Market Commentary

Making Cents of the Markets

Listen to this week’s Making Cents of the Markets on CKNW we gave listeners a update on the markets, Pfizer’s COVID-19 vaccine, and sector rotation in today’s markets. Check it out here.

Be in the Know

Global equities broke out to new highs this week on the back of Pfizer’s vaccine announcement on Monday and Democrat Joe Biden’s win over the weekend. Pfizer and their partner BioNTech announced that their vaccine candidate against Covid showed promising preliminary results for their Phase 3 trials, with a 90% efficacy rate recorded thus far. We expect the final results to take another 3 months as Pfizer still needs to record more infections and track potential side effects for at least 2 months. Regardless, this result was enough to trigger a rotation out of growth stocks into value stocks as a “return-to-normal” feel in 2021 prompted investors to target bargains in sectors most impacted by the pandemic such as energy and financials.

Even when a vaccine is found, logistical hurdles will be inevitable as we do not expect vaccines to be widely available to the general public for a year or so as high-risk groups will remain a priority. Markets continue to look forward and are encouraged by this news and potential timeline though this optimism comes at a time when infections and hospitalization rates continue to increase around the world which could lower growth expectations in the near-term. This strengthens the argument for additional stimulus as the US Fed Chairman Jerome Powell reiterated the need for another pandemic relief package before year-end which bodes well for gold and other assets.

In a relatively light week of economic data, we saw inflation in the US dip to 1.2% in October from 1.4% the month prior as it missed expectations for a slight increase. Business optimism remains steady as small businesses expect sales to pick up as they plan to restock inventories and hire more workers. The concern is that uncertainty remains high due to the latest rise in cases resulting in additional restrictions and lockdowns. We believe that the path of recovery that will remain “bumpy” over the coming year which is why we plan on tactfully investing in strong companies on any weakness when presented. Patience and discipline will be key to having a strong year in 2021 as we are not out of the woods yet!

Our Strategy

Economically sensitive sectors or “cyclicals” led the market higher this week which we had lower exposures to, given the underperformance and risks that sectors like Financials and Energy had demonstrated prior to the latest vaccine news. We believe that this shift is positive for the overall market as it is seeing broad-based participation with most sectors now trending higher. We did not want to “chase” gains in these specific sectors as we know that the road to recovery will be volatile and provide opportunities to add exposure to these at lower prices.

That being said, over the last 2 weeks, we have added to certain cyclical sectors such as Industrials and Materials that had already been outperforming the general market and are expected to continue. We also added to a few of our favourite technology companies that pulled back as result of the rotation into cyclicals. We believe that growth-focused sectors are here to stay as many will continue to benefit from the acceleration that the pandemic caused. We remain focused on strong themes for the next few years, not the next few weeks, so are not concerned about any near-term weakness in leading stocks.

Chart of the Week

If one looked at the market this week, they would assume that large cap growth-based stocks continued to lead the charge though it was quite the opposite. Smaller companies within “value” segments such as energy and financials led, as seen in the chart below:

Many investors look to chase this performance, though it is still too early to state that these areas will continue to outperform beyond this past week. The reality is that a fair amount of economic uncertainty remains which is why we continue to focus on the highest quality large companies as core holdings for our clients and remain patient on adding certain exposures on weakness as pullbacks are normal within these areas.

Beyond the Markets

As the most recent social gatherings restrictions have gone into effect for those in the Vancouver Coastal Health and Fraser Health regions, it remains vitally important to keep yourself and your loved ones in a positive mental and emotional state. Keeping in contact with others, getting some fresh air, and creating a schedule can help you keep the pandemic blues away. We recommend planning a week of meals from around the globe to keep you and your family entertained! Pick a new country or a region on the map each day and recreate one of their native dishes. While we aren’t able to travel the world at this moment, we can sure take our taste buds on an adventure!

Click here for a list of meals from around the world.

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.