Your Money - November 6th 2020

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Wow what can I can I say when markets roar this high this fast? This has been one of the best weeks in stock markets for years as investors anticipate a goldilocks political environment in the US. It’s all but certain that we will have a more moderate President in the White house but the predicted “blue wave” by the pollsters looked more like a ripple when you consider the lost seats in Congress and the probable continuation of a Republican dominated senate. That is the best of both worlds. Clearly almost half of America is rejecting a socialist agenda from the far left democrats in favor of more disciplined spending regimens from the Republicans.

So while most people still have one eye glued to the boob tube waiting for the final vote count and the predictable lawsuits and recounts, Wall Street analysts spent most of their time reviewing the financial results from hundreds of US companies and a few Canadian ones too. For the most part, their patience was rewarded with better than expected earnings. I have to reiterate the bar was set very low for this quarter. But as long as there is hope for a vaccine sometime next year, the pundits predict a modest rebound in 2021.

Does that justify the historically high PE multiples stocks are experiencing right now? I have to say I am not convinced. When earnings growth is significantly below the current PE multiple, you need to hedge your bets. Some say avoid the low PE stocks because they are value trap and will never come back… but I have heard that before and patient investors have been rewarded.

In the meantime what is going to happen next week?

Right now the US dollar looks vulnerable and that bodes well for non US stocks and commodities (other than energy). I would also expect a modest stimulus bill hopefully before Christmas which may lead to further increases in interest rates. That is actually good for financial stocks on both sides of the border. Stimulus means less bankruptcies and ballooning deficits usually mean rising interest rates both of which are good for financials. We may get a hint when inflation data hits the tape on Friday.

As for energy, with skyrocketing Covid cases, future demand is falling but in reviewing the latest report from the IEA, we suspect that situation to change by mid 2021 so there is hope but wait before committing.

Stay safe and Happy trading.

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Steve Bokor

Steve Bokor

Portfolio Manager