Market Investors grappled with more economic data showing that inflation may take longer to subdue. Fears of further monetary tightening prompted some selling and equity markets in North America were lower for the week. The DOW dropped 3.0% while Nasdaq was lower by 3.3% and the TSX was off 1.4% |
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Nasdaq has corrected by about 7% since the beginning of the February but is till higher by 11% since the start of the year. Looks like we’ve shifted from excess bullishness to a more subdued tone in the markets. The bears were a bit more popular this week as market seemed to accelerate to the downside. It’s amazing how fear and greed continue to drive investing narratives.
Energy Have you noticed energy hasn’t been in the headlines for quite some time. Prices for oil and natural gas seem to have left the discussion unless you’re an oil bull. The energy sector has seen a very sizable pullback from last year’s highs and the volatility has somewhat disappeared. WTI oil continues to trade in a tighter and tighter trading range. Oil seems to be telling us the opposite of what the US labour statistics and inflation data are telling us. You’d think that record high labour data in North America and persistent inflation would be good news for energy but that just is not the case right now.
WTI oil was down on the week and closed at $76.45. |
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Natural gas finally had an up week. After briefly dipping below $2.00, Nymex natural gas futures closed on Friday at $2.50. |
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With North American energy prices near year lows the incentive to drill more wells is slowly disappearing. This week we saw a decline of 11 rigs in action, 7 in the US and 4 in Canada. https://rigcount.bakerhughes.com/ |
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Commodities Most commodities priced in US dollars continue to struggle with the recent strength in the US greenback. The US dollar index pierced above the $105 level. Global investors are once again buying US dollars on US economic strength and fears of higher US interest rates. |
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I continue to feel that this is one of the better global fear indicators. If the US dollar continues to gain strength you can expect greater volatility in global markets and commodities.
Precious metals have had a very rough month. Gold is testing $1800 level support and closed the week at $1818. Precious metals continue to move in the opposite direction of the US dollar. |
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Copper bulls are getting tested. Copper closed back below the $4 level. |
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And like a number of other economically sensitive commodities, lumber having had a strong January has given up all its price gains in 2023 and is back to testing multi year lows. |
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It’s to be seen what happens with dollar sensitive commodities. My guess is that US dollar strength may stick around longer than many, including me, were thinking a month ago. Thankfully I’m not too exposed to commodities and likely to suffer less brain damage trying to figure out where commodities go from here.
Stocks I’ve been expecting a healthy pullback for a few weeks, and it looks like I’m getting it. While the bigger, torquier names, that moved significantly in January, are giving back some gains, many of the small names I follow are holding up quite well…. to my disappointment.
We saw some action in Zedcor (ZDC.V) this past week. On Thursday 1 million shares crossed the tape at $0.66. The stock continues to hold up well and this type of volume leads me to believe that strong new buyers are entering the stock. |
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Data Communications Management, DCM.T, announced the intention to buy the Canadian operations of R.R. Donnelley and Sons for $123 million in cash. The news drove DCM stock to a new multi year high. |
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This would be quite the substantial acquisition for DCM. “RRD Canada provides print and related services to thousands of customers across Canada, including financial institutions, retailers, insurance providers, transportation companies, government organizations and other regulated industries. RRD Canada generated revenue of approximately $250 million in 2022 and has 1,000 employees.”
DCM is approaching the important $100 million market cap size, a level where institutional interest tends to increase dramatically.
A number of our favorites and watch list companies continue to hold up well. IBEX Technologies, IBT.V, Imaflex IFX.V, Zedcor, ZDC.V, AirIQ IQ.V, Grown Rogue GRIN.C, and Decibel Cannabis, DB.V are all trading at or very near their 52-week highs. Signs, I believe, that good quality, profitable and relatively cheap microcaps are still gaining attention.
Against that trend, one of the past year’s better performers, Supremex, SXP.T had a rough week. On Thursday the company announced its Q4 financials and an increase in its dividend and the stock dropped by day’s end. On Friday it announced the departure of its CFO and the stock fell further closing at $6.50. |
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And last but not least, shares in Atlas Engineered Products AEP.V hit a new all time high this past week. Not one, but two securities firms initiated research coverage on the company this past week. Cormark Securities issued a buy recommendation and a $1.30 - $1.63 price target. The higher target is based on the possibility of any potential acquisition. A few days later Beacon Securities issued a buy recommendation and a $1.75 price target. It’s interesting to note that both volume and price increased as the week ended possibly indicating that these reports have helped increase exposure to the shares. |
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Cormark, you’ll recall, is strictly an institutional shop and their clients are predominantly large funds, very large investors, and family offices. Could it be that Atlas is getting some of that institutional discovery that I’ve talked about in the past?
(Disclosure: Remember I, Paul Andreola, am a director of Atlas Engineered Products AEP.V).
Other Stuff I’m off to Toronto for a few days (weather dependent). I’ll be meeting with funds and investors on behalf of Atlas. As I talk so much about institutional money moving up and down market, it will be interesting to see how discussions go. Atlas is only a $55 million market cap company which is still fairly small for most Canadian fund managers. I’ll also be going out to see the Alchemy Nanotech facility in Kitchener, ON. I’ll bring back pictures and hopefully some interesting updates.
To your wealth, Paul and Trevor |
