Your Money - December 4th 2020

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Quite the week for US investors. Who needs analysts when markets go up this way? Record highs again and again….but then if you look behind the numbers you will see it’s a narrow based rally. Because, I still see a mountain of US companies that are still deep in negative territory for 2020 and we are not talking about obscure, unknown companies. Tyson Foods down 24%, Hewlett Packard Enterprises down 26%, Boeing down 27% and Exxon Mobile down 42%. Heck 14 of the 15 Dow stocks are still negative this year, which begs the question, just how broad is this rally?

In my opinion, I get a little nervous when almost 50% of the stocks in the marquee index are under water. The S&P500 is also in danger of seeing a bifurcated market especially when the index on boards Tesla at the end of the month. Meanwhile this week’s winners on the Dow were Walgreens Boots up 14%, Boeing up 10% and Intel up 9%. The jump in prices are self-evident when you factor in the upcoming vaccine roll outs, approvals and orders for Max 8 planes and Intel’s new AI chip line. Actually Intel has been down so long relative to its peers like AMD and Nvidia that it was only a matter of time before it rose.

Meanwhile on the economic front, the jobs number looks ok at first glance but when you start to dig a little deeper and see that the participation rate continue to shrink means that there is a whole raft of people that have given up and no longer looking for work. That is not good and if American’s cannot get a fast enough handle on the virus outbreaks, more shutdowns will likely cool economic growth leaving the US stock market vulnerable to a correction. One only has to look back to the January 2018 mini meltdown to realize the leading stocks out there are subject to potential pullbacks. It is why I continue to look at the Dogs of the Dow for inspiration when making recommendations for next year.

The other big story is the price of oil thanks to renewed supply cuts by OPEC and Russia. Not enough to spur the price back above $50 ( the fear is a $50+ handle will invite more shale production in the US), but still high enough for Canadian producers to start making money…except our Looney is robbing us of some of those benefits. You may not believe it but Canadian Energy sub index is up 42% in the last quarter. Yes I know it is also still down 36% year to date but at least it is finally showing some signs of life.

Turning to next week we get a smattering of earnings (mostly grocers and their suppliers) like Campbell Soup, Costco and Dollarama.

We also get to see an interest rate decision from the Bank of Canada (probably unchanged), plus inflation data in the US on Friday and Consumer Confidence. My worry is that if inflation edges too much higher we may see a bear market in bonds develop before too long. 10 year US Treasuries are toying with breaching the 1% level and once it goes through that, it might keep going. Definitely not good for mortgages and housing. Still a little inflation is a good thing. Much better than the alternative.

Stay Safe

Happy Trading.

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Steve Bokor

Steve Bokor

Portfolio Manager