06 Feb Friday Market Insights – Recovery pushes up long-term interest rates, which favours value stocks
This week's questions:
[00:00] : Intro
[00:22] : So jumping right in what happened this week in the markets?
[01:34] : The GDP expectations are still four to five percent here for twenty twenty one. Do you think those are too high?
[02:56] : Is there a way the GDP is made up and make a difference?
[03:32] : 2020 Big focus between growth stocks and value stocks, obviously, is a pandemic accelerated the market’s focus on growth names and technology. Can you explain how that’s changed so far through 2021?
[04:38] : Do you have any comments on January finishing the month negatively?
Grant Conroy: [00:00:04] Welcome to the Genus Friday Market Insights for the week ending February the 5th, I am Grant Conroy, portfolio manager and partner. And with me today is Wayne Wachell, who is founding partner, CIO and CEO. Welcome, Wayne.
Wayne Wachell: [00:00:20] Good to be here.
Grant Conroy: [00:00:22] So jumping right in what happened this week in the markets.
Wayne Wachell: [00:00:28] Well, what a difference a week makes, it was a negative week last week, this week was positive risk on this week. This week was buoyed by good economic news. Earnings numbers coming out were great. 80 percent of the reporting so far has beat estimates. It’s been a very strong beat from that perspective. And GameStop came back to reality down 80 percent for the week. And so that contagion kind of went away and that’s helped give the market a boost as well. But during the week, markets are up strong, up almost four percent. Yields rose again and the VIX dropped dramatically. And so the winners were in the financial and energy space of more of the recovery trade doing better this week.
Grant Conroy: [00:01:11] That’s great. I saw a thing this morning, I think at the time of recording this was still positive at the moment, but this will be the first five positive days in US markets, at least, I think, since last August. If we can hold on. So good week. Just counting that a little bit. The jobs numbers came out this morning in Canada, in the US and Canada saw the largest decline in employment since April on renewed sort of lockdown. Yet, the GDP expectations are still four to five percent here for twenty twenty one. Do you think those are too high?
Wayne Wachell: [00:01:42] Not at all, not at all. We’re still we’re getting hit right now, consumer confidence is being hit by this, by the shutdowns of Lockdown’s and we’re there. The curve is starting to flatten out, which is good news. More vaccines are coming out. We’re going to get more. There may even be an oversupply coming year for all we know. By the sounds of it. Canada is a bit behind the curve, though, versus the US and other countries. We think I think we’ll catch up later on. But I think the stimulus is just so massive, Grant. It’s both from a government central bank perspective. My concern actually is that maybe there’s too much risk coming down the pike, that it might actually cause more inflationary problems later on when the numbers in the US broke this morning, a weaker than expected as well. And bonds, bond yields rose, I think, because they’re expecting a bigger, more stimulus. And I think there there could be some concerns about inflation longer term. So I think that we’re on track for a recovery that’s going to happen. The vaccines are here, the money’s been spent. It will recover. The market always looks six to nine months in advance. It’s coming. It will get a recovery. The concern now is maybe they’re going to overdo it. Politicians always act too late, as we know, and the market’s looking way into the future.
Grant Conroy: [00:02:55] So just on that, is there a way the GDP is made up and make a difference? If there’s more stimulus, obviously, and consumer growth comes back and other things bounce, it could be overdone. But if it’s just government stimulus, does that is that not such good GDP as if it was sort of more neutral and private economy?
Wayne Wachell: [00:03:12] Yeah, no, it’s not. It’s basically the government is spending money levitating the economy when they pull that back, when that get pulled back, that the producers will have to carry the freight rather than the government. And that’s what we have to do a longer term. Somebody has to pay for the government longer term and it’s got to be the producer.
Grant Conroy: [00:03:31] Twenty, twenty, so a big focus between growth stocks and value stocks, obviously, is a pandemic accelerated the market’s focus on growth names and technology. Can you explain how that’s changed so far through twenty, twenty one?
Wayne Wachell: [00:03:45] Its its values done better than growth in the first month of January, values up around three or four percent, growth was down marginally. Any time you see the recovery, trade is going to help value stocks. Bond yields going up a steeper yield curve helps value stocks. And so we think we can see more of that. There’s going to be still big tech is still going technology’s going to do well. Big tech, not so well this year, I think. But technology will still do well because of the massive move toward the digitization of the overall economy. But we expect by the end of the year, value will still be the leading the train as economic growth comes in stronger and we have higher interest rates, reflation trade definitely helps value stocks.
Grant Conroy: [00:04:30] And January ended the month negative and there’s an old adage out that state size goes as goes January, so does the rest of the year. Do you have any comments on that?
Wayne Wachell: [00:04:40] Well, it was negative, just barely. It it had a good open and it collapsed still last week on the GameStop craziness. And so it’s I call it flat. I guess maybe we’re going to have that kind of a year. Lots of volatility through the course of the month. People have thought through it through the course of this year. I think the story this year, there really is more the stocks you pick. I think you’re going to focus on picking the right, the reflation trade less, you know, versus the growth in growth, trade in the pandemic trade. It’s picking the right stocks will help you win this year. I think there’s room for for stockpicking to add value this year.
Grant Conroy: [00:05:17] Right. And finally, Super Bowl weekend, Super Bowl fifty five this weekend as a predictor apparently has been right seventy five percent of the time if an AFC team wins, which would be Kansas. The market is down for the year. And if an NFC team wins, which would be Tampa, the market goes up for the year. So do you have any thoughts on Super Bowl this weekend?
Wayne Wachell: [00:05:36] Well, I love I love Tom Brady. He’s the goat. He’s greatest of all time. And I hope they win. He’s he’s the sentimental favorite. And that’ll help the market go up this year if that keeps on winning. But the Kansas City Chiefs Mahomes Mahomes is an amazing quarterback. And I just can’t see the Kansas City defense stop Kansas City, Tampa defense stop in Kansas City. So I hate to say I think Kansas City is going to win. Don’t hold on to that. But we’ll somehow get through, hopefully, with the other twenty five percent this year that we’re in.
Grant Conroy: [00:06:17] Well, I think correlation isn’t really a Kohl’s either. So sometimes these numbers just a bit more fun than actual meaning. Well, thank you for that. And if anyone has questions, feel free to reach out to your portfolio managers and have a great weekend. Go by.