Market Insights: 7-Sigma Event

Here is a link to a short video from Canaccord’s chief U.S. Strategist Tony Dwyer, in which Tony gives an update on the current investor sentiment in the market: DWYER VLOG

With all of the recent changes to rules regarding travel, here is a new post from SnowbirdAdvisor.ca that may be helpful: Snowbird’s Guide to Travel Restrictions

Macroeconomic and Market Developments:

• North America stock markets were very positive this week, more than recovering from last week’s weakness. The TSX Composite was up 4.61% and, in the US, the Dow Jones was up 3.90% and the S&P 500 was up 4.66%.
• The Canadian dollar was up slightly this week, moving up from 78.15 cents last Friday to 78.3 cents this Friday.
• Oil prices were up strongly this week. US West Texas crude finished at around $57.00, up $5.00 from last week. The Canadian WCS price finished around $44.50 this week, compared to $40 last Friday.
• Gold prices continued its downtrend this week, closing at $1,811 vs $1,845 last Friday.
• This week started off with silver jumping over 10% at one point on Monday - the biggest jump since October 2008 - as retail investors who took aim at stocks like GameStop last week directed their buying towards silver. This in turn pushed up the price of silver mining stocks dramatically on Monday. However, the excitement was short-lived, with silver and silver mining stocks falling the next day. Unsurprisingly, GameStop (GME) itself also dropped significantly this week as all the Reddit users that had banded together to artificially drive up the price either stopped buying or started selling.
• Statistics Canada reported that Canada’s GDP grew by 0.7% in November, ahead of consensus and the agency's own +0.4% flash estimate. November marks the seventh straight monthly gain since the March/April trough. The government agency also provided an early estimate for December GDP +0.3%. The better-than-expected boost to GDP increases the chances the Bank of Canada will move the benchmark rate higher sooner than current guidance of 2023 suggests.
• Telus International completed its IPO on Wednesday, listing on both the TSX and NYSE (symbol TIXT on both exchanges). The issue price was set at US$25.00 and the stock closed the week at US$31.58. The parent company Telus (T) still retains around 2/3 of the voting power over Telus International.
• Vancouver-based mCloud Technologies (MCLD on the TSX Venture exchange) has announced that it will be moving its corporate headquarters to Calgary. The company already has approximately 100 employees in Calgary and is expected to hire more in the future. The company’s technology helps customers improve their environmental, social, and governance (ESG) performance.
• Friday saw the latest jobs numbers released in Canada and the US. In Canada, Statistics Canada reported a loss of 213,000 jobs in January, far higher than the average estimates of around a 50,000 drop. This pushed Canada’s unemployment rate up to 9.4%, also more than forecasted. December's decline of 52.7K was revised up from a loss of 62.6K. In the US, the economy added 49,000 jobs, which was very close to the expected 50,000. The unemployment rate dropped to 6.3% vs estimates for the rate to remain unchanged at 6.7%, as the labor force participation rate dropped as 406,000 workers left the work force.
• Total global cases of COVID-19 finished this week at 105.2 million, with the total deaths at 2.29 million. In Canada, total cases now stand at 793,734, with active cases at 47,714. In Alberta, total cases are 125,672, with active cases of 6,588.
• For a deeper dive, the US investment company First Trust has put out a US COVID-19 Tracker. Click here: COVID TRACKER

Chart of the Week:

What a turnaround week it has been, with the S&P/TSX Composite and the S&P 500 both recovering from all the heavy losses of last week, and both pushing to new all-time highs today.

Earlier this week, one chart from Morgan Stanley Prime Brokerage caught our attention. As you can see below, this chart shows the degree to which hedge funds reduced leverage/risk by covering their short positions and selling some of their longs. This is likely in large part due to the short covering we saw with stocks like GameStop that we discussed last week. Hedge funds ‘de-grossed’ in a big way. Gross exposure refers to the absolute level of a fund's investments; it takes into account the value of both a fund's long positions and short positions and can be expressed either in dollar or percentage terms. Last week was a 7-sigma event (extremely rare), in terms of de-grossing. This is close to in line with the extreme level seen back in March 2020 during the COVID market panic which was the largest since 2010. This sort of extreme de-grossing has often marked bottoms in the S&P 500, and typically has been followed by 20%+ rallies over the following months. You normally see this during a liquidation event due to systemic risk. However, in this case, the S&P 500 did not significantly decline, but the end result of the deleveraging was the same. This should hopefully mean that there is more cash now on the sidelines to potentially fuel markets further to the upside.

         Source: Morgan Stanley

Sources: CNBC.com, Globe and Mail, Financial Post, Government of Canada, Government of Alberta, Johns Hopkins, oilprice.com, Canaccord Genuity, Tony Dwyer, Morgan Stanley