Market Commentary

Making Cents of the Markets

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Global markets rallied in a strong manner this past week as the global economy is recovering quicker than what many economists had initially forecasted which was confirmed from better than expected data from airlines, retail stores, and other impacted businesses. The cherry on the cake was Friday’s unemployment reports from the US and Canada which both handily beat estimates to the upside. The US unemployment rate for May came in at 13.3%, below the 19.8% estimate, as the US economy added 2.5 million jobs when economists had initially forecasted a loss of 8 million jobs for the month. Canada followed suit as our unemployment rate also surprised to the upside and came in at 13.7% as our economy added 290,000 jobs when economists believed we would lose half a million jobs in May.

We are again reminded of the fact that no one can forecast or predict the future with any consistency as there are too many variables to consider. The one variable that no one saw coming was the extreme positive sentiment of consumers and investors globally as they yearned for normality and rushed back into the markets with North American equities closing up over 4% on the week. Economically sensitive sectors like industrials, energy, and financials led again on optimism that the global economy will return to normal quicker than expected but the difference this week was that there was actual data to support this. Oil continued higher and closed above $39 a barrel as demand for gasoline is also increasing faster than expected as opened economies move back towards normal traffic patterns.

One would not expect markets to be so strong in the face of relatively weak data yet one of the main reasons for this quick recovery in markets has been the sheer amount of global stimulus. The European Central Bank announced additional stimulus which brings their total package up to $1.5 trillion dollars as most developed nations have announced significant plans to support their economies and lessen the economic blow. Global markets have recovered most of their losses for the year though it is still too early to confidently say “we’re back” with many still out of work. We agree with the famous saying of “don’t fight the fed” and have been happy to participate in this rally but continue to be very active in managing portfolios through this volatile environment. We cannot predict or forecast so rely on our ability to take advantage of the opportunities that present themselves and manage risk to the downside.

Our Strategy

Last week we had stated that we were near our target equity allocation given the bullish signals that took place and were content with this allocation given that we could not ignore the momentum of the equity markets. Once we had learned about the recovery picking up speed, we reduced our cash exposures some more as we moved into US financials, healthcare, and high yield bonds. We continue to favor the US market over Canada and other global markets as it remains as the strongest, safest, and most diversified equity market globally representing over 40% of the global market.

We have been pleased with our performance through this volatility but recognize that a declining US dollar has weighed on our returns in recent weeks as the Canadian dollar has rallied back up to $0.74 from the low around $0.69. Most of our equity exposures remain in the US and we are not concerned about the recent weakness in the currency as the US dollar still remains in a long-term uptrend against the Canadian and other global currencies. There is also an added benefit of holding US dollars in case markets weaken again as the currency remains as a “flight to safety” during tough times which simply means that it tends to go up in value when markets head lower.

Chart of the Week

This week we want to shift our attention to the price of copper or “Dr. Copper” which has been one of the strongest indicators to invest in global markets since the 1900s. This relationship exists because copper is a key input in construction so price increases in copper generally signal that demand and global growth is accelerating. Below we have the 5-year chart of copper which illustrates this trend:

Source –

Late in 2019, we saw positive signs for global growth as the downtrend was broken until the pandemic when growth came to a halt and copper resumed its original downtrend. Today copper has retraced back to the original downtrend as we will be watching this closely to see if we can break higher next week which would be supportive for global equities heading higher once again.

Beyond the Markets

Listen to our latest Making Cents of the Markets segment on CKNW. We discussed the Canadian economy, financial planning and how RRIF minimum withdrawals have been reduced by 25% for 2020. Listen here.

Take a look here at our most recent North Shore News article where we discuss the importance of active investing and how it compares to passive investing.

This commentary has been prepared by Pinkowski Wealth Management. It is for informational purposes only. Raymond James Ltd. believes this information to be reliable but does not guarantee its accuracy or completeness and is not responsible for any errors or omissions. Raymond James Ltd, member Canadian Investor Protection Fund. This email provides links to other Internet sites for the convenience of users. Raymond James Ltd. is not responsible for the availability or content of these external sites, nor does Raymond James Ltd endorse, warrant or guarantee the products, services or information described or offered at these other Internet sites. Users cannot assume that the external sites will abide by the same Privacy Policy which Raymond James Ltd adheres to.