Friday Market Insights – Highest CPI numbers since 2008 with bond yields dropping

Jill Bester: [00:00:04] Welcome to Friday Market Insights. Today is June 11th and my name is Jill Bester. I am a new partner and portfolio associate portfolio manager with Genus. And today I am joined by Wayne Wachell, our CEO and chief investment officer. Good afternoon, Wayne.

Wayne Wachell: [00:00:22] Good to be here.

Jill Bester: [00:00:23] Great. Well, why don’t we jump right into it? Why don’t you share with our viewers what happened in the markets this week

Wayne Wachell: [00:00:30] Or rather an interesting week. It was a week when the CPI numbers came out and they were very have the highest in years since I think back to 2008. And yet bond yields dropped. So with the bond yields dropping that carried the growth, stocks and tech stocks all rallied and the cyclicals and value stocks came off. Financials, industrials and metals all came off. On the commodity side, oil went up about three percent this this week. And I think on the flip side, Lumbroso kept coming off and copper kind of just trickled down a bit there. But the interesting week, given the strong numbers, but interesting very interesting week.

Jill Bester: [00:01:09] Right. There’s a lot of talk about CPI being transitory. What are your thoughts?

Wayne Wachell: [00:01:15] Well, I think that question is yet to be answered, yet we still have to wait for some time. Number one, we’re coming off a low base from last year when things really went into a dive. And so we have to wait and see what happens as we come out of the hole here into this fall and see what the numbers are then. I know the Fed is talking down CPI, getting the street really to do the same thing. I’m skeptical of that. As we all know from history, inflation is a monetary phenomenon. They’re printing money like there’s no tomorrow. And so we’ll have to wait and see what happens. And next year, there are some shortages that are coming and supply chains and labour, those kinds of things. Hopefully those will be filled. And as we go into into as the economy recovers and people get back to work. But there are some concerns. We have to wait, I think, until later this year or early twenty, twenty two to really see what’s going on in terms of inflation.

Jill Bester: [00:02:10] Right. On that note, the meme stocks are running again. I was just like an AMC is up another 10 percent today. And it’s a lot of news, obviously, on the street in regards to what’s happening here. How long do you think this trend can last with the Reddit group?

Wayne Wachell: [00:02:30] I think it can go on for a long time. Let me tell you why. Number one, there was massive technology change in the whole trading area, which allowed the small retail players to come in and trade. OK, not really. They got to get traded to trade. And then they got together with the with the Internet, with social media and things like Reddit and start, Wolf Packing different different trades. And with that, they move the market. They’ve chased some of the shooters out of the market as well. So they’re they’re afraid to go in and put the put corporations way down right now. So the shorts have been hurt. And so it can go on for a while. And I don’t think these people are making a lot of money, these things. I think at the end of the day, stocks come back to reality. They trade based on earnings. But it’s like it’s like you asking when will people stop going to Las Vegas? They lose. Most of them lose money, but they have a good time. And I think the folks at Reddit and the Reddit crowd, they’re having a good time. They’re moving markets. I’m not sure how much money they’re making, but they’re talking to their buddies over beer, probably what they’re going to go on next. So I think it’s like a Vegas sore off phenomenon here where people are having fun and but I’m not sure how much money they’re making. So I don’t think it’s going to go away.

Jill Bester: [00:03:44] Yeah, it’s amazing. One of my my husband’s employees, a young guy, was raving about a month ago about his AMC purchase. And, you know, he struck it rich on his seven chair.

Wayne Wachell: [00:03:56] So but if they act together collectively, it can have an impact. It’s a amount of small investors can actually move markets and they’ve scared some of the shorts.

Jill Bester: [00:04:07] Yeah, yeah. You talked about the labor shortage. Obviously, there were some other US job numbers. There’s actually hit an all time high of nine point two million in available jobs. Do you think that that’s going to have an impact in the economy growth?

Wayne Wachell: [00:04:22] Well, there’s still a lot of pandemic money floating around out there. And I think people have gone fishing for the summer. Maybe, but I think I think we’ll see this fall. The numbers will come back as people get off, get off the dole, as they say, and are back to work. They have to get back and make it make it get a job. And there’s a lot of openings, definitely. And so and salaries have gone up as well here. But I think I think this fall we’ll get a better shot of what’s going on with that with that inflation number. But the economy is going to improve. We definitely need is going to be strong and there will be more demand for jobs. But I think there’s maybe some vaccine or pandemic hesitancy here from the labor market as well. So it’s it’s a false story, I would say.

Jill Bester: [00:05:05] Right. We’re talking about that this morning, at our market update in regards to we’ve kind of hit kind of a plateau, and in Canada, of those people who have had their first vaccine, around seventy three percent. But we’re not really seeing that number rise.

Wayne Wachell: [00:05:21] I think, you know, the numbers are probably strong enough for herd immunity. I would say here there was probably twenty twenty five percent natural herd immunity already, I’d say going in. So we’re we’re we’re probably close to 70 percent, I would say. And this is going to help. Another US is lower than Canada, but they’re their natural herd immunity is probably close to 40 percent. So that’s going to help from that perspective. So I would say it’s the herd immunity is going to be a combination of vaccine and natural immunity is going to be high enough to tamp this thing down and hit the market saying that as well.

Jill Bester: [00:05:53] Yeah, yeah. Definitely see it in the consumer. Yeah. People are definitely opening up their wallets at this point. So that’s a good sign. And we had our macro asset mix meeting just last week and the models continue to favor defensive stocks. Can you explain why and what that means for our portfolio positioning?

Wayne Wachell: [00:06:13] Well, because as I just said, we anticipate stronger growth. You just mean higher interest rates. That’s usually a good formula for value stocks and growth stocks don’t do well in that kind of environment. And so our defensive stocks are very value driven. They have high dividend, which is really tired, tied to value and earnings. And that’s where we’re putting our money there. We think it’s a great place to be. Those also the market’s done quite well here. We’re through forty two hundred probably would get forty five hundred megabyte end of the year. There’s not big upside here as well. So you can go to a place we can get a good dividend yield of a three and a half percent defensive dividend strategy and keep writing a value plan which we think is going to continue to the end of the year.

Jill Bester: [00:06:54] Right. Great. Well, thanks so much, Wayne. I know Rafa is your guy and it’s the French.

Wayne Wachell: [00:07:01] Go Rafa.

Jill Bester: [00:07:02] Go Rafa. We always seem to meet during a large tennis event like that. And so at this point, we’ll call it a day. I’d like to thank our clients and our potential clients. If you have any questions, please don’t fear to reach out to one of our portfolio managers and you can find our contact information on the site. Thanks so much and have a terrific day.

Wayne Wachell: [00:07:27] Thank you.