It’s been an unusual start to the week — but then, what’s usual about this year? Still, to see cannabis stocks and gold stocks going up at the same time gives some insight into the nature of this market. Let’s take at look at this very unusual Canadian Thanksgiving market snapshot and see what it might be able to tell us about the rest of the year ahead.
Gold stocks on the rise included world-class producers Barrick Gold and Newmont. Barrick was up 2.86%. This exceeded gains seen by Newmont, which itself was up by 1.78%. Popular gold streamer Franco-Nevada also saw positive action, rising 2.24%, and Wheaton Precious Metals was up by 5.47% at one point.
Cannabis stocks seeing gains include Aphria, HEXO, and Canopy Growth. Aphria rose 1.4%, while HEXO gained 1.67% and Canopy added 2.5%. The boost came as cannabis stocks rallied after the Harris vs. Pence debate last week. During the debate, Democrat VP hopeful Senator Kamala Harris emphasized that her party would decriminalize marijuana. The pronouncement sent pot stocks soaring.
Further indicators as to the nature of the market today come from two other bellwether asset types: banks and tech stocks. All of the Big Five banks were in the red Monday, indicating what investors really think about the Canadian economy at the moment. In the meantime, top tech picks of the “old reliable” class were rising, as seen in Descartes System Group’s 1.67% bump. Shopify was also up by around 2%.
Gold stocks are traditionally indicators of increasing uncertainty in the markets. However, the pandemic has bred a culture of “momentum for momentum’s sake,” which has driven gold stocks through the roof. This is something of a shame, since it has eroded the decent value for money exhibited by some big names. It has also tarnished the “gold dividend” thesis by eating into yields.
Two divergent models are coming together at the same time here. One is a high-risk play for cannabis upside being run by investors bullish on a Democrat victory. The other is a belt-tightening strategy that includes derisking by trimming Big Five bank positions and moving cash into gold. Both of these trends are reversible, though. A vaccine breakthrough will see bank stocks going back up, while tech stocks and gold flatten out.
Investors looking for value opportunities in gold stocks should wait for a pullback. Conversely, anybody looking to build positions in the Big Five banks have a moderate opportunity to pick up cheaper shares. Indeed, with a second coronavirus wave menacing Canada, this latter opportunity could continue a while.
The November election is central to this market and will determine what happens to stocks in just a few weeks’ time. Cannabis investors and those investing in the green economy might expect to see their asset types soar on a Democrat victory. However, the converse is also plausible, with pot stocks likely to tank on a Republican win. However, the latter scenario could also push oil and bank stocks higher.
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