It’s a quiet sunny morning as U.S. investors take the day off ahead of Independence Day. Both S&P 500 and TSX futures were practically flat. European markets edged lower as an observed surge in cases across the globe somewhat eroded risk appetite. Asia posted modest gains overnight, tracking yesterday’s advance in North America. The U.S. dollar, meanwhile, is heading towards its first weekly decline in a month. Oil is down and gold held steady.
There have been a number of long-term investors who have opined that this market has lost any fundamental sense and now just reacts to monetary stimulus. We would certainly agree to an extent, the value added from getting the macro tea leaves correct over the past decade has probably outsized the value of a good discounted cashflow model. This has become even more evident in 2020. Rules that have worked in the past don’t seem to hold up these days. Take for instance investor sentiment. Normally when investor sentiment is very low, as in there are more bearish investors than bullish, markets are near their lows. And when too many are bullish with few bears, markets are nearer their highs. A good contrarian indicator. Today, many more are bearish (46%) compared to bulls (22%). With a spread this wide, the average forward return for the S&P 500 is +2.0% for the next month, compared to an average of +0.6%. However
, usually investors are bearish after a market drop, and this market is once again getting closer to that 3,200 level. Maybe sentiment doesn't work either during this unique time.
On the virus front, America appears poised to continue tightening lockdown measures as new infections continue to rise. In Texas, citizens will now have to wear face masks in public. Despite the new initiatives from individual states, Trump seems unnerved. The President will hold a fireworks celebration at Mount Rushmore today, wherein attendees won’t be socially distancing or be required to don PPE. In vaccine news, the street is moving some bets to larger pharmaceutical companies with larger manufacturing capabilities. Smaller players like Moderna and Inovio ended down -4% and -25% respectively after failing to follow up with their promising early testing data.
Over the past few months, we’ve seen quite a few capital markets groups wind down desks as competitive pressures and fee compression make it harder to stay afloat. HSBC’s industrial metals desk now joins the fold – a move which will likely cut 35,000 jobs. The bank was a small player in this sector and had exited the business prior in 2005 but had re-entered in recent years. Returns are hard to come by, a fact that they conceded to. In April, Scotiabank had shuttered its metals business as well.
In Canadian energy news, the Supreme Court of Canada recently rejected appeals to halt Trans Mountain’s expansion. Trans Mountain Corp. made clear yesterday of its intentions to continue working on the project, which has been under construction for several months now. Three B.C. indigenous groups have vowed to keep fighting the project expansion despite the Court’s latest move.
According to figures released yesterday by Statistics Canada
, exports rose 6.7% in May – the largest one-month percentage gain in over six years – while imports fell 3.9%, narrowing the trade gap to C$677 million. The median estimate of economists called for a C$3 billion gap in May, which just goes to show how impressive this recent economic growth period has been. Eight of eleven sectors recorded export gains in May
with motor vehicles (+ 76.2%), energy products (+ 14.5%) and consumer goods (+ 9.5%) leading the way. Although this is great news, we are on course for a bumpy recovery ahead. Overall Canadian trade activity is still down by roughly one-third YTD and with US infection numbers steadily rising, the stability of these trade figures will remain in question.
Though this isn't any market news by any means, it's just a fun fact. On this day in 1884, the Dow Jones published its first stock index: the Down Jones Transportation Average. It's a great fact to take to your next date, patio meet up, or cocktail party. You're welcome. Diversion:
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