Disclosure: The following represents my opinions only. I am long BTE.TO, CMMC.TO, CS.TO, and WCP.TO (Image credit to Clyde Thomas on Unsplash)
If you were starting to think that stocks only go up, I’m sure that last week was a stark reminder that they don’t. The market has become a little jittery about rising bond yields and what that could mean for stocks, which has brought volatility up a bit. There are myriad variations and permutations of the expected effects of, and response to, rising bond yields, but in the end the most important question comes down to what the Fed does if it sees bond yields rising “too high, too fast”. If you google “yield curve control” you’ll get yourself a tutorial on the Fed might do in order to keep rates low enough for them to hit their target inflation rate (or higher) for “a while”. Personally, I think the Fed is committed to seeing inflation run above target, but is likely to pull the yield curve control lever only when “forced” to do so by the market. I’m not sure what that looks like (likely some form of market turbulence), or when/if it happens, so in the meantime all I can do is look at what I own and try to think rationally about how I’m positioned in light of what I think the future holds during the Great Restart. Markets have been hot, but the world isn’t even out of covid purgatory yet, so I think things could get hotter. That doesn’t mean there won’t be corrections along the way, but we are fresh out of a full-blown market meltdown and the U.S. is only just about to get the next stimulus/relief package passed, never mind the infrastructure bill(s) that will follow. We could very well be heading into a Roaring Twenties redux, one hundred years later. I guess we’ll see.
Back in December, I’d written about staying the course and being an “ox” when it came to my outlook for 2021. That included staying long energy and materials, which has served me well. I find that it’s a lot easier to make money by focusing on value in sectors or specific stocks that aren’t well-owned or popular and then just remaining patient until the crowd shows up. It’s so much harder to find value in the same names/sectors that everyone else is poring over. A year ago, you could say that materials and energy companies across the board were out of favour, trading at fractions of their underlying asset values and longer-term highs. As it stands today, I think that copper is a little more popular than I would like (i.e., could be prone to correction/consolidation), the market is just starting to come around on nickel, gold has pretty much washed out (I’m looking for gold to have a nice bounce after testing the $1700/oz level, perhaps as soon as this week or next), silver and lithium are holding up well, gas is still attractive, but oil has me the most excited for the big win potential. You know, oil; that stuff that is the foundation of modern society as we know it, that almost nobody owns and everybody loves to hate? It might be a bit overbought in the short term, but I’m getting really optimistic on oil looking through to the end of 2021 and beyond.