Your Money - January 15th 2021

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It was not a great week for high flying tech stocks as Wall Street darlings succumbed to sellers taking profits ahead of earnings that really start next week. I say next week even though Three of the top US banks reported today. Unfortunately, a combination of factors led to a selloff in those stocks. Mind you Wells Fargo rallied 15% in the first 9 days of 2021, so a bit a pullback is not exactly a shellacking. Rising costs were the principal culprits for the earnings misses and unfortunately, it may be a general theme for Fourth quarter earnings, so cross your fingers and stay tuned.

On the other hand, I would have to say that rising jobless claims, and a blip up in inflation may have also contributed to this week’s minor slide. The US may be standing on the precipice of a cliff that could put them  between a rock and a hard place. The US is spending trillions to bail out industries hit hard by the virus, but ultimately that money (some of which will no doubt be directed to pork barrel programs)has to be paid back as budget deficits skyrocket. Rising taxes are the normal remedy but that will not sit well with Wall Street in my opinion.

Of course the other elephant in the room is the less than spectacular rollout of vaccines in both the US and Canada. Today for example, we learned that Pfizer could not meet its commitments to deliver the promised number of vaccines while in the US we hear stories of vaccines that are going bad in warehouses because of delivery issues. Then again it’s only a matter of time  before the FDA grants approval for a third vaccine which will hopefully relieve some of the bottlenecks.

Turning to next week, US markets are closed on Monday for Martin Luther King day so expect light volumes in Canada to start the week. Typically we trade about one third less volume as inter listed stocks don’t get arbitraged throughout the day. It’s also a light week for statistics. We get housing data on Thursday and a mid-month manufacturing flash estimate which may soothe some worried traders.

In earnings news, Intel will report on Thursday which will be the last quarter under the guidance of Bob Swan’s short stint as CEO. The board has gone back to the well and appointed Pat Gelsinger, their former chief technology officer who was enticed away by EMC and then VMware. The last two years were not good for Intel as they lost their dominance in several spaces to AMD and Nvidia.  Intel up 11%, VMWare down 5%. Actually both AMD and Nvidia fell this week as well. There’s a new sheriff in town folks.

Next week we also get Goldman Sachs and Morgan Stanley, both of whom get more profits from trading than from conventional banking. Other names include, Netflix, IBM, P&G and United Health. I like the last two over the first names.

Lastly in commodities, gold fell for the second week in a row despite it being a possible haven under the bucket load of money being spent by central banks and governments to stabilize economies. If we look to the period between 2009 and 2011, the price of bullion doubled and the amount of cash injected into the system last time pales in comparison to what is happening right now. I can’t help but think history will repeat itself and explains why the TSX Venture exchange is up 3.7% this year. Unfortunately, the outlook for oil and oil stocks are not as clear. I would argue that the massive cuts to drilling over the last four years combined with billions of future expenditures being diverted to green energy alternatives are going to create a shortfall sometime in the next couple of years. In my opinion, it is time to take another look at this sector. Sure, there is a major push for electric vehicles but what are they going to drive on? You need oil to make roads, tires and half the items on the inside of the car. Last time I checked, most of the things in my house and office are made from hydro carbons.

Happy trading and stay safe out there.

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Steve Bokor

Steve Bokor

Portfolio Manager