The bears came out to play this week - Your Money August 20th 2021

Posted by

This week, investors finally slipped off the “wall of worry” as mounting Covid cases combined with uncertain geopolitical events, proved too much for their levels of comfort. The selling was not severe per say but more or less steady due in part to the Taliban’s takeover of Afghanistan. In Canada, our fearless leader has decided to force Canadians to endure an unwanted election despite another wave of Covid cases springing up like mushrooms after a Spring rain. When combined with a general sell off in crude oil prices, the TSX joined US indices to the downside and the effect magnified itself in the decline of the Looney again thanks to the uncertainties surrounding the upcoming election. Granted part of the slide occurred as a function of a rising US Dollar which in turn is a bit of surprise given this week’s slide in key stats like Retail Sales, Housing Starts and the Philadelphia Fed Index.

Having said that, it was no surprise that the market bounced on Friday especially given the better than expected earnings from Nvidia and Deere plus Microsoft’s announcement to raise prices on its 365 Office software. In addition, markets continue to vacillate between Pandemic stocks (Technology and healthcare) and reopening ones (cyclicals like banks and industrials) with the latter losing ground this week. Mind you, todays’ rally was spurred in part by dovish comments from the Dallas Federal Reserve stating that if the Delta Variant continues to hamper the economy, any tapering of bond purchases may not take place until 2022. Starting next Thursday, investors will get another look at the Fed’s thinking at the Jackson Hole Economic Symposium.

In Canada we more or less tracked our US counterparts as resource stocks sold off and safe haven tech, utilities, telecom and consumer staples caught a bid on Friday. Couche Tard, Saputo and North West Company all rallied. In the tech space Shopify has drifted lower in concert with Amazon south of the border, but names like Constellation Software, Kinaxis and Celestica performed well this week. I wish I could say the same for energy stocks. They had a great second quarter but since mid-July they have been falling in lockstep with Crude oil prices. The technicians point to the rather steep run up last quarter which was clearly not sustainable especially given the global macro events dampening demand for energy including rising climate change concerns. Longer term we continue to see a secular bull market for energy as global populations in developing nations show no signs of abating. Factor in the demand needed to build roads, bridges and tunnels plus the petrochemical demand that includes everything from medicine to consumer goods and it is easy to make a case for rising prices. We note the EPA may recommend a lowering of biofuels to the White House which will in turn create increased demand for gasoline.

In Canada the top story will likely be the release of Canadian Banks third quarter earnings (they have an October 31st year end) so it is just a question of how many billions they made in the last 90 days. Mind you there might be additional margin pressures in the 4th quarter as the top five consider full vaccinations for all employees on premises.

Happy trading and Stay Safe.

Information contained herein represents the views of the writer and not those of PI Financial Corp., and based on assumptions which the writer believes to be reasonable. The material contained herein is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. This information is intended for distribution in those jurisdictions where PI Financial is registered as an advisor or a dealer in securities. Any distribution or dissemination of this article in any other jurisdiction is strictly prohibited. PI Financial and/or its’ officers, directors, employees and affiliates may, from time to time, acquire, hold or sell a position in the securities mentioned herein.

Steve Bokor

Steve Bokor

Portfolio Manager