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Msg  70232 of 70717  at  8/13/2021 9:40:19 AM  by

carswell


The Launch Pad

 
Richardson Wealth - Connected Wealth
Daily market commentary
The Launch Pad
August 13, 2021
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Today

Futures are flat, not really any major new and/or catalysts this morning driving prices one way or the other. Treasuries rose as yields retraced yesterday's jump on concern inflation concerns. We’re not talking any major moves, though, just a few basis points in either direction. We saw this morning that European stocks gained for a 10th day, that’s noteworthy. MTD the Euro Stoxx Index is up 3.5% compared to 1.5% for the S&P 500 and just 1.15% for the TSX.

Despite global growth concerns brought about from the rise of delta, European markets (which are more closely tied to global growth) have done quite well. The same can’t be said for developing markets. The MSCI EM index had its biggest one-day drop this month, falling -0.8% marking its 5th daily lose in six sessions. A gauge of developing-world currencies headed for its biggest weekly loss in five weeks. So, stay long countries with solid vaccine numbers and avoid areas with low numbers. The 4th wave will largely be driven by the unvaccinated.

Another record high for the S&P 500 yesterday, that totals 47 on the year so far. Looking back over the last 20 years that would already be good enough for third place. Big Tech in the US has elevated the index to the many new highs this year and yesterday was no different. With low interest rates and a solid earnings season, the companies are rising for good reason. The top 7 companies in the index now own approximately 24% of the index, so when they go up, so does the S&P.


Diversion: What a Baseball game! Last night in Iowa, the White Sox and Yankees played the 'Field of Dreams' game. Here is the incredible entrance with Kevin Costner. In the top of the 9th, Stanton homered to take the lead, only to be outdone in the bottom of the 9th by Anderson with a walkoff homer into the corn.
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Company news

Algonquin Power & Utilities Corp. had great earnings, posting Q2 adjusted EPS of 15 cents/share vs the 13 cent estimate. The renewable power generator grew revenues by $527.5 M y/y, beating the $456.2 M consensus. Today saw new locomotion regarding the Canadian railway company battle to acquire Kansas City Southern. The board of KSU announced it thought that Canadian Pacific Railway Ltd.'s latest bid was not a "superior proposal." CP's latest bid is less than Canadian National Railway Co.'s, but it was designed with consideration that antitrust regulation is a real risk. It seems that KSU's board advisors think they have a better handle on Canadian regulation than CP's, or perhaps this is a strategy to lure CP into a bidding war with CNR. Either way, CP's board is presumably not too happy with this news. Altus Group Limited reported Q2 results with consolidated revenues of C$173 M vs the C$175 M consensus. Despite the miss on revenue, the company reported an adjusted EPS of 75 Canadian cents/share, beating the consensus figure of 68.7. All segments grew over last year, with CEO Mike Gordon stating that "Cybersecurity has been a big cornerstone of our ESG and enterprise risk management strategies." This statement comes on the heels of the successful ransomware attack executed against the company on June 13. Protip for Mr. Gordon: ~97% of "cyber attacks" are implemented via social engineering. Fortune favours the prepared mind, or perhaps, in this case, your company's Sustainalytics score. Lastly, investors tried to find some silver lining as Wheaton Precious Metals Corp. posted an adjusted EPS of 35.9 cents/share vs the 37.2 cent estimate. This result came on the back of an 84% y/y increase in silver production. Management provided full-year silver production guidance of 22.5 M - 24 M ounces, lower than the 24.9 M ounce Bloomberg estimate.

Commodities

Stop me if you’ve heard this one before, oil futures are trading down this morning after the IEA reiterated their bearishness in their demand forecast due to concerns about the spread of the Delta variant. NYM WTI Crude futures are down -0.29% to US$68.92/bbl and ICE Brent Crude are down -0.17% to US 71.19/bbl. The International Energy Agency stated in their monthly report that rising demand for oil reversed course in July and was set to proceed more slowly for the rest of the year as Covid related restrictions loom. Banks agree with the declining estimates and have adjusted their near-term demand forecasts to 97.9 million bpd for September.

Gold prices went back and forth during the trading session yesterday as we continue to see it struggle overall. Spot gold is now sitting at US$1,758.30 and is up +0.53%, although analysts expect tough times ahead for gold prices. The recent decline in gold is due in part to the stronger-than-expected U.S. jobs report that came out last week and the rush to buy the dollar in response.

If you were planning on building a fence recently but held off due to the cost of wood, lumber futures have now slid to the lowest point this year. Lumber supply has been gradually increasing and mills have begun to drop prices, as demand from builders stabilize.

Fixed income and economics

The trend is already well known here in Canada, but now it looks like proponents in the U.S. are even starting to cast some worry. The National Association of Realtors yesterday reported that the median price of an existing single-family home rose 23% from a year ago to a record $357,900 during the second quarter. This has seen the average size of a mortgage increase substantially in a relatively short period of time --- since February of 2020, the original loan size for newly pooled purchase mortgages for Fannie Mae guaranteed loans has grown +12.4% to an average of $310,940, while Ginnie Mae has risen +14.8% to $273,780, according to Bloomberg data. Historically low mortgage rates have been a driving force of course (the average 30 year fixed rate in the U.S. still remains below 3% as of the latest update from Freddie Mac), but sparse housing inventory and a flight from urban areas during the pandemic have also been factors as well. This trend is not expected to wane anytime soon either, with recent housing starts and permit issuance data suggesting that more supply (and fuel for purchasers) is on the way.

When convention doesn’t work, go the unconventional route. That’s what it appears the BCA has done this morning in ascertaining a way in which to determine what the fair value of the 10 year Treasury bond yield should be. Their strategists have noticed that since 2008, the yield on the benchmark has struggled to exceed the earnings yield on technology stocks less a constant of 2.5%. They observe that “whenever the yields on tech and other high-flying growth stocks have become depressed, the upper limit to the bond yield has been established not by the economy, but by the financial markets”. And that on the “occasions that the bond yield has attempted to breach its stock market-set upper limit, it has unleashed a self-correcting sequence of events”. The aforementioned is unfolding at present, which in their eyes suggests that given tech earnings yield 3.8% currently, that should translate to an upper limit on the 10 year Treasury to 1.3% and effectively where it is today. Their data over the past 13 years suggests that this level can fluctuate by 50 basis points, so we could see an absolute maximum point of 1.80%. Something to ponder going forward (if you can’t decide which way yields are headed).

Chart of the day

Markets

Quote of the day

By words the mind is winged.

-- Aristophanes





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