Market Commentary

Making Cents of the Markets


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Be in the Know

North American equity markets were mostly lower this week as the Canadian market was able to close flat while US markets closed down 2%. There were no specific news events that led to this general weakness as the technology sector continued to pull back and led the selloff as we view this minor correction in technology to be healthy after an impressive run to all-time highs. Markets remain in strong uptrends which is why we are not concerned with the latest action as the current pullback is normal when compared to past precedents.

This week’s focus was on interest rates and inflation expectations as the Bank of Canada kept its benchmark interest rate at 0.25%. Our central bank’s plan remains unchanged as it wants to keep interest rates near zero and plans to continue supporting the economy until the recovery is well underway and inflation is back towards target. In Europe, the European Central Bank also kept interest rates steady as central banks globally remain in unison with their approach to supporting the recovery.

In the US, the core inflation rate increased in August to 1.7% (from 1.6%), mainly driven by price increases for used cars and trucks. Inflation pressures remain far from the 2%+ target range as the Fed has committed to remain accommodative and keep interest rates low even if inflation increases above the 2% level. Next week our focus will shift towards retail sales and inflation data in Canada and the Fed meeting in the US as they share their comments on the recovery thus far.

Our Strategy

Our Legacy portfolios were relatively flat in the face of the weakness in equity markets this week as we were pleased with our actions in past weeks to shift defensively as we anticipated near-term weakness ahead of the US election. We used a temporary bounce on Tuesday this week to raise additional cash that we plan to re-deploy in the coming weeks.

We remain well under our target equity allocations and look forward to putting this cash to work as we closely monitor numerous leaders that we plan on entering soon. Our focus remains on companies that have proven to grow through the pandemic which highlights the strength on their business models to not only survive but thrive in a challenging environment. We look forward to updating you on our progress as we are confident in our active approach through these changing conditions.

Chart of the Week

This week we want to highlight oil prices as they have corrected close to 20% from the recent highs as oil prices recovered above $40 for a few months before this recent move. This latest decline is shown in the 12-month chart below and was driven by Saudi Arabia lowering prices in the coming months as demand forecasts remain soft in the near-term:

The positive is that low oil prices tie into lower gasoline prices which support discretionary spending as less money is spent at the pump. The negative is for anyone who invests in energy as the energy sector moved with oil prices and remains as a risky area moving forward as most oil & gas producers struggle to generate profits at these prices. This is why we remain out of energy as we remain bearish on the space until conditions drastically improve.

Beyond the Markets

Today marks the 19th anniversary of the 9/11 attacks in New York. While a border may separate us, we stand together with our southern neighbours in remembering and honouring those who had lost their lives. May we use this time to reflect and appreciate the first responders and healthcare providers who continue to act in the service of others.

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.

CANACCORD GENUITY WEALTH MANAGEMENT IS A DIVISION OF CANACCORD GENUITY CORP., MEMBER-CANADIAN INVESTOR PROTECTION FUND AND THE INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA