It's Opposite's Day - Your Money May 7th 2021

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We had a record breaking week in stocks on  both sides of the border thanks to an avalanche of better than expected earnings. However one must bear in mind the year over year change comes off the beginning of a very depressed base with the Month of March 2020 witnessing almost unprecedented crashing stock prices. I continue to believe the decline was caused by a similar mechanism we experienced in the 1987 crash. A group of investors had once again figured out how to earn a profit regardless of how fast or how far markets were dropping. My belief is supported by the unprecedented rebound in April and May, but I digress.

Aside from record breaking stock prices, the upward trend was supported by moderating statistics like the dip in the ISM Service and Manufacturing indices. This was capped off by today’s surprise miss in employment stats in both Canada and the US. But every cloud has a silver lining. The depressed data is likely a one off due to restrictive economic closures on both sides of the border and we expect the numbers to improve as vaccination rates get closer to herd immunity.

In the meantime, central banks will likely keep the monetary taps wide open with their near zero interest rate policies which in turn will keep high growth companies on an even keel. That keel may encounter greater volatility with many stocks still trading at stretched valuation metrics. Take Peloton for example. Despite an earnings miss, a recall of their treadmill and analysts slashing their one year price targets the stock is recovering from their Wednesday low and still trading at 270 times forward earnings. Harley Davidson is trading at 16 times earnings and IBM at 13 times earnings. (They btw just reported the successful completion of a 2 nanometer chip which blows away the 7 nanometer chips from the likes of Nvidia and NXP Semiconductor). So logic does not always apply at this point in the market cycle.

Next week is a light one for economic stats so attention will shift to corporate earnings with over 700 US companies reporting and 170 Canadian companies. However, most of the marquee names have already reported so their impact may be somewhat muted.

Stay Safe and Happy Trading.

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Steve Bokor

Steve Bokor

Portfolio Manager