January 18, 2021

Written by: Sid Mohapatra 

North American equities saw some imminent weakness closing in the red between 60 and 140 bps. This pullback comes after record highs the week prior and also amidst the uncertainty around the new earnings season kicking off. US President-elect Joe Biden gave the green light to a significant dose of more fiscal stimulus with the quantum of support close to $1.9trillion to fight the adverse economic effects caused by the coronavirus.

The pandemic continues to dominate the investor news cycle as the pace of distribution continues to underwhelm expectations and there are more strains of the virus being detected leading to the prognosis of further needs to support businesses and facilitate lockdowns. Markets continue to price additional fiscal stimulus to support job creation and provide support in point of economic weakness. This continues to provide a tailwind to stocks and support risk markets.

Although stocks have flirted with all-time highs, we are seeing a risk-off environment in fixed income markets with long term yields under pressure selling off. This sell-off in bond markets is driven by rising inflation expectations, which are expected to spike in the first half of 2021, additional financial benefits and economic engagement of the economy based on immunity provided by the vaccine.    

TSX 60 closed at 17,909 down -0.70% for the week and ekeing out a strong 2.7% YTD. In the US, we had the S&P 500 close at 3,768 losing -1.50% for the week and a mere 0.3% YTD gain. We have a BoC meeting next week, inflation data along manufacturing shipments as the highlights of economic data rolling out.

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