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Jan 24, 2022

TSX bounces off lows as tech stages dramatic rebound

Small cap stocks in Canada look quite interesting: Brian Belski

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North American markets posted a dramatic comeback on Monday.

The S&P/TSX Composite Index ended the day just 50.09 points lower, or 0.24 per cent, at 20,571.30 points, after sinking by as much as 3.44 per cent midday. 

In a dramatic turnaround, the technology subgroup gained 3.99 per cent to become the Canadian benchmark's star performer. Shopify Inc. shares rose 6.10 per cent. 

The consumer staples and discretionary subsectors also managed to end in positive territory. 

“Bottoms are typically and historically made on Mondays, and today is one of those types of monumental types of reversals where investors kind of swept up some of the best bargains,” Brian Belski, chief investment strategist at BMO Capital Markets, said in an interview. 

U.S. stocks also ended higher. The Dow Jones Industrial Average, which was down by 1,115.04 points at one point during the day, closed with a 99.13 point gain. 

Trading volumes on both sides of the border surged. 
 
The early-session volatility was brought on by investors fretting over higher borrowing rates as the Bank of Canada and U.S. Federal Reserve are expected to withdraw pandemic-era stimulus. Markets also reacted to increasing tensions between the U.S. and Russia over concerns that Russian President Vladimir Putin could invade Ukraine.

“When you look at the known knowns, it’s not surprising why,” Dennis Mitchell, chief executive officer and chief investment officer of Starlight Capital, said in an interview on Monday. 
 
Mitchell said that political gridlock in Washington, D.C. on a federal stimulus plan, the potential for an invasion of Ukraine from Russia, persistently high inflation and the Fed's plan to hike rates are all weighing on the markets. 
 
"When investors look at the market and all of the known knowns coming down the pipeline – they’re deservedly skittish,” Mitchell said. 

He said for long-term investors, what matters most is the quality of the names in your portfolio, whether they’re growth or value stocks. 

“Quality names are the ones that have better visibility, more of a moat around their business that allows them to continually grow their cash flows," he said. 

"Those names usually pay dividends, they usually pay rising dividends and that’s an indication that they have pricing power, they have increased demand so more units, they have a stable cost structure which allows their margins to expand, and they reward investors by paying them a rising dividend stream. 

“On the other hand, you have growth names that are purely theoretical or concept. Peloton is a great example of that. You want to avoid those types of names because trees never grow to the skies. They can grow pretty high but they never grow to touch the clouds.”

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