April Markets Spring into May

Let the good times roll, at least for the markets. The S&P 500 was up 5.24% in April giving the broader index an 11.32% return YTD and the DOW gained 2.71% for the month, up 10.68% YTD. Economic growth is being measured by stimulus cheques and vaccine rates, with even more stimulus being discussed (via the American Infrastructure and Family Plans) giving consumers the confidence to boldly move ahead and push the US economy closer to pre-pandemic levels. Although, we’re pleased with the rate of the recovery, we can’t help feeling somewhat cautious as we approach our year end targets for both the S&P 500 and the TSX and we’ve only just begun the second quarter of 2021.

 

In Canada, very robust commodity prices have pushed our dollar to new heights of 81.5 cents, maintaining its status as the global leader in 2021 so far. We find this hard to fathom when considering how plagued we’ve been as a nation with restrictions and lockdowns. Perhaps, while the Bank of Canada has been signalling a much more hawkish tone versus the Fed’s dovish position a case can be made for the stronger CAD dollar, but the greater force behind this is the reflation trade and the pronounced upswing in resource prices. When we look at the metrics they all indicate upward pressure, from asset price inflation to shipping costs, and average hourly earnings to the commodity price index; inflation is real and it’s quite clear that the risks are all to the high side. As BMO’s chief economist, Douglas Porter put it, “as rising inflation risks suggest, when you run things hot, you risk getting burned.” It is for this reason we remain strategically allocated for growth, but tactically prepared for any potential short term pull backs in the markets as we head into the summer months. We want to remain nimble and ahead of this market, even if it means leaving a little on the table.

 

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