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Before I launch into my weekly verbal meandering, let me start by saying RRSP contributions for 2021 end on March 1^st, so if you need the tax break, get your cheques in early.

Markets can certainly be perverse at times, and this is one of those times. The serious events that are transpiring over in Europe have seemingly been waived off by investors in favor of moving back into risk assets. On the other hand, it may have coincided with very oversold market conditions and after the selling crescendo ended mid day Thursday, markets snapped back with a seeming vengeance. Then again we could be looking at the perfect bear trap.

February is confession month and a vast number of companies issued murky forward guidance coupled with less than spectacular year end earnings. To make matters worse, The Federal Reserve has decidedly turned hawkish, and all but promised the first of a series of interest rate increases starting in March. Wall Street analysts got caught flat footed, sending them scrambling for the corner to quickly revise stock targets downward especially those companies that are not forecasted to earn a profit for a few more years. The one-two punch caused the steady slide in indices until this Thursday.

That is when geopolitical events turned dramatically worse and culminated with a dramatic sell off until Western nations threw their support behind Ukraine and its sovereignty. This is the first time since World War 2 that a military invasion has taken place in Europe. We don’t know where this is headed but ever-increasing sanctions could have significant negative economic impacts, so the late week bounce may not last. Hence the possible bear trap or maybe just a relief rally.

Closer to home, it was a big earnings week for Canadian banks led by Royal and its $4.1 billion dollar profit…in the last 91 days. If you own it, you can thank increased loan interest payments and of course investment management and trading fees as stock markets soared last year. That is a 6% increase. Again, not bad for one quarter. And remember banks make more money as interest rates rise which is something we are about to experience. In typical Canadian fashion, investors yawned off the results until today when the stock moved up 2%. Fortunately, CIBC reported before the open today and took up the slack with an earnings beat and a 2 for 1 stock split. Stock moved up over 5% today while National Bank garnered a lukewarm reception to its announcement matching the bounce in Royal. I believe the BMO, TD and Scotia report next week and we expect a similar reaction all things considered.

For real excitement, you had to keep a steady eye on energy and energy stocks. Global supply disruptions are all but certain, causing many nations to feel the bite as oil prices skyrocket. If you think gas prices are high right now, just wait until the refiners pass on the cost of $90+ dollars per barrel onto consumers. I sort of laughed to myself earlier today when the US Government released its monthly Personal Spending and the PCE Price index (probably one of the most important indicators used by central bankers) which moved up 2.1% and 0.6% respectively in January. You may recall last month when the December number came out, it was more muted. However, in my opinion that was because consumers rushed to the stores in November to do their holiday shopping rather than risk empty store shelves closer to Christmas.

Still one could have expected a small sell off today given the hot inflation number which could be considered tame by March and April. It was not to be. The Dow had one of its strongest days in a year and a half. In fact, I don’t recall the last time I saw all 30 Dow stocks up on the same day. The same could not be said for the Nasdaq 100, but there was a sea of green on my screen today. Again let’s hope its not a dead cat bounce.

Turning to next week, it’s month end so on Friday we get the all important Jobs data in the US, plus a few interviews by a number of Federal Reserve Presidents (I have to really feel sorry for Jerome Powell as he patiently explains over and over and over again to congressional and senate members who in my opinion don’t understand the difference between monetary policy and fiscal policy, but its an election year so at least it won’t be cold in Washington) along with the tail end of US corporate earnings, while in Canada the rest of the banks report along with a handful of energy companies. BTW, If you have the time, you might want to read or listen to Chevron on Tuesday and Exxon Mobil’s investor day conference on Wednesday. Both should be interesting given their turn towards renewable energy.

Stay calm and stay safe.

Cheers Steve and Michele.

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