Market Insights: The Stock Market’s Response to Prior Blue Waves

Happy New Year! 

 

Here is our Milestone Fourth Quarter Wrap-up to kick-start the year for a deeper dive into Milestone's macro thoughts.. 

 

Macroeconomic and Market Developments:

• North American stock markets were positive to start off 2021 this week. The TSX Composite index was up 3.49%, and in the US, the Dow Jones was up 1.61% and the S&P500 was up 1.83%.
• The Canadian dollar finished 2020 at 78.5 cents. This week finished up slightly at 78.8 cents.
• Oil prices were positive this week. U.S. West Texas crude finished 2020 at ~$48.50 and this week broke through the $50 mark and finished at $52.50. In Canada, the Western Canadian Select price also increased to ~$34.
• Gold was lower this week. Gold finished 2020 at ~$1,895 and this week at $1,850.
• On Tuesday, Agnico Eagle and TMAC Resources announced that they entered into agreements in which Agnico Eagle has agreed to acquire all of the outstanding common shares of TMAC at a price of C$2.20 per share in cash. This represents an increase of C$0.45 per share as compared to the offer price of C$1.75 offered by Shandong under the original deal agreed to late last year.
• On Wednesday, the Democrats were confirmed to have the control of the U.S. Senate after the runoff elections in Georgia shifted from Republican to Democrat. This now gives the Democrats control of both houses of Congress, as well as the U.S. Presidency, allowing them to push forward with their more liberal agenda.
• Elon Musk, creator of Telsa, SpaceX and PayPal, became the world’s richest person on Thursday. His estimated net worth was $194 billion, surpassing Amazon founder Jeff Bezos, who sits with a net worth of $186 billion. Bernard Arnault, CEO and majority owner of luxury brand company LVMH (owner of Louis Vuitton, Tiffany and others) is the third richest person with $154.5 billion. Today, Tesla stock went up again pushing Musk’s net worth to over $200 billion.
• Employment numbers were released for December in Canada and the U.S. on Friday. Canada lost almost 63,000 jobs in December with the unemployment rate remaining unchanged at 8.6%. Economists were expecting a 30,000 job drop as the recovery was slowing down and COVID-related lockdowns increased. The economy is also still about 636,000 jobs short of where it was before the pandemic began. In the U.S., the monthly Nonfarm Payrolls number saw jobs fall by 140,000. Analysts had been expecting a gain of 50,000. The unemployment rate stayed at 6.8%.
• Cannabis stocks had a good week with news of a Democratic sweep, possibly paving the way for companies to have much easier access to investment capital in the US. The Horizons Marijuana index ETF (HMMJ) was up 18.9% this week.
• The price of Bitcoin has continued to rise. This week, the cryptocurrency finished at close to $40,000 USD.
• Total global cases of COVID-19 finished this week at 88.5 million, with the total death toll at 1.907 million. In Canada, total cases are now at 635,134, with active cases of 80,288. In Alberta, total cases stand at 108,469, with active cases at 13,298.
• For a deeper dive, the U.S. investment company First Trust has put out a U.S. COVID-19 Tracker. Click here: COVID TRACKER

Charts of the Week:

As mentioned above, this week we witnessed the Democrats take control of the U.S. Senate. This is being called a Blue Wave as the Democrats will, for at least the next two years, control the House of Representatives, the Senate, as well as the U.S. Presidency. Whereas it is projected that some companies would do better under this political environment than others, we found these two charts quite interesting. These show how the overall markets have performed during previous instances where the Democrats were in control. Going back 120 years, the stock market has been up 65% of the time during these periods with an annualized return of almost 8%. However, if we look at the post-WWII time period, there have actually only been two instances where the market was negative, and the last three periods were all strongly positive.

Source: Bespoke Investment Group

 

Sources: CNBC.com, Globe and Mail, Financial Post, Government of Canada, Government of Alberta, Johns Hopkins, oilprice.com, Canaccord Genuity, Bespoke Investment Group