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Msg  70127 of 70746  at  7/26/2021 9:39:58 AM  by

carswell


The Launch Pad

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The Launch Pad
July 26, 2021
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Today

Retail investors continue to be rewarded for taking on equity risk in the current bull market we find ourselves in. Despite disappointing US job data released last week, and headlines warning about rising cases of the new delta variant, stocks are perched at all-time highs after shaking off last Monday’s sell-off. The S&P/TSX Composite Index has risen just over 15 percent YTD, with 10 out of 11 sectors reporting gains. Materials have been the one exception to this impressive year, with precious metals stocks continuing to be under pressure (although we are still hoping to get more precious metals in the form of gold medals for our athletes in Tokyo).

We are entering one of the biggest weeks of the summer with roughly 165 S&P 500 companies due to report earnings, with big names like Apple, Microsoft, and Alphabet, all set to release their numbers. With just over one fifth of the S&P 500 having reported, 88 percent of firms have beaten analyst expectations. If the trend continues like what we’ve seen over the past few weeks, then expect plenty of ‘beats’ but muted stock responses. Increasingly companies are scaling back guidance raising concerns of the delta variant and fears of a virus resurgence in the fall. Some U.S. states have no more than 40% of the population fully vaccinated, far too low to keep the virus in check.

Despite entering this week on an upswing from the 4 day rally we just saw, stock futures slipped Monday morning with Dow, S&P 500, and Nasdaq futures trading in negative territory due to shares in Hong Kong suffering heavy losses during the Asia trading session on Monday.

Chinese and Hong Kong shares are down 3-4% in trading this morning, with big names like BABA down over 7% in premarket in the U.S. It all stems down to further moves by the Chinese government to reign in companies, especially those that have plenty of data that the government would like to see. DIDI is now down over 50% form it’s IPO not long ago, and Wall St which was quick to court Chinese listings now has to deal with the fallout. Increasingly the government is implementing moves that showcase a party over individuals’ mentality where they aggressively push back against some of the best examples of capitalistic success. It’s a broad populace appeal to the less affluent Chinese, effectively kneecapping the billionaires and corporate elite. An index that tracks Chinese company U.S. listed ADRs has fallen to a 17-year low relative to the S&P 500.

Investors will not only be looking at earnings results this week as the Fed also has a two-day policy meeting, and although no changes to policies are expected to come out of this meeting, the Fed is expected to issue a statement on their stance of monetary policy. Second-quarter GDP data for the US is set to be released this week as well which is sure to make headlines as expectations are high after months of economic growth from lockdown rules being lifted.

The pandemic continues to wreak havoc on office real estate, particularly in Calgary which was already strolling with elevated vacancy rates. Now nearly 30% of office space in downtown Calgary is vacant according to this Bloomberg article. This kind of vacancy rate has not been seen in a modern major office market since the Depression era.

Positive sentiment grew for Bitcoin over the weekend as 'buy the dip' is holding true for the cryptocurrency. After touching the lows of just below US$30,000 the price now sits at around US$38,500, which is a jump of about 20% since Friday. Seems as if this is carry over from the 'B Word' event where many high-profile investors and CEO's touted the crypto space. As well as some speculation that Amazon may be getting into crypto to join the fun.


Diversion: Did you catch the basketball shooting robot at the olympics? Pretty impressive.... and no its not Kawhi Leonard, emotionally similar though.
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Company news

Pembina has terminated its $8.5bb bid for Inter Pipeline clearing a path for the company to pursue a deal with Brookfield Infrastructure Partners. Hasbro saw sales rise 54% in the quarter to $1.32bb outpacing estimates of $1.2 billion. Movies are back and their release in combination with Paramount Pictures of GI Jones Origins over the weeks is likely to help keep the positive momentum. China released new regulations that banned companies from making profits teaching school curriculums, costing Larry Chen, a former teacher turned billionaire more than $15bb in wealth as his company Gaotu Techedu inc. was roiled by the news. Rio Tinto workers in British Columbia went on strike Sunday over contracts stipulations around pensions and benefits.

Commodities

Oil prices look to start out the week in the red as the market continues to be clouded by the spread of the delta variant. At the time of writing, NYM WTI Crude futures are down -0.57% to US$71.66/bbl. ICE Brent Crude futures are down -0.38% to US$73.82/bbl. Restrictions have been renewed in several parts of the world which is causing concerns about the short term outlook for oil prices. Total US Rig counts has risen back to 387 after adding 7 more rigs last week. While moving in the right direction, the total still pales in comparison to the 600+ seen right before the pandemic. The major driver for prices continues to be the increase in fuel consumption, Summer drivers with pent up demand have pushed prices to all time highs across 10 out of the 20 markets that are tracked.

Spot Gold is up this morning after a bit of a recovery. At the time of writing, the yellow metal is up +0.31% to US$1,807.76/oz. The US dollar and yields are down this morning pushing the price of gold higher. Perhaps a little jump due to safe haven appeal and a general risk off market is playing a factor this morning too. Investors will shift their focus to fed meeting this week for any cues about the near term future of the economy.

Fixed income and economics

A risk-off tone is cascading across markets this morning with Treasuries well bid amidst upcoming trade meetings between China and the U.S. this week. Treasuries are well bid with the 10 year up a half point and the long bond yield lower by three basis points. There is little on the North American data front to contend with save for secondary releases from new home sales figures (+3.7% expected for June) and a July sentiment update from the Dallas Fed (31.6 expected and a full tick higher than prior). Overnight releases included a dip in German IFO investor confidence and softer Japanese PMIs for July. The former fell by 2.5 points to 101.2 but this is off the prior month’s highest reading since December 2010. Japan’s composite PMI fell again to the weakest reading since January 2021 and indicated worsening economic momentum after the Q1 GDP contraction of 3.9%. Canada is still reeling from a soft retail sales number on Friday, that despite seeing some retailer recover from the third major Covid-19 shutdown, saw receipts fall -2.1% in May.

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