Canada’s major stock index has risen for the 10th straight week, closing at a record high of 19,472.70 on May 7, 2021. Investors believe that the decline in jobs in April will allow the federal government to continue its simple monetary policy. But people should not be complacent. Bear market You may have turned the corner.
The· TSX It’s not out of the forest yet. Four factors can rock the boat.If so, it can trigger suddenly Market correction Same as the March 2020 sale.
1. The 4th wave of COVID-19
Health experts warn that if the government lifts regulations too soon, a fourth wave of COVID-19 can occur at any time. Vaccines and a cautious economic resumption can prevent a disastrous surge. But the sad news is that the seasonal coronavirus can stay here.
The third wave began in March 2021, but some states continue to struggle to reduce infections. Dr. Nitin Mohan, a doctor and epidemiologist, said Canada could trigger a fourth wave if Canada boosts vaccination rates and lifts most of the restrictions before achieving high levels of protection in hotspots. Said.
2. Further unemployment
The third wave of COVID-19 variant-led was why the unemployment rate rose to 8.1% in April 2021. The Canadian labor market lost as many as 207,000 jobs last month instead of an estimated 175,000.According to Doug Porter, Chief Economist of BMO In the capital markets, full-time jobs, especially private sector employment, have declined significantly.
The imposition of new restrictions by the state has resulted in non-essential business closures or restrictions and school closures. Economists expect further unemployment in May.
3. Fear of inflation
Inflation usually determines the course or direction of the stock market. High inflation eats up the value of future returns. As prices rise, so do the number of casualties. Therefore, only companies with price flexibility can overcome inflationary pressures.
4. Overvalued stock market
Stocks look expensive, if not overvalued. According to Andrew Slimmon of Morgan Stanley Investment Management, the assessment is not extreme. Instead, investors expect the pandemic to end soon after more vaccines are distributed. He warns that the stock market needs to take a break. He predicts a good year, but expects a significant increase in volatility along the way.
Hedge against inflation
Energy stocks were a lasting winner during periods of high inflation, according to a study by Ned Davis Research. Since 1972, in seven of nine cases of high inflation, the energy sector has S & P500 Composite Index The median is 14%.
If inflation surprises you, my number one choice is Imperial oil (TSX: IMO).. Energy stock is burning with a year-to-date increase of 58.91%. The current stock price is $ 31.36, but the dividend yield is 2.36%. In the quarter ending March 31, 2021, Imperial Oil achieved the highest quarterly earnings since the third quarter of 2019 and the highest first quarter since 2018.
Product demand was lower than normal in early 2021, but commodity prices and product margins were strengthened. Imperial Oil’s net income was $ 392 million, compared to a net loss of $ 188 million in the first quarter of 2020. $ 23 billion company ExxonMobil Corporation, Therefore, it should be a good hedge against inflation.
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Stupid contributor Christopher Liu There are no positions in any of the listed stocks.
4 reasons why the bear market may be imminent
https://www.fool.ca/2021/05/12/4-reasons-a-bear-market-could-be-around-the-corner/ 4 reasons why the bear market may be imminent