Market Insights: The Tortoise & The Hare

Macroeconomic and Market Developments:

• North American markets were mixed this week. In Canada, the S&P/TSX Composite was up 0.43%. In the US, the Dow Jones Industrials was down 0.51% and the S&P 500 Index declined 0.43%.
• The Canadian dollar was ­up this week, closing at 82.88 cents vs 82.58 cents last Friday.
• Oil prices dropped this week, with US West Texas Intermediate finishing at US$63.85 vs US$65.35 last week and the Canadian WCS price at ~$49.20 vs ~$52.60 last week.
• Gold prices were up this week, closing at ~$1,881 compared with ~US$1,843 last Friday.
• On Monday, US telecommunications company AT&T (T) announced a deal to combine its content unit WarnerMedia with Discovery (DISCA), creating one of Hollywood’s biggest studios. Under the agreement, AT&T will unwind its $85 billion acquisition of Time Warner and form a new media company with Discovery, likely to compete with Netflix (NFLX) and Disney (DIS).
• Calgary based Cenovus Energy (CVE) announced a deal to sell an Alberta production royalty interest to Topaz Energy (TPZ) for $102 million. This transaction is part of Cenovus’ goal of reducing net debt to less than $10 billion by the end of 2021. Topaz also announced that it is buying royalty interests from Tourmaline (TOU), and in conjunction with both deals, is issuing a stock offering of $175 million at $14.25/share.
• Bitcoin, along with other cryptocurrencies, plunged on Wednesday after the Chinese government reiterated that digital tokens can not be used to conduct business with Chinese financial institutions. Also, negative comments regarding the environmental impact of Bitcoin mining from Elon Musk earlier in the week contributed to the selloff. Bitcoin traded as low as ~US$31,000 before recovering somewhat, trading at around US$35,500 late on Friday, which was down almost 30% from last Friday.
• Inflation ticked up again in Canada, with the April Consumer Price Index (CPI) increasing by 0.5% month-over-month, ahead of the 0.3% estimated. Year-over-year, inflation rose 3.4% vs estimates of 3.2%, mainly attributable to low inflation last April due to the COVID shutdown. In an additional economic release, Canadian retail sales were up 3.6% to $57.6B in March, beating estimates of a 2.3% gain. Sales increased in 10 of 11 subsectors, representing 79.1% of retail trade. However, Statistics Canada flash estimates show retail sales declined 5.1% in April.
• For a deeper dive, the US investment company First Trust has put out a US COVID-19 Tracker. Click here: COVID TRACKER
• In addition, First Trust has created a COVID Recovery Tracker. Click here: RECOVERY TRACKER

Chart of the Week:

As we head into the May long weekend, we thought we would keep this light. As you can see, the race to be Canada’s largest company as measured by market capitalization is back on. This is the race between Royal Bank and Shopify. I don’t think many would have predicted a couple years ago that this would occur. After Shopify roared past Royal bank, Royal Bank has been making a steady comeback. The chart certainly depicts how the technology theme has fit into broader markets, especially after COVID hit and for the remaining part of 2020. The technology sector was really the only area that provided strong equity returns last year. So much so, in fact, that without Shopify, the S&P/TSX Composite would have only provided a relatively small positive return last year. The Canadian tech sector, mostly driven by Shopify’s incredible 190% increase, rose almost 60% while the general market was only up 2.8%. In the US, a similar situation where just three big tech firms - Apple, Amazon, and Microsoft - accounted for over 50% of the S&P 500’s return last year. If you take out the top 30 stocks by market cap, many of which are tech names, the S&P 500 was actually down slightly in 2020 as opposed to being up double digits. We have seen a reversal of this trend in 2021, where technology has been lagging and sectors like financials, energy, real estate and consumer discretionary have been much stronger. In the end, even though the technology sector can be volatile at times, it is not going anywhere, and it will continue to be a big driver of growth going forward. However, the slow and steady growth of reasonably priced companies with quality balance sheets and consistently growing dividends are still a worthy adversary.

Source: Connected Wealth, Bloomberg

 

Sources: CNBC.com, Globe and Mail, Financial Post, Government of Canada, Johns Hopkins University, BNN Bloomberg, Tony Dwyer, Canaccord Genuity, Connected Wealth, Bloomberg