Your Money - Friday October 23rd 2020

Posted by

Well this week’s trading action did not exactly instill confidence in equity markets. On at least three occasions, markets opened up on a positive note only to see the gains erased by mid-morning. Granted, overnight optimism on a possible stimulus bill would disintegrate in the face of political rhetoric from both sides of the aisle, leaving investors with no choice but to take money off the table. And while I see repeated statements on how the majority of companies are reporting better than expected earnings, I take little solace in the news because the actual numbers are still ugly. Sure, we are seeing an uptick from second quarter earnings but that is like playing your last game for the bronze metal.

On the other hand, a number of economic statistics are providing a measure of confidence especially housing, (September building permits rose to 1.55 million) and October’s  Market Manufacturing PMI data hitting 53.3 along with a downtick in initial jobless claims. Clearly many parts of the economy is doing well, but it is being offset by thousands of small and medium size businesses that may not survive without another bailout and a vaccine. Interestingly, it’s starting to show up in the bond market. Bond prices fell this week driving the US 10 year to 0.87% the highest number since early June. Is the bond market sniffing inflation pressures or has weakness in the trade weighted US Dollar causing foreign investors to sell US Treasuries driving prices down and yields up? Unfortunately we did not get any confirmation in commodities. Normally a weaker US dollar causes commodity prices to rise but this week they fell along with the US Dollar.

That might indicate another convergence in asset class performance similar to what happened in February when stock, bond and commodities all melted down simultaneously. Let’s hope not but with high flying stay at home stocks getting a wakeup call this week aka Netflix, you might want to consider staying cautious until after the Presidential election. In my opinion, we have had a huge multiple expansion meaning stock prices have gone up without a corresponding increase in earnings which makes companies more expensive. And don’t even get me started on companies like Pelaton. This is a company that makes a stationary bike that allows users to link into online training classes but in my opinion, a good portion of them will end up being a place where you  can hang your coat and pants and right now its trading at 996 times earnings. 1999 anyone?

Next week over 1,000 US companies report and 60 Canadian ones (watch Cogeco, West Fraser timber, Suncor and Fortis) which should give us a better handle on the health of North American corporations.

Happy trading.

Information contained herein represents the views of the writer and not those of PI Financial Corp., and based on assumptions which the writer believes to be reasonable. The material contained herein is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. This information is intended for distribution in those jurisdictions where PI Financial is registered as an advisor or a dealer in securities. Any distribution or dissemination of this article in any other jurisdiction is strictly prohibited. PI Financial and/or its’ officers, directors, employees and affiliates may, from time to time, acquire, hold or sell a position in the securities mentioned herein.

Steve Bokor

Steve Bokor

Portfolio Manager