The Markets

Markets had to grapple with a number of issues this past week. A number of high profile earning reports and weak economic data weighed on stocks and we saw the DOW end the week down by 2.9%. Nasdaq took the harder hit dropping by 4.45% and the TSX bucked the trend ending the week up 0.5%.

News from two major retailers set investors fleeing as both Walmart and Target missed analyst forecasts. While the market has been worried about inflation now there seems to be some early data showing that a build up in inventory and some weaker demand may be signalling recession and even some deflationary outcomes. It's causing significant investor confusion and investors are starting to move to the sidelines and the typical "safer" haven of US treasuries. Two and 10-year rates had their biggest two-week declines in two years.

Many more commentators are now starting to use the "R" word as in recession as the US Fed tries to orchestrate a lowering of inflation and a "soft landing" hoping to steer away from an official recession. The Fed has a tendency to overshoot so investors need to prepare for continued volatility as they try to land this economy where they want it.

Energy

Energy markets continued to hold higher prices. WTI crude closed the week above $110 and Nymex natural gas closed the week above $8. It been a long time since energy producers have had these types of prices and there seems to be growing optimism in the oil patch that these prices are going to stick around for a while. I had the opportunity to meet with the CEO of a small energy service company this past week and clearly they have high hopes for their business after many lean years and struggles. They've been able to pass on two price increases to their customers with a third price increase coming very soon. It's been a long time since energy service providers were price makers instead of price takers from their customers. US rigs in operation increased by 14 rigs this past week while in Canada the industry is awaiting the lifting of road bans so that drillers can get heir equipment back to work. We continue to be very bullish on the energy service providers.

Monkey Business

As if investors don't have enough things to worry about this past week there was news of a growing number of positive cases of Monkeypox. The Monkeypox virus is a less lethal relative of smallpox. More than 80 cases have been confirmed in the recent outbreak in Europe, the US, Canada and Australia. Israel, Switzerland and Austria are the latest countries to confirm cases of monkeypox, bringing the total number of nations reporting outbreaks to 15. While the World Health Organization says it is too early for concern there does appear to be some in the scientific community raising alarms that a virus, that has been somewhat contained in the past, has popped up quickly in so many new locations.

Monkeypox goes global: why scientists are on alert alert

https://www.nature.com/articles/d41586-022-01421-8

As a bit of insurance/hedge against a more severe outbreak this week I purchased small positions in smallpox vaccine providers Emergent Biosciences and SIGA Technologies. The smallpox vaccine is the current vaccine used to prevent and treat Monkeypox. Another company that produces smallpox vaccines is Bavarian Nordic based in Denmark.

It's a trade I don't mind losing on if it means that this turns into something that goes away quickly.

To your wealth,

Paul and Trevor