Market Commentary

Making Cents of the Markets

New episode of Ready.Set.Retire! Listen to Lori and Jon discuss the massive market rally this week despite the uncertainty around the US election. Where should your portfolio be invested today? Listen here.

Listen to this week’s Making Cents of the Markets on CKNW where we discuss markets, the US election, and earnings season. Check it out here.

Be in the Know

Equity markets bounced back in a strong manner this week as they wiped away last week’s losses on the back of reduced election uncertainty, despite there being no official result from the US election. Going into the weekend, it looks likely that Joe Biden will become the next president of the United States with Republicans retaining the Senate and Democrats the House of Representatives. A divided Congress lowers the chances of Democrats being able to pass through higher taxes which favors companies with high profit margins like those in the technology sector that led the market higher this week. Uncertainty remains though the action this week was very positive that leads us to believe that the bull market will continue to head higher into the new year.

In times of heightened political uncertainty, we must focus on what drives equity prices higher which are stronger corporate earnings. Most companies have now reported their third quarter earnings with over 85% beating analyst estimates which is much higher than the 70% historical beat rate. Earnings are down 7% from the third quarter last year which doesn’t sound great but is a huge improvement from the last quarter’s 30% decline. Analysts expect the recovery in earnings to continue through to 2021 when we expect growth to resume for the market as a whole. If history is a guide, this positive tailwind should eventually push global equities to new all-time highs.

In Canada we saw the unemployment rate tick down to 8.9% in October from 9% in the previous month, missing expectations as only 84k jobs were added (vs. the 100k expected). Employment gains have slowed as some provinces reinstated containment measures targeted at bars, restaurants, and recreational facilities. In the US we saw a more impressive jobs report as the unemployment rate fell to 6.9% in October from 7.9% the previous month, beating expectations as 638k jobs were added (vs. 600k expected). Approximately half of the jobs lost during the pandemic have been recovered as we still have a long way to go as continued stimulus is required for the economy to continue to improve.

Our Strategy

Our portfolios did well this week as we went back to work and added equity exposures throughout as markets continued higher. Our portfolios lagged equity indices somewhat due to our defensive positioning coming into the week and a weaker US dollar though this positioning assisted us greatly over the last 2 months when markets corrected in a volatile manner. We stuck to our plan and are proud of our results for the 2020 year as all our Legacy Portfolios are positive on the year with strong downside protection in the face of numerous uncertainties. Now that the US election is (almost) behind us, we can look forward and continue to focus on investing in the leaders within the strongest sectors.

We continue to focus our efforts on leaders who are growing their profits faster than the average company, especially those that actually saw an acceleration of growth due to the pandemic. This includes companies like Amazon, Abbot Labs, and United Parcel Service. We also want to be positioned in sectors such as materials and industrials that are poised to benefit from the global economic recovery. Our plan remains the same as we continue to be active in making changes, so we are well positioned for not only the next few months, but the next few years.

Chart of the Week

One of our largest portfolio exposures is gold bullion as we believe we are still in the early stages of a multi-year bull market in gold, fueled by additional stimulus to support the global recovery. This week, after receiving news on a divided congress, gold broke out of a 3-month trading range as seen in the 12-month chart below:

The main reason is that additional stimulus is required sooner than later within the US and many believe that a McConnel-Biden team could be more effective at getting a near-term bill passed. We used this as an opportunity to add to our position as gold is typically a strong hedge against inflation which is expected to pick up as the global economy recovers.

Beyond the Markets

It looks like Vancouver will be receiving some nice weather this weekend which makes it a good time to enjoy the outdoors. It is also the perfect time to head downtown and explore Lumiere Vancouver’s interactive art installations that are now on display until November 30. With various displays at both English Bay and Jim Deva Plaza, there are numerous bright and colourful works of art to experience! Click here to learn more.

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.