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Well I have to confess I played hooky for half this week and the other half I spent urgently upgrading my professional development requirements for the Insurance Corp of B.C. It’s an annual thing, but due to Covid I was unable to attend the required number of courses last year. Nothing like leaving things to the last minute. But with Canadian Banks reporting Billions in quarterly profits, I felt fairly comfortable the markets would take care of themselves and for the most part they did. The day traders seem to be back in the picture driving stocks like Beyond Meat, AMC and Blackberry into a buying frenzy but I also noted a number of the consumer discretionary stocks like retailers not faring so well. So we may be seeing some more sector rotation into consumer staples like grocery stores rather than the GAP or Abercrombie and Fitch. Mind you even some of the grocers saw profit taking this week. Costco fell slightly.

The other curious event seems to be the complete disregard for inflationary indicators that have turned red hot over the last two months. 10 year Treasury Bonds closed at 1.60%. Never forget the old adage that markets can stay irrational longer than you can stay solvent. For now let us just say equity investors have no fear of rising inflation because they believe the recent price increases come from supply shortages which will resolves themselves as the summer progresses. Historically a little inflation is a good thing for stocks. Corporations can raise their prices which in turn increase profit margins leading to higher stock prices. However….

One also has to be mindful of the inflationary spiral in the 1970’s. It started with the US Government going off the “gold standard’ that in turn caused the US Dollar to float. Unfortunately, it also witnessed the rise of OPEC as an organization with significant influence over America’s dependency on oil. The embargoes sent a wake up call to consumers that resulted in stagflation and one has to wonder if it will happen again.

Right now it seems people have no trouble allowing politicians to bury their countries in debt while central banks keep interest rates at near Zero and Spend billions buying up newly minted bonds. At some point the interest on the debt will crush the ability of governments to spend money which could end in a nasty financial crisis. But for now Americans are rejoicing as the economy reopens and President Biden launches his $6 Trillion dollar spending budget. We think it could kick start another gold rush back into electric vehicles, charging stations and lithium battery companies. However, they are still trading at pretty steep valuations. Speaking of valuations we are concerned with Ottawa’s love affair with spending.

Canada for example just released its 2020/21 budget deficit. $314 billion dollars versus $21.7 billion the year before. Let’s hope we don’t wake up one day with a 40 cent Canadian dollar.

But enough bad news. US markets ended the Month of May on a high note (US markets are closed Monday for BBQ season…well that and a day for honoring the military men and women who died in service to their country,) but we Canadians will get one last kick at the can and maybe crack 20,000 on the TSX. Unfortunately It may take until Tuesday when the Bank of Nova Scotia reports its booty of profits. South of the border we get the usual economic stats including manufacturing, construction spending and of course the monthly jobs report on Friday. Last months’ dismal 266,000 had no lasting effect on stock markets, but I believe investors need something better next week to keep stock prices going up.

On the earnings front keep an eye out for Lulu Lemon and  Zoom Video plus updates on vaccine news from JNJ and Pfizer. 

Last but not least, we note that the price of bullion is back above $1900 which could trigger a seasonal rally for gold stocks.

Happy trading and Stay Safe.

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