COVID-19 Update

It appears that we may have finally turned the corner; although, risks still remain. Global cases stand at nearly 178 million; however, we have seen new case counts decline from ~1 million/day in late April to under 400k/day now.

The Good News

Canada has become a shining light as it relates to its vaccination campaign with more than 60% of the population having now received at least one dose of the Pfizer, Moderna or AstraZeneca vaccines. Canada, in fact, now leads the G7 in first doses administered with the U.S. seeing a marked drop in first doses administered mainly because the remaining pool of those who are not vaccinated tend to be hesitant to get a vaccine. The daily case count in Canada is now down to levels not seen since last September:

The U.S. has seen a similar decline (despite an economy that is much more open than that of Canada). In fact, the U.S. new case count is now lower than it has been since the initial breakout of COVID in March of 2020:

The Bad News

The so called “Delta variant”, which first emerged in India has become the dominant strain in several regions. Delta is thought to be ~50% more virulent than the alpha strain of COVID and may also be more lethal. The good news is that the vaccines appear to be effective in at least massively reducing the risk of severe cases of COVID; however, Delta does appear able to at least cause a rise in infections. The U.K. has become the poster child for the Delta variant with new cases back on the rise, despite high vaccination rates:

Market Update

The tug-of-war between growth and value has shifted back in favour of growth after several months in which value stocks had outperformed. As Jim Allworth had discussed on our call last week, growth tends to outperform in lower growth environments, which have prevailed for the better part of the last decade, whereas value tends to outperform when U.S. growth exceeds ~2.5%. Of course, while these general forces are true, the stock market will often zig when one expects it to zag, and despite what looks to be strong growth into next year, growth has re-exerted its leadership. Overall, all major indices lost a bit of ground for the week.

Economic Update

In keeping with the comment on the market, we have seen a fairly sharp reversal in many inflation indicators over the past few days. While we might spend some time in the coming weeks on inflation and whether we are in a new paradigm or not as it relates to the “I” word, we will focus today on the performance of a few commodities over the past few sessions and what it might say about inflation. Let’s take a look at a chart and then comment:

Anyone who has tried to buy lumber over the past few months is probably aware that prices have gone haywire. As you can see from the chart, lumber bottomed at $264/bf in April of 2020, but because of a supply/demand imbalance, prices by April of this year were up more than six-fold. Since then, prices have dropped ~45% on no real news other than that prices got way too high relative to fundamentals. Let’s look at one more:

There is an old expression that copper has a PHD in economics. This comes from the idea that copper is so central to so many things in the economy – infrastructure, housing, technology, etc. – that rising prices usually correspond to a strengthening economy, while falling prices say the opposite. Now, this is not necessarily always true (price changes can have other drivers), but it holds most times. Anyway, as you can see, prices of copper roughly doubled year-over-year, but over the past few weeks have come off ~10%. While we don’t think this says much about the economy, it has important inflation implications and does not fit the narrative that higher inflation is here to stay