This week’s action saw the market price in more stimulus, some positive outcomes in areas like clean energy and cannabis, and heightened prospects for infrastructure spending. Higher long-term Treasury yields were at the root of the equity market moves, as the 10-year yield pushed above 1% for the first time since March. Banks rallied with a steeper curve and further potential support to limit credit losses. Cyclicals such as big industrial names were firm on increased infrastructure prospects. And, small cap stocks that are typically more levered to Main Street economic performance (laggards early in the pandemic) benefited from the Blue Wave. Not to be outdone, retailers and consumer discretionary also jumped on the prospect of larger stimulus cheques. On the flip side, big-caps and technology lagged, with the FAANGs mostly down in the 2%-to-3% range in the immediate aftermath of the results.
Meantime, the TSX rallied to record territory, closing above the 18,000 level for the first time. This now firmly marks a full recoup of all the COVID-related losses through 2020. Canadian stocks have benefited from recent strength in banks and energy more broadly, with WTI finishing the week above $52. Recall that Canada has little exposure, by weight, to what was working earlier in the pandemic—technology and consumer discretionary. But, this week’s action helped reinforce this rotation—especially into banks, which rose more than 2% on the week. A firmer U.S. economy is always a boon for Canada, too.