Two big doses of certainty are boosting markets and there’s room for this reflation trade to run


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Markets responded accordingly with a rotation into value segments of the market such as financials, energy and the small-cap Russell 2000.

There is also still plenty of room for the reflation trade to run: The Nasdaq, which was flat on Monday, is up 36 per cent this year compared to only 3.9 per cent for the Russell 2000.

Looking ahead, we are already beginning to see the impact of record low interest rates on housing markets which is good news for the banks, and a broader accelerated recovery will drive oil demand higher. This comes against a backdrop of potentially peaking oil production in the heavily beaten up U.S. shale sector that now faces greater regulation under a Biden presidency.

Canada’s energy sector, which is already becoming more competitive due to synergies from ongoing consolidation, could get a further boost from any enhanced regulatory burden south of the border.

In conclusion, it is great to finally see some stability on the horizon and a light at the end of what has been a very dark tunnel this year. While it is still early and there are some risks ahead, there are also opportunities for those willing to bet on humanity beating this virus. That’s a trade I’m sure most want to see play out.

Martin Pelletier, CFA, is a portfolio manager at Wellington-Altus Private Counsel Inc. (formerly TriVest Wealth Counsel Ltd.), a private client and institutional investment firm specializing in discretionary risk-managed portfolios, investment audit/oversight and advanced tax and estate planning.

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