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Stock markets broke to record highs on the heels of the US Senate passing a $1.2 Trillion Dollar Infrastructure Spending Bill. Not sure what the excitement is all about. The actual spending will take place over many years and we note that it still must be approved by the Democratically controlled Congress. The biggest stumbling block will be Democrats, in particular Nancy Pelosi who stated she will not sign it without first receiving a multibillion dollar Stimulus Bill at the same time.  In my opinion there are two chances of that happening…and “slim” just left town. It is a big political gamble and one I don’t think she will win.

On the other hand I think the Infrastructure Bill will get approved later this Fall as political pressure from the Democratic party force them into it. My guess is the Democrats could lose control of Congress if they fail to pass the Bill.

Turning to the economy, investors had to digest a mixed set of results. Rising Unit Labor Costs coupled with a 1% increase in Producers Prices (both suggest rising inflationary pressure) was offset by plunging Consumer Sentiment. Next week we will get the minutes from last month’s Federal Reserve and give us better insight into what could be building opposition to Jay Powell’s zero interest rate policy. For now it appears investors will benefit from the current interest rate environment.

Unfortunately, rising Covid cases sweeping through much of the US South and South East are having a negative effect on perceived future demand for energy. Crude oil struggled this week which in turn hurt a number of energy stocks on both sides of the border but with prices above $60 per barrel, it is enough to encourage more drilling in the Permian and Basin as rig counts rose yet again. Both oil and natural gas prices fell this week. Gold on the other hand caught a bid, but it was a volatile week for bullion and silver for that matter.

Nope the real reason for this week’s rally came down to earnings beats from a wide swath of corporations. Trouble is, Wall and Bay Street are in a “show me” mood. In other words, thanks for the second quarter…what are you going to do for me now? And investors must be cognizant of the depressed numbers in 2020. Investors should compare the latest quarterly results to the second quarter of 2019.

Next week, earnings continue with names like Target, Walmart, Krispy Kreme, Lowes and Nvidia. They will be joined by the release of housing starts (on both sides of the border) and retail sales and given the plunge in the latest consumer confidence number released today ( a decade low), any hiccups could trigger a small sell off. Not saying it’s going to happen, but this Bull market looks like it is overdue for a short term correction.

Happy trading and stay safe.

Cheers Steve and Michele.

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