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Health-care workers are the warriors of the pandemic, but everyone has endured hardship to some extent. This makes the current strong financial health of the North American consumer almost shocking, and paves the way for an explosive jump in retail spending as vaccination continues and lockdowns end.

BofA Securities published an analysis of credit card and debit card activity for clients of their parent company, Bank of America, last week. Analyst Michelle Meyer found that, thanks to government fiscal support, early January spending was higher by 9.7 per cent year over year.

Importantly, the spending jump did not result from weak 2020 data caused by the pandemic. Quarantine conditions didn’t start until March, so the recent strong consumption growth is positive even compared with previous normal economic conditions.

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Domestically, the picture is similar. The most recent data show that at the end of October, year over year retail sales was higher by a healthy 7.5 per cent.

President-elect Joe Biden announced plans for almost US$2-trillion in further fiscal stimulus last week, which would put even more money into workers’ pockets. Canadian fiscal support for displaced workers is ongoing.

It seems likely that when lockdowns end, consumers will increase spending on all the goods and services they were denied during the pandemic. This will occur at a time when household balance sheets are broadly healthy thanks to fiscal support.

Conditions appear ripe for a massive spending binge in 2021, one that might continue for quite some time. Investors should be on the lookout for companies that will benefit. Among them: restaurant chains, clothing brands, vacation-related services, autos and transportation, fitness clubs, and health care and dental equipment manufacturers that may see a spike in sales related to delayed treatments.

-- Scott Barlow, Globe and Mail market strategist

This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you or you’re reading this on the web, you can sign up for the newsletter and others on our newsletter signup page.

The Rundown

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Joe Biden’s big spending may boost the U.S. economy, but investors should heed the aftermath

President-elect Joe Biden has made it clear he intends to spend big after his inauguration on Wednesday. But while his US$1.9-trillion American Rescue Plan will nearly certainly help a stuttering U.S. economy, investors may want to be wary of the implications for a stock market that is already priced for perfection. Ian McGugan explains.

What investors should do ahead of Biden’s inauguration

The stock market seems to be assuming that nothing will go seriously wrong in the next few days and weeks, notes Gordon Pape. The reality is that a lot of bad things could conceivably happen. The small pull-back we saw at last week’s end may have been an indication of investor nervousness creeping in. Gordon has this advice for your portfolio as a most unusual inauguration day looms.

Others (for subscribers)

Monday’s analyst upgrades and downgrades

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Monday’s Insider Report: Two bank stocks seeing sales

The highest yielding stocks on the TSX, plus risk data

Globe Advisor

How Canadian fund managers are betting on the bitcoin boom

Are you a financial advisor? Register for Globe Advisor (www.globeadvisor.com) for free daily and weekly newsletters, in-depth industry coverage and analysis, and access to ProStation - a powerful tool to help you manage your clients’’ portfolios.

Ask Globe Investor

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Question: I have a non-registered brokerage account in the high six figures that contains 12 stocks. At the moment, however, three companies – Canadian National Railway Co. (CNR), WSP Global Inc. (WSP) and Brookfield Renewable Partners LP (BEP.UN)/ Brookfield Renewable Corp. (BEPC) – account for 43 per cent of my holdings. I still like all of these and would take a huge capital gain if I sold. My question: How much is too much in a portfolio? Would it be prudent to take some action? I am thinking of donating some BEP.UN/BEPC to a charity next year as one way of rebalancing.

Answer: If you were starting a portfolio from scratch, would you allocate 43 per cent of your capital to just three companies? My guess is you would not. Doing so would violate the basic principles of diversification, the purpose of which is to control your risk.

However, your situation is complicated by the fact that you would face capital gains tax if you were to trim any of your positions to achieve better diversification.

With that in mind, here are some things to consider: How much tax would you pay if you were to sell a portion of your biggest holdings? (Remember that capital gains are taxed at half the rate of regular income.) Do you have unused capital losses from previous years that you could carry forward to offset some of the capital gains? Are you expecting to be in a lower tax bracket this year, or in a future year, when triggering a capital gain would result in a less severe tax hit?

There is an old investing adage that says you should “let your winners run.” If your stocks continue to climb, following this advice will, of course, work out just fine. But if one or more of your companies stumbles, you might regret not rebalancing. Ultimately, you’ll have to decide, taking into account your confidence in the companies and your comfort level with the risks of not rebalancing.

As for donating some of your BEP.UN/BEPC shares to charity, I think it’s a fine idea – particularly given that so many people are in need these days. (Note that while Brookfield Renewable is one company, it has two types of shares.) When you donate listed securities that have appreciated in value, you benefit in two ways: You avoid capital gains tax, and you receive a charitable donation receipt. Depending on the province or territory, your gift would produce a tax credit worth at least 40 per cent of the fair market value of the shares. (This assumes you have already made $200 in charitable donations, as the charitable tax credit is significantly higher above this threshold.)

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--John Heinzl

What’s up in the days ahead

Enbridge recently won a favourable ESG (Environmental, Social, and Corporate Governance) rating from S&P, and TC Energy is bending over backwards to use renewables to construct its Keystone XL project in a last-minute bid to prevent Joe Biden’s imminent revoking of its permit. Should investors embrace such progress, even if the reality remains that pipelines carry huge quantities of oil and gas? David Berman will examine the issue.

Click here to see the Globe Investor earnings and economic news calendar.

More Globe Investor coverage

For more Globe Investor stories, follow us on Twitter @globeinvestor

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You may also be interested in our Market Update or Carrick on Money newsletters. Explore them on our newsletter signup page.

Compiled by Globe Investor Staff

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