Forget the fact that the S&P/TSX index is outperforming all major North American stock indices this year. There is optimism in Canada that goes beyond portfolio performance, from a labour market that has recovered all the net job losses suffered since the start of the pandemic to a vaccination program that places the country among the world’s leaders. There certainly is a more optimistic tone and there were a couple of other positive headlines this week.

 

At the time of writing, close to 83% of Canada’s population had received two COVID-19 vaccinations, compared to 37% for the world as a whole. This week, the 7-day average of daily new cases fell to 2,518 – the lowest in two months. On a per capita basis, this is less than 50% of the pace seen in the US; which is not surprising, given that just over 50% of the population south of the border have two vaccinations. By no means are we out of the woods as we head into winter, when some believe another wave could impact our healthcare system and economy.

Sources: CDC, WHO, ECDC

 

One defence against that scenario is getting booster shots into the vulnerable. A more important development would be making vaccines available to young children and, on that point, we did get good news today. The federal government announced Thursday that it had reached a deal with Pfizer to acquire 2.9 million doses to deliver to children between age 5 and 11. The implementation of the vaccine to minors does require regulatory sign-off, but this would be yet another critical step towards a more normal socioeconomic environment.

 

Such a development would reinforce a return to face-to-face schooling, further lessening the strains on families in terms of providing even marginal daily support for children not attending. It provides support for teachers and ultimately gets the population closer to herd immunity and it allows employment growth to continue, albeit at a more modest pace into 2022. For those that listened to the opening of Quebec’s legislature this week, there is definitely a more optimistic read on the future as the province now pivots its policy agenda towards a future beyond the pandemic, including an additional 37,000 day-care spots. How the federal government positions the upcoming economic statement will be looked to for a similarly positive tilt. It appears we will see it, as the feds stuck to its plan to allow its Canada Recovery Benefit program to wind down, although it is extending its subsidy to businesses in support for hiring until May 7, 2022.

 

The other positive item this week, though not necessarily set stone, is that the US might be moving towards a decision to alleviate tariffs on Canadian lumber imports. This is what the US National Association of Home Builders would like to see, at least on a temporary basis. Lumber disputes between Canada and the US are the norm, but with global supply bottlenecks hitting almost all segments of the economy, including housing and construction.

 

The timing of the request may seem a little odd, considering that lumber futures collapsed in the summer from their stratospheric levels in May. Indeed, we are all well aware of the stories of projects being delayed in the spring and humourous social media pictures of pick-up trucks with half loads that cost more than a full load the week before. Futures jumped 550% from April 2020 to May of this year. They fell more than 70% into September, but they have rebounded over 70% as of last week.

 

 

Outside of the noise of the past year, we have to step back and recognize that current lumber prices are still high on a historical basis. Back in 2017-2018, there was concern over a 200% rally in futures to a peak of $613 per thousand board feet. Today, futures are trading around $680. That is why builders are looking for help and since we are heading into mid-term elections next year, there is a decent chance that the Biden administration answer the calls from builders. Even if tariffs were to be reduced or eliminated on only a temporary basis, this would provide a boost for Canadian producers.

 

Some may think that the forestry play train has already left the station, but there are arguments to maintain or increase exposure. West Fraser has recovered all of its summer losses and has extended to hit new record highs in October. As the largest player in Canada, the company is a bellwether for portfolios and its trend pattern is positive. Canfor Corp is more a mid-cap play and it is still trading below its May highs to the tune of almost 20%. Again, the trend looks constructive and we could see its recent highs attained near $35.

 

 

Some investors may find a better value play in Stella-Jones, which focuses on pressure-treated lumber for use in rail, ports and hydro and phone transmission. With some form of an infrastructure bill expected from the US Congress and all of the attention on transportation capacity in the face of this supply crunch, stronger demand growth looks almost certain.

As Canadians, we are naturally apologetic, empathic and cautious. In a pandemic, these aren’t bad qualities, but there are constructive signs that the near-term outlook for society, economy and the domestic stock market isn’t too bad. We will have to deal with the ancillary risks from supply shortages and may have to start and finish our holiday shopping sooner than normal. But, if we can end the year without another major COVID wave and some relief to bottlenecks, this post-pandemic recovery can definitely continue.