Dissonance? (TWTW – Jul 12-16, 2021)

Dissonance – Sooo … The Delta Variant … (or is there more than one?) is, or are causing some concerns which markets apparently are only now beginning to take note of. Cases are rapidly spiking up in the US, causing reintroduction of mask requirements in some areas, while threatening mostly, it seems, the unvaccinated, as we are told the vaccines remain efficacious as far as preventing serious illness. Pray it stays that way, AND that people overall get the message and get their vaccines – as failure to do so would likely raise the risk of a 4th wave, come fall in particular.

See: Say goodbye to your carefree summer => Click HERE!

One thing is for sure – amongst primary “reopening” beneficiaries – airlines and cruise lines, to name two, we have had some significant pullback of late, DESPITE all the “good news” regarding pent up demand, vaccine efficacy, and people moving about much more freely than we all have been in 15-16 months:

Delta Airlines, for instance, despite reporting its first Quarterly profit since 2019, and better than expected Q2, 2021 results, has seen its stock pullback over 20% from levels seen 3 months or so ago. More or less ditto for American Airlines, down some 18% over the same time period. As for Cruise stocks: the world’s largest Carnival is off about 1/3 in the past 5 or so weeks, while competitor Royal Caribbean is off about 1/4 over that same time span. As for the broader “travel/leisure” themed ETF TRVL (Harvest Travel and Leisure Index ETF => Click HERE), it is off just a tad over 10% over that same period in CAD terms.

All that to say – markets don’t like “uncertainty” – in this instance related to the outlook for travelling when Delta Variant threatens.

On another note – while markets until recently continued their upward march in the context of an all-clear on the risk side of the equation, the USD was strengthening – which … it tends to do when people worry about something being amiss… So, let’s keep an eye on the USD, Gold – which as previously noted is in a favourable period until I think generally late September, and which, notwithstanding USD strength, should itself, inflation or not, regain some of the ground it lost in June when the FED acted all “Hawkish”, which … well more recently it worked on reversing that market perception. That and … well, yields of course have corrected significantly to the downside as well – buying into either a) the notion that the inflation “scare” is indeed transitory, OR b) may be fearing something on the risk side is soon to side-swipe markets, leading others to pile into the risk-off bonds zone.

Oil – well, I guess the news of the weekend is that the Saudis and UAE have set aside their recent dispute, allowing for the earlier contemplated additional supply to reach markets – and … presumably, removing the uncertainty that saw markets sell-off both oil and the energy sector, fearing possibly a lack of discipline on the part of OPEC + in the absence of a production agreement. It will be interesting this week to see if the sector, also recently hit by COVID-19 news, regains some ground, or relative strength on account of this agreement, which paves the way for supply to return to pre-COVID-19 cuts by September 2022. Read more => Click HERE!

Finally on another note – Canadian housing … obviously we all keep hearing how “hot” the real estate market here is, and the impact on prices that COVID-19 has had, as many opted for bigger houses to accommodate work from home, respectively a world in which … perhaps, going back to the office was not ever going to be a “thing”, and in fact, we soon could see everyone work remotely as the default option. It will be interesting to see how that plays out – that’s for sure, because looking at “affordability”, well, it doesn’t seem to enter the equation for Canadians bidding up Real Estate to the moon:

Of course, as well all know, real estate NEVER goes down … EVER.

Remember – that was what the story was in the US until circa 2007/2008, when … well housing hit the mother of all icebergs. Of course, this can never happen in Canada, because Canadians are more conservative, disciplined and rational. Naturally, that’s the answer … until, are they that reasonable? Are we? That picture at right above would argue to the contrary – unless of course, that is, there is no reason to relate these two variables (which seems hard to fathom…) Anyway, another very interesting story to keep an eye on, because if ever the proverbial S was to hit the fan … well … let’s just say some Canadians are going to find themselves in a world of pain 🙁

Weekly sector performance to Jul 16, 2021 (can we spell “defensive” together?):

Bottom line: NOT all price movements seen recently are going to prove prescient when we look back AFTER the benefit of several weeks/months have passed. The fact that some of the moves aren’t necessarily congruent, respectively their magnitude suggests there are opportunities for people to adjust and position/reposition based on your outlook, expectations, and starting point relative to how you’d like to be positioned.

Oh – re: ENERGY: look at this weekly depiction of how things have played out for US Energy in the past while – last week, as it turns out was the worst week:

Moderna: moved up sharply on account of being added to the S&P500

Canadian Banks – expectations are that dividend increases – paused because of COVID-19 – will be on their way in the not too distant future. We only need to look to the South of us apparently, to see that this is the direction for dividends (several US banks raised theirs recently, having received carte blanche to do so).

Good luck – have a great week!

PS:  … and how could I forget this: on the one hand, on the inflation front, a rather unnerving 5.4% CPI year/over/year => Click HERE!

Yet on the other, a chart showing at least some of this DEFINITELY transitory (look at that recent reversal …). Yes, you guessed it: Lumber prices: