Friday Market Insights – The Biden stimulus plus Fed action is creating a reflation trade opportunity, with Thomas Holloway and Wayne Wachell
This week's questions:
[00:00:00] : Intro
[00:00:46] : were the highlights of this week? What did you notice?
[00:01:39] : How it affects our clients and our portfolios.
[00:03:16] : A little bit more on that one in particular, Federal Reserve Chairman Jerome Powell. Where do we stand? And what did he have to say?
[00:05:06] What’s going on there (Canadian Dollar) and how do you think about that in terms of portfolios as well?
Thomas Holloway: [00:00:06] Welcome to our Friday market updates. And my name is Thomas Holloway. I’m a portfolio management at Genus Capital and I’m joined today by CEO Wayne Wachell. Hi, Wayne. Thanks for joining us.
Wayne Wachell: [00:00:18] Good to be here.
Thomas Holloway: [00:00:20] I want to thank all clients for tuning in again this week and an additional thank you to our production team in particular, Carol Ferraz, for putting together these videos each week, as well as research support from the Genus investment team. So Wayne just want to highlight that there is a team behind these things and we’re very grateful to work with all of them. To kick it off, so this week is today’s January 15th and Wayne we will start as usual with what were the highlights of this week? What did you notice?
Wayne Wachell: [00:00:50] Well, the market was flat, but there was a lot of things going on internally. And I’ll talk about those. The Market events this week were driven by the expectations of the Biden stimulus plan. It was announced, one point nine trillion and doveish Fedspeak and that really got things going. Technology lagged a bit. And there are some concerns I have on technology we’ll talk about in a few minutes. But that’s sort of the market and an internally value did well. Technology came off fonderie bond rates were up, then sort of sideways by the end of the week, SmallCap did better. So it’s more of the risk on value type. Reopening trade did better this week than the shutdown trade, if you will.
Thomas Holloway: [00:01:35] Thanks a lot. So, I mean, maybe just connect that a little bit more to how it affects our clients and our portfolios.
Wayne Wachell: [00:01:42] Well, over the past three months, we’ve been rotating from technology, the winners of the pandemic to the reopening winners in terms of moving towards more the economic sense of the financials, industrials, materials, the reflation type trade. And we did a more and more of that through the course of this week here in terms of expanding our weights in some of these areas. We also rotated some of our our money back into our dividend strategy, which we’ve been underrating, taking money away for the past almost two years. We think it’ll do well with the value trade coming on with reopening. We also took some money off some of the social media companies like Facebook. We have some concerns there with all the censorship and deplatforming. We don’t think it’s a political political issue, but we think it’s actually a business issue. And that’s our concern when they’re alienating half the population and spawning more competition. And if the Republicans ever get to power again, they’ll they’ll go after them and make them lose their tooth too close to the thirty. So we think it’s a business issue. And of course, the week they’ve been down, Twitter was down 10 percent. Facebook down five percent is causing some concern that they’re going to lose users and spawn competition. It’s just just not good for business the way we see it. And it’s and capitalism, I would say so.
Thomas Holloway: [00:03:09] Thank you very much. One of the items you mentioned off the top was Doveish Fedspeak. So I’ll just follow up a little bit more on that one in particular, Federal Reserve Chairman Jerome Powell spoke yesterday, just like us. He’s talking from home. I saw in the background his kitchen. But could you expand a little bit more on that? And, you know, when when we think about central banking, it just as a reminder, the mandate is steady inflation and full employment, which sounds old fashioned when with all the things that central banks also do these days. But but where do we stand? And what did he have to say?
Wayne Wachell: [00:03:46] Well, there was some concerns going in that they that they would taper, they’d stop the bond buying of bonds. But he gave us clear guidancence at the end of last year, that inflation is not a concern. I think their top priority is to get unemployment down down below four percent. I can’t see them doing anything in terms of tightening or tapering until we get employment down, unemployment down below four percent. And Rudy, that has the biggest impact on equity of wages and helping to lower income income areas. So I think it’s just continued that same narrative. He’s he’s going to be there. He’s going to keep going to keep the plan in place. I don’t see any change in profit till twenty, twenty two. I think inflation is going to have to go above three percent.
Thomas Holloway: [00:04:35] Yeah, that sounds right, I think, yeah, what I heard the same thing is kind of just don’t worry, we’re not changing anything. I think some some commentators might have been getting ahead of themselves, that it was time for the Fed to start doing something that he was basically like not even close.
Wayne Wachell: [00:04:48] Not even thinking about thinking of raising rates that’s what he said.
Thomas Holloway: [00:04:52] Maybe just to bring it over to Canada a little. We can talk a bit about the Canadian dollar. Generally speaking, Canadian dollar has been quite strong lately, up to about seventy nine cents U.S. from about ten cents higher than the lows in March. What’s what’s going on there and how do you think about that in terms of portfolios as well?
Wayne Wachell: [00:05:11] Well, number one, the oil has been going up and that’s always a high correlation with oil and the Canadian dollar. That’s a big factor as well. I think expectations of a global recovery this year and probably a global synchronized recovery would help skinniness. Export sector is very important to it, obviously. So it’s it’s a global recovery will always help Canada and our currency outperforms during those kinds of periods. So that’s what’s going on there. It’s going to it’ll also keep a lid on inflation. As the currency goes up, we can buy foreign goods at a lower, lower prices. So it’s good for inflation. Data is good for our trade longer term. But oil going up and oil seems to have momentum here. They can take a dollar a bit higher. I’m not sure how far it’s going to go. It’s had a nice run here already. I could see it going to maybe eighty two cents to the course of this year. I’m not sure how much farther to go beyond that, but it still has some momentum here and could go higher.
Thomas Holloway: [00:06:10] Yeah, great, well, that’s all the questions we have for this week. Thanks, Wayne, for your time. And thank you so much to the viewers, as always. If you have questions that you’d like to see featured next week, please reach out to your portfolio manager and we’ll see you next week. Thanks again.
Wayne Wachell: [00:06:26] Thank you.