slight rebound after April's decline, but sales dropped, pulling the year-over-year change down by 6.6%. Rising inventory and high selling prices — which hit a record $419,300 — are affecting demand. Despite an 18% increase in home listings compared to last year, high prices are deterring potential buyers. Pending sales often predict future home sales; in this case, they suggest that the housing market’s challenges could continue.

Listen to this week’s podcast for further insights.

This week's market closing value - week ending June 28, 2024

(As of 4:00 PM ET.*)

EQUITY INDICES Level Change WTD YTD 1-year 5-year
      CAD CAD CAD CAD
             
S&P/TSX 21,836.94 299.99 1.39% 4.19% 8.25% 5.92%
S&P 500 5,470.98 4.80 -0.01% 18.36% 26.88% 14.21%
DJIA 39,122.94 -27.69 -0.17% 7.16% 17.45% 8.97%
FTSE 100 8,164.12 -73.60 -1.07% 8.09% 11.45% 2.73%
CAC 40 7,479.40 -149.17 -1.89% -0.68% 2.47% 5.85%
DAX 18,235.45 71.93 0.46% 9.03% 14.50% 7.68%
Nikkei 39,583.08 986.61 1.63% 7.07% 10.49% 5.45%
Hang Seng 17,718.61 -309.91 -1.87% 7.31% -2.91% -8.28%
CURRENCY
RETURNS		 CAD Change WTD YTD 1-year 5-year
US$ 1.3683 -0.0014 -0.10% 3.24% 3.29% 0.88%
Euro 1.4654 0.0010 0.07% 0.16% 1.39% -0.32%
Yen 0.0085 -0.0001 -0.90% -9.48% -7.35% -6.86%
CANADIAN TREASURIES Yield Change COMMODITIES USD Change
3-month 4.64 0.01 Oil $81.44 $0.84
5-year 3.51 0.15 Gold $2,324.89 $2.43
10-year 3.50 0.16 Natural Gas $2.61 -$0.11
CANADIAN PRIME RATE
6.95%

 

*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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