Many will remember Friday, February 11th, as the day investors began to act about inflation differently. Gold and oil had huge gains today, while pretty much everything else that wasn’t a commodity went down. The NASDAQ and Bitcoin, which lost 2.78% and 3.2%, respectively, are two examples. Today investors stepped into Canada’s resource sector as volume surged across many oil and gold stocks.
For gold and oil to be soaring while US stocks collapse is a total paradigm shift from what we’ve seen in recent years. Take 2020, which saw gold trade to its all-time high, for example. Everything was going up in the summer of 2020, including the NASDAQ, as investors had no fear of inflation – because there wasn’t any. That has all changed.
Now that inflation has arrived, investors are fleeing consumer and momentum stocks. Official inflation data for January came in at 7.5% – a 40 year high.
While everyone knows it is much higher, more people are beginning to realize what higher inflation for longer means.
Investors Lose Appetite to Speculate as Inflation Steals Purchasing Power
As consumers get squeezed everywhere from the pump to the grocery store, they will have less disposable income for all the momentum stocks they were piling into during the past few years. Competent money managers realize this. As a result, many are starting to dump high-flying tech stocks and stocks sensitive to higher inflation.
The biggest loser on the NASDAQ Friday was Goodyear Tire & Rubber Co., which dropped 27% on the day – its worse loss since Black Monday in 1987. The company put out its Q4 financials, which by all accounts were solid, but the CEO mentioned one thing:
“Looking ahead, we expect inflationary pressures to persist over the next several quarters.”
Investors have reason to worry about inflation. A top concern is that there is always a lag between inflation and rising wages. What they can be certain of is purchasing power is fading fast.
The table is set for hard assets and commodities to have a massive rally. And, while gold’s rally has been stealthy the last few weeks, oil is on fire.
Canada’s Resource Sector Catches Bid as Gold and Oil Soar
Oil surged almost 4.5% or $4 per barrel to close at $93.88 Friday, while gold surged to $1,864.60, jamming $27 bucks per ounce to close at a multi-month high.
Other commodities joined the party as wheat (CBOT) soared 3.34% or $26 to $804.75USd/bushel. Heating Oil (Nymex) also jumped 3.9% to $293.76 USD/gallon.
Further proof that the rotation into commodity stocks is real can be found in the TSX. The TSX was the only major North American exchange to print positive Friday. Canada’s largest exchange eeked out a gain of 0.08% on the day. Looking at the past year, the TSX at +17.16% is outperforming all US indices by a considerable margin.
Oil and gold stocks dominated the biggest gainers and most heavily traded Friday. According to Investopedia, Canada is home to $33.2 trillion worth of commodities. In addition, the country produces almost every natural resource under the sun and lays claim to the third-largest oil deposits after Venezuela and Saudi Arabia.
Canada and its stock market are perfectly positioned to benefit from higher inflation for longer. If today was a preview of how the inflation weary global investor will prepare to ride out this storm, buckle up. From gold and oil to everything in between, Canada’s resource sector is about to be flooded by smart and then hot money looking for a home.