Our BNN pro-cyclical theme holding up despite a disappointing data day

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Earlier this week we wrote "Here comes the changing of the guard" reflecting our sense that insiders are favouring cyclical over defensive names. That theme is being put to the test in light of today's negative GDP numbers in both Canada and the U.S. As of mid-day, cyclical and reflation-oriented stocks are holding up rather well. On a combined basis, the Materials Select Sector SPDR (XLB*US) and Energy Select Sector SPDR (XLE*US) ETFs are outperforming the broad market SPDR S&P 500 Trust (SPY*US) ETF. Meanwhile, in Canada, the reflation-oriented INK Canadian Insider Index is outperforming the market-weighted S&P/TSX Composite Index. 

In an interview with Frances Horodelski on BNN yesterday, I explained how insiders are signalling that pro-reflation and cyclical stocks are being favoured over defensive names. If you missed the interview, it is great summary of what we see. Stocks mentioned include Horizon North Logistics (HNL), Boulder Energy (BXO), Granite Oil (GXO) and GMP Capital (GMP). 


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In terms of today's GDP numbers, it is important to remember they are a rear-view mirror look. That said, we do believe that the U.S. recovery is fragile and most of the good news has been priced in south of the border. Investors remain nervous, as evidenced through today's strong performance of the "go-to" B2B safety trade of biotech and bonds. Moreover, despite all the hype surrounding how great the U.S. economy was at the start of the year versus Canada, the Canadian economy actually outperformed in the first quarter. That is a point which appears to be lost on the FX market right now.


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