Prepare for a volatile week, says Nasdaq analyst

It’s likely to be a volatile week, with the TSX rebalancing on Friday, says Prab Sagoo, associate director at Nasdaq Advisory Services.

Read: Millennials prefer less volatility to higher returns

Also on Friday, we’ll see the effects of quadruple witching, he adds. On the third Friday of every March, June, September and December, market index futures, market index options, stock options and stock futures expire, often resulting in bumpier markets, high volumes and block activity at the open and close.

Prior to the end of the week, the U.S. Federal Reserve is expected to announce a rate hike, a move the central bank has shied away from since December 2015.

Read: Where to look as U.S. rates rise

Additional highlights

• Last week, the TSX hit highs not seen since May 2015—adding another 1.7% (+18% year to date). And surprisingly, both small-cap and large-cap names were strong performers.
• Investors continued to rotate out of safe haven materials names, and gold was down by 1%. Healthcare and tech stocks continued to underperform.
• Financials surged with +3.5%, continuing their post-election rally (+20% year to date), with the latest banking earnings helping propel the group higher. Likewise, industrials continued to perform well.
• Bond proxies shook off their recent malaise and added to the overall strength of the index.
• Base metals were mixed, though copper continued to perform well on strong growth expectations. Oil slipped marginally.
• The Canadian yield curve steepened, while the U.S. curve moved higher.
• The current market rally has pushed 66 TSX companies into technically overbought status (over a quarter of the index): 20 financials, 14 energy and eight discretionary names. The benchmark is also overbought.
• Domestically, manufacturing data will be headlining this week. But all eyes will be on the Federal Reserve, which will very likely announce a rate hike on Wednesday for the first time in over a year. Yellen will conduct a press conference.
• Further, at the Bank of Japan’s policy meeting on Dec 19^th and 20^th, the central bank may upgrade its assessment of the economy.

Staff

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