|Momal Khan, Co-President|
The TSX has followed the US stocks into record levels as of last Thursday, closing at 18 027 which is above the previous record-high seen on February 20th, 2020.
Commodity investors especially are returning in full force, with wagers that a steadily weakening dollar is allowing materials to dominate in the currency. Commodities such as metals, oils, and crops are becoming progressively more appealing in recent times, as equities are on a rocky road and the world struggles to reel back from the pandemic.
All of this speculation has caused investors to turn their attention to commodity markets.
Michel Salden, head of commodities at Vontobel Asset Management, notes, “Commodities are on a winning streak right now. Markets are rallying due to the combined effect of U.S. dollar weakness, the cyclical recovery from COVID-19, central bank stimuli, and increased fiscal spending on infrastructure.”
However, money managers remain cautiously optimistic for 2021.
In a conversation with Yahoo Finance Canada, Martin Pelletier, portfolio manager at Wellington-Altus Private Counsel said, “We’re quite bullish on our outlook for the S&P/TSX this year. We especially like it for its strong weighting to the underperforming value segments of the market including financials and energy,”.
Pelletier added, “We think these sectors will do very well on the global reflation trade should economies respond to the pent-up demand from record-high household savings paired with record-setting fiscal stimulus plans.”
Interestingly enough, the record highs in the stock markets, as well as the buzz around commodities and futures, comes following the terrorist attacks at the Capitol in DC. What is the connection? Is there one?
It is widely agreed that stocks move based on the potential of expanding profits and growth for corporations. With this, many experts have advocated the necessity of sweeping fiscal stimulus to drive economic recovery. Following the Democratic wins in Georgia, investors believe a COVID relief package is more likely to be on the table. Essentially, as the chaos unraveled in DC, investors kept their sights set on Georgia’s outcomes.
Michelle Meyer, the head of US economics at Bank of America, said in a note on Thursday that another round of stimulus would “be a game-changer for economic growth and accelerate the rebound to pre-pandemic levels of activity.”
“The package would likely prioritize another round of direct payments, an extension of federal unemployment benefits, funds for state and local governments, and relief for healthcare workers.”
Meyer also added, “A $1 trillion relief package could easily boost gross domestic product growth in 2021 by a 1% point to roughly 6%, according to the bank. The positive economic effect could be even larger, as the estimates hinge on conservative spending multipliers.”
There is, however, a slight connection between the riots and the stocks based on widespread concerns that they would create a lasting risk. As the violence waged on, Congress certified Joe Biden’s victory, and Trump’s sentiments changed to ensure an “orderly transition”.
This assurance of a peaceful handover of the office further prodded bullish outlooks, as all three of the major stock indexes (S&P 500, Dow Jones Industrial Average, and NASDAQ Composite) slotted record highs last Thursday. This was likely because investors see the outcome as an indication of business returning to normal; whatever ‘normal’ may connote in the upcoming year.
Photo by Aditya Vyas, Unsplash