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Ahh the lazy days of summer…NOT. Pardon the vernacular of the 1990’s but this week started on a firm footing. The TSX broke to record highs while the S&P got within a smidgen of its new high but clearly the conviction associated with the buying was fleeting at best. Of course the bond market was in full cooperation, as bond traders ignored the inflation indicators from last week and continued to bid bond prices higher. They did so because they were clearly convinced the US Federal Reserve was still in zero interest rate mode. OOPS!

And I have to qualify the oops. Mr. Powell clearly believes the inflation stats presenting themselves are transitory in nature and once vaccination rates improve and an infrastructure Bill gets passed, we will see unemployment rates fall along with the current supply shortages affecting consumers.

However, not all of the Fed members agree with that assessment. James Bullard believes the central bank needs to start raising short term rates as soon as next year. Of course some of those pesky hedge fund traders have been shorting the US dollar in the belief that the US will be one of the latter countries to change interest rates. Now you get the oops as traders rushed in to cover their short positions. They bought back US Dollars with a vengeance sending the “Dixy” aka the Trade Weighted US Dollar from 90.50 cents on Monday to 92.32 cents today. For currency traders that is a huge move. It’s the difference between filet Mignon and wieners and bean for Sunday night dinner. It is a level it has not seen since early April.

Unfortunately, commodities became collateral damage. Gold, silver and lumber were hardest hit but copper and natural gas were also negatively affected. As you can imagine mining stocks did not fare well this week. It also spilled over into cyclicals and industrials. Companies that generate a lot of revenue outside of the US were particularly hit with the rise of the US Dollar. On the Dow Jones Industrial Average, Caterpillar, and Dow Inc. suffered the most falling 7% and 6% respectively, versus Apple’s 4.5% gain this week.

Now I also have to point out this Friday, markets went through their quarterly quadruple witching day, where futures, options and indexes contracts all expire on the same day. NYSE volume hit almost 3 Billion shares today while last Friday it was 897 million.

Plus, on the bright side, a few oil stocks managed to hold their own and technology stocks soared on both sides of the border. Real estate and utilities stocks provided a safe haven too.

Turning to next week, markets may experience additional volatility as more Federal Reserve Presidents give speeches on the economy and interest rates. Absent that, we get housing data Tuesday/Wednesday and another look under the hood of the US economy (Q1 GDP Revision) on Thursday.

On the earnings front keep an eye out for Fedex, Blackberry and Nike on Thursday.

Happy Trading and Stay Safe.

Cheers Steve and Michele

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