February Feelings and New Market Highs

So far in this New Year we’ve experienced two back-to-back months where the markets accelerated nicely out of the gates, only to decelerate quickly by the end. January started out strong, but ended up negative, whereas February started the same and managed to hold on to some substantial gains by month end. March appears to be setting off in a similar pattern. Is this a new trend, or is something else happening? Should we be concerned, or is this a positive development? We dare say all of the above. In order to understand what’s really going on we have to speculate somewhat on investor behaviour, as we are finding it more and more difficult to digest any real news about business and the economy with COVID related alerts dominating every single news source. Meanwhile, we are witnessing record levels of government debt, while concerns of inflation seem to be the only HOT button. Unemployment remains stubbornly elevated, but improving, yet vaccine role outs and reported results have been conflicting, yet markets are trading at all-time highs. To make matters even more confusing we’re now beginning to see signs of a super-hot retail market as home buyers appear to be scrambling to lock in historically low mortgage rates.

Another fascinating observation is that the TSX, S&P 500, DOW and NASDAQ have literally mirrored one another with respects to their price patterns since October, 2020 with the NASDAQ being the most volatile of the group. Should we be concerned, maybe, maybe not? Regardless, we find this both fascinating and very odd. Despite these oddities, BMO Capital Markets Economics has upgraded their forecast for Canadian GDP growth this year by a full percentage point to 6%, a nice reversal of last year’s 5.4% decline. If accurate, this would represent the strongest annual increase in the economy since 1974. This upgrade follows recent upward revisions to the U.S. growth outlook for the coming year, prompted by the $1.9 trillion fiscal package, which is working its way through Congress. This has the potential to supercharge Canadian exports, which already jumped 8% in January, led by U.S. sales.

If you would like to read more of our market commentary for February 2021, please contact us.