A Comment -- General Comments From an Expert (A Commentary)

Believes there are signs of resurgence in industrial & manufacturing activity across the economy. Supply chain issues starting to resolve themselves. Expecting growth will continue globally, as long as inflation doesn't remain high. Upcoming CPI numbers will indicate state of global economy. If inflation rates aren't too high, interests rates may fall. Energy & materials complex starting to lead markets, while technology stocks are lagging. Will continue to own stocks (not selling) despite risk of inflation spike, and risk of recession. 

Upcoming earning season will be indicative of economy. Geo-political issues a concern, but shouldn't affect investors portfolio. Recent earnings from JP pointing towards strong consumers. Strong economy will create environment where US Fed is not able to cut interest rates. Larry Summers and others think interest rates need to rise (not fall). Expecting interest rates to remain high - economy too strong. Inflation numbers also remain sticky (not falling as quickly as forecast). Believes tech sector speculation is reason for strength in S&P 500 (not concrete strength in economy). 

Geo-political tensions are worrisome, but should not affect construction of investor portfolio. "Panic buying/selling" not a good way to mange investments. Quality companies will perform regardless of tensions in Middle East. When others "panic sell" - can be a good buying opportunity for disciplined investors. Interest rates & inflation are much more important to investors. Underlying fundamentals of companies (debt, cash flow, margins, management etc.) are the preferred indicators to company health. 

What is a "Covered Call"?

A covered call involves an investor who holds a long position in a stock, selling call options on a portion of the position they hold. This can be a bit confusing, but one way to intuitively think about it is that the investor is selling the right for someone else to buy their stock at a prespecified price. So, the investor who holds the stock benefits from being paid the call premium while the buyer of the option will only exercise it if the price rises. The ideal scenario for an investor using covered calls is if the option is not exercised which means they get to keep the premium and do not have to sell shares at a loss. In the event that the call option is exercised, the investor is taking a loss by selling shares below their market value, but this is partially offset by the appreciation of the holdings that the investor did not sell calls on.
Unlock Premium - Try 5i Free

Would buy a 2-year note paying a near-4.9% yield. A great place to hide.

The market is up so much since the Oct. 27 lows. History says that we are due for a correction and tech is vulnerable. He's sell tech (take profits). The markets are 100% frothy.

Believes mechanical buy signals on gold, US 10 Year Yields, WTI Crude. Markets faced with difficult road ahead (valuations too high). Expecting markets to fall in the short term, but long term - is bullish. Business cycles generally follow 4 year intervals. 15% upside target on S&P 500 in the long term. Bull market cycle believed to have started in 2022. Expecting support at the 5000 level for the S&P 500.

Market Update:

The US consumer price index (CPI) in March came in hotter than expected, a 3.5% annual gain compared to the economist forecast of 3.4%, indicating the June rate cut becomes unlikely. On the other hand, the Bank of Canada held its interest rate steady at 5%, mentioning it needs to see clear evidence that progress on inflation is sustained before any rate cut. The Canadian dollar was 72.9 cents USD. The U.S. S&P500 ended the week flat, while the TSX was down 0.3%.

It was a mixed week of greens and reds. Materials rose 3.4%, while energy gained 1.9%. Consumer staples and industrials edged up by 1.0% and 0.5%, respectively. Real estate stayed flat while financials slid by 1.1%, while information technology and consumer discretionary both ended the week down 0.8%. The most heavily traded shares by volume were Toronto-Dominion Bank, Crescent Point Energy and Argonaut Gold.
Unlock Premium - Try 5i Free

That's right. Belatedly for Canadians, we've seen the S&P/TSX Composite Index join its US equity index counterparts breaking out to fresh all-time highs in the last couple of weeks. He's increasingly encouraged with the durability of this ongoing cyclical bull market, in no small part due to the fact that it has broadened out.

In Q1, we saw 9 of the 11 economic sectors in Canada participate in the rise in the equity indices; 10/11 sectors in the US. Notable laggards are the interest-sensitives of utilities, telecoms, and real estate. 77% of all S&P 500 index members rose in Q1; 69% here in Canada. Historically, pretty strong breadth numbers. The foot soldiers are advancing alongside the generals (Mag 7). This increases confidence in the bull market.

Have to be mindful in the short to medium term that we've just had two back-to-back breathtaking performances by both Canadian and US stock markets. Markets don't move in a straight line. Reversals can be sharp, swift, sudden, and seem to come out of nowhere. One of the tells often is an extreme in sentiment.

He looks at the American Association of Individual Investors survey. Right now, 50% of US investors are bullish, and 22% are bearish. That's a lopsided sentiment. Not extreme, but fairly stretched. Signalling a yellow flag of caution. Could see a garden-variety correction of 5-10% in equity indices at any point.

Numbers in the US weren't as bad as the market's implying, but they were higher than expected. It was easy bringing inflation down from 8-9% to what it is today, since the supply bottlenecks from Covid have dissipated. 

But the big issue is that the last 1% is going to be difficult because it's due to housing, rent, and services. Much harder to bring down. Market predictions for rate cuts keep going down. Rates should probably stay where they are for some time.

Weird time for the Fed. They have meetings in June, July, September, and November 6-7. November is the US election, so no rate cuts that day. Very short timeframe in which to bring down rates. The 2% inflation target was chosen many years ago by central banks. That was the line in the sand, and they have to stick to it or it will diminish their credibility. 

One more thing. Historical average on rates is around 4%. Rates are not outrageously high; yes, on the short end, but they'll come down over time. Normalization of rates is important for people who are risk-averse, they can put money in GICs today at 5%. They went up the risk curve, into things they shouldn't have been in, and that hurt the average investor. Normalization is healthy for the economy in the long run.

A lot of companies have to raise prices, like the food industry, because they're just not making any money otherwise. There was a long period of time when they couldn't raise prices at all. Those companies may not be gouging, but that's where people feel it the most, so politics has to get involved.

Banks in the short term, as they're more interest-rate sensitive. Insurance companies have longer-term liabilities, on which they hedge exposure to interest rates. Lower rates help general asset markets, which insurance companies invest in. Going into financials in a declining interest rate environment is probably what you want to do.

CRTC wants to have more competition, but we're a small country with only 3-4 providers. US is 10x our size, and they have really only 3 big providers. So it's a weird request. As well, Canadian providers have to provide service to outlying areas that aren't necessarily cost effective.