Market Commentary

Making Cents of the Markets

Listen to our latest Making Cents of the Markets segment on CKNW. We discussed what performance investors should be seeing these days and Canadian GDP! Listen here.

Be in the Know

North American indices had another strong week as they rose over 2% led by economically sensitive sectors such as materials, industrials, and transports. The main reason for this strength was better than expected economic data that continues to show momentum in the rebound for manufacturing, services, and employment in both the US and Canada. The positive action this week was especially impressive as markets were unphased at the fact that Democrats and Republicans were once again unable to make any progress on the latest stimulus bill proposed 2 weeks ago.

The most notable economic update this week was Friday’s employment reports in both Canada and the US. Canada’s figures were largely in line with expectations as our economy added 419,000 net new jobs in July as the unemployment rate decreased to 10.9% from 12.3% in June. The US beat expectations and added back over 1.7 million jobs in July as the unemployment rate ticked down to 10.2% from 11.1% in June. Despite second wave concerns, the US continues to outpace Canada in economic activity which is why we remain bullish on our US investments over the longer-term as we believe that their economy and market is better diversified and less reliant on financials and energy.

With double digit unemployment in North America, one would be surprised to find out that the TSX and Dow are only down 3-4% on the year and down 7-8% from all-time highs. This is because stock markets do not generally move in line with the economy, especially when there is an abundance of stimulus along with promises for more. Speaking of liquidity, this week the Federal Reserve stated that they are contemplating tolerating inflation above its 2% objective as lower interest rates and other stimulus measures typically lead to higher inflation over the long run. This further lifted previous metals like gold which was up another 3% this week as it trades above $2,040 an ounce and strengthens our conviction in holding gold and gold miners moving forward.

Our Strategy

We are pleased to report that most of our Legacy portfolios are positive on the year and well outpacing the TSX and the Dow. More impressively, we have outperformed these benchmarks by taking on less equity exposure and risk as we have held cash and bonds throughout the year. This truly speaks to the strength of our risk management to the downside and asset allocation decisions to focus on quality investments as our portfolios have been less volatile than the markets.

We continue to look forward to the remainder of the year as we are always looking at how we can increase returns safely. We are excited about the new investment research from Canaccord Genuity as this will further strengthen our decision making and results. Now that we are almost through earnings season, we have a firm grasp on how the stocks in the portfolios have fared and will again be making a shift out of any of our laggards and into investments that have more momentum behind them.

Chart of the Week

Our focus this week is on US lending conditions as US domestic banks have been tightening lending standards on loans in Q2 at the fastest pace since the Great Financial Crisis (1st chart below). Interestingly, total demand for loans (2nd chart) has not cratered as much as overall conditions are better than they were in 2009, as shown in the 3rd chart:

The important point to note is that Fed and government actions been pro-active for equity markets but lending conditions and interest rates remain as headwinds for the banks. This reinforces our views that banks will take some time to rebound which is why we remain underweight financials at this time.

Beyond the Markets

Sunflowers are starting to bloom! Get a sneak peak at the Richmond Sunflower Festival this weekend with over 20 varieties to see across 8 acres. They even have an winery on site so you can enjoy a nice glass of wine in the sun while taking in the scenery!

For more information, visit their website here.

The comments and opinions expressed in this newsletter are solely the work of Pinkowski Wealth Management, not an official publication of Canaccord Genuity Corp., and may differ from the opinion of Canaccord Genuity Corp’s. Research Department. Accordingly, they should not be considered as representative of Canaccord Genuity Corp’s. beliefs, opinions or recommendations. All information is given as of the date appearing in this newsletter, is for general information only, does not constitute legal or tax advice, and the author Pinkowski Wealth Management does not assume any obligation to update it or to advise on further developments related. All information included herein has been compiled from sources believed to be reliable, but its accuracy and completeness is not guaranteed, nor in providing it do the author or Canaccord Genuity Corp. assume any liability.