As the Pandemic Smoke Clears Many of Us Have a Fair Amount of Stock-Taking to Do

American markets are closed today for the Memorial Day Holiday.

Canadian markets will open at 9:30 a.m. EST and indicators there are in neutral.

European markets are already open at time of writing and indicators there are mixed with the FTSE 100 up while the DAX and CAC 40 are down and show little chance of going positive during the trading day today.

Amongst precious metals, the safe havens of gold and silver are up.

Amongst currencies, the British pound sterling and Euro are down while the Canadian dollar is up against the American greenback.

Friday brings one of the most important economic indicators with the release of the U. S. non-farm payroll numbers, currently expected to show a slight increase. This number represents the total number of paid workers in new jobs excluding farm, government, non-profit organizations and private homes. It’s not a perfect indicator but provides a good view of one aspect of the recovery.

However, it must be viewed carefully. Friday’s figure for May follows the April letdown when experts including the venerable Dow Jones had estimated 1 million new non-farm jobs before the Department of Labor’s Bureau of Labor Statistics announced an increase of almost 74% less at 266,000.

Meanwhile, the Bureau also revised the March figure of 916,000 downward to 770,000 new jobs. (February’s figure was revised upwards to 536,000 from 468,000). The April figure could also be revised upwards or downwards. These figures represent a decent stock-taking of the employment picture.

At the same time, as the pandemic smoke clears many of us have a fair amount of stock-taking to do in areas of our lives including health, employment, working at home as opposed to returning to the office environment, early, partial or postponed retirement, upsizing, downsizing and our investments and what changes may have become necessary.

With our investments, we need to consider which categories offer greater or lesser opportunity in the posr-pandemic world. In some categories, such as consumer staples and consumer discretionary, this means taking a hard look at individual sectors and sub-sectors. Generally, retailers servicing home improvements have a more positive outlook than big box retailers which may have hit their peak.

Meanwhile, the swings in bond yields have amounted to a kind of wakeup call according to Gavin Graham, London-based financial analyst and media commentator.  “While the yield on the 10-year US Treasury bond, regarded as the benchmark for valuing other assets, has declined from its eighteen-month high of 1.75% reached in late March, (and is) trading at 1.64% at present, it has nonetheless almost tripled from the low of 0.6% touched last August,” he says.

The speed and size of this move has caused turmoil in equity markets, with some of the most highly valued and best performing sectors such as technology and consumer stocks selling off sharply because their high valuations are vulnerable to increased capital costs.

“After all, if you’re selling at 35-40 times earnings, let alone 75-80 times, as is the case with most of the large capitalization FAANG+ stocks it doesn’t take much of an increase in interest rates to deflate the share price,” he says.

(The FAANG+ stocks are Facebook Inc, Inc., Apple Inc., Netflix Inc., Google/Alphabet Inc., and Microsoft Corp.)

Only three of those stocks are up this year so far: Alphabet/Google, Facebook and Microsoft, while all the others as well as such favourites as electric automaker Tesla and Chinese ecommerce giant Alibaba are down, he notes.

Meanwhile the S&P 500 Index is up 12%, the S&P Energy sector is up 37% and the financials over 20%.

Many of the companies which benefited from the lockdowns such as e-commerce, suppliers catering to the working from home trend, delivery and streaming companies have had their success fully reflected in their prices.

The bond market appears to be signalling that demand will recover, and their valuations are under pressure.

Commodities that have benefited from the pandemic, such as industrial metals like copper, iron ore and nickel as well as hard assets such as some types of real estate have done well.

Crypto currencies including Bitcoin, Dogecoin and others will at best remain volatile and without much further evolution and much less volatility do not have a definable place in a portfolio. In net-net terms, May was a brutal month for crypto currencies and the peaks and plunges do not do much for serious investment planning.

For some investors and in consultation with their financial advisors, these developments may point to gold mining stocks, Graham says. They can provide some insulation against these shocks and in many cases provide the insurance of a safe dividend.

And this is an opportune time to look into them. “They trade well below their level (of) nine months ago when bond yields were at 0.6% and no vaccines had been approved.”

Gold is down 1%, but major miners Agnico Eagle Mines Ltd, Kinross Gold Corp., Yamana Gold Inc, Pan American Silver Corp., and Kirkland Lake Gold Ltd. are off more, although the S&P/TSX Global Gold ETF is up 6%. Virtually all of them have reported stronger earnings, reduced debt and increased cash flow and dividends he explains.

The yields range from 0.8% for Pan American Silver and Franco-Nevada 1.6-1.7% for Barrick Gold Corp., Kinross and Yamana to 2.3-2.4% for Agnico and Newmont.

Every portfolio is different, and every investor has different needs but the insurance provided by gold stocks merits at least some consideration by investor and advisor.

Al Emid is a financial journalist broadcaster and author, His next book. The 2021 Emid Report on Volatility is scheduled for a Fall release.

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