Q2 2021 Review & Outlook with the Matco Investment Team
There are many theories about how the terms bull market and bear market came to be, but the most popular explanation is how each animal attacks. A bull attacks by lowering its head and using its horns to lift “up” its opponents, while a bear attacks by raising its front legs and using its paws to swipe “down” at its opponents. Thus, when the market is trending “up,” it’s termed a bull market and when the market is trending “down,” it’s termed a bear market; a bear market is confirmed when a market declines by 20% or more.
The first two quarters of 2021 have been very positive for investment markets around the world. Economic data continues to surprise on the upside.
Since late November, we have been positive on small cap stocks as an economic recovery play. Eight months later, this investment thesis has continued to pay off for long term investors. Year-to-date, small cap stocks globally have significantly outperformed their large cap peers.
The first quarter earnings session of 2021 is behind us and all three Matco equity funds have performed admirably to kick off the year. In the context of the broad market within Canadian equities, over the past few quarters, we have gradually seen companies start to ease the fears of those concerned with potential asset bubbles and lofty valuations by producing strong and growing earnings metrics.
Back in November of 2020, we published a Matco Insights piece titled “The Inflation Debate and What it Means for Your Portfolio”. Within that publication, we primarily focused on the relationship between inflation and the labor market, as well as inflation and government spending. The conclusion was ultimately that inflation is more likely to be a persistent concern when the following two conditions are met: government debt is at lower levels and unemployment rates are much lower.