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

Yes. A lot of eyes were watching this. Yesterday's PPI wasn't terrific. Last few months of data points have been rather sloppy, pushing back expectations of rate reductions. Today went a long way to alleviate some discomfort that perhaps we're not going to get a rate cut in September, but the Fed will probably do one by December. 

The other really important thing is that Chairman Powell dismissed any sort of talk about rate hikes. We're going to be here for a bit longer, but we're going in the right direction.

Very positive. Seeing yields come down, earnings expectations from analysts are going up, market breadth is returning in a big way. Everything's suggesting that we're really in a bull market.

Always a possibility, and one of the reasons why you're not in 100% equities. But the market doesn't seem to think that's happening. Market breadth is really increasing beyond the Magnificent 7. Usually you sell in May and go away, but the opposite is happening.

Market's saying soft landing, and less likely for stagflation.

If you have USD, save it for things you can't get in Canada. You can get many names with CAD, and you don't have to tie up US dollars. He believes CAD has more upside than downside over next 5 years, so CDRs take out the currency risk. CDRs let you get a piece of the action on expensive stocks more cheaply. 

They are hedged, which is part of the charm -- you get the movement as though you're agnostic to the currency. There is an MER, but if you own for 5-10 years, that cost is diminished.

Probably the latter. What moves markets is things that aren't known, and this is really known. The Canadian yield curve is inverted, instead of up and to the right. This is because the Canadian economy is not robust, and we are so indebted. Lots of people were caught the wrong way on the direction of interest rates on renewals.

It will hurt the Canadian economy. But not the stock market in general, because it's tethered to global growth and what's happening in the US. A lot of Canadian companies can do very well under that framework.

Stock market feels strange as many stocks rising that don't usually correlate. All major stock indexes are at record highs which is defying conventional wisdom. Many investors and pundits are vexed as to the reason behind market strength. Currently "the bears" are very wrong, as strength in markets keeps going. For example, commodities and utilities are rising at the same time. Another rule of thumb - FANG has strength while other sectors fall - is not coming true. It appears many groups of investors are converging (tech/growth, hard assets/value). However, many investors are skeptical - believe consumers will tap out eventually. If interest rates are cut - will further boost economy. Bottom line is that the bull market is an amazing phase (even if investors are wrong). 

Company Highlight: Aritzia (ATZ)

ATZ operates as an apparel company that focuses on building brand and style rather than just trends. ATZ has gained significant traction and loyalty among consumers in recent years, especially among the young demographic due to its effective social media strategies by leveraging social media (mainly TikTok and Instagram) and influencer strategies. the company demonstrates great execution by not only resuming sales growth, and store expansion but also managing inventory in a more efficient manner. Investors now expect the worst is now behind the company, ATZ is trading at a fair multiple, and we think the company could potentially see a re-rating by the market if ATZ could demonstrate solid execution and resume its previous growth trajectory of double-digits.
Unlock Premium - Try 5i Free

Certainly in April it was, for good reason. Exuberance is a stage of market cycles that we've all experienced. With AI, we saw exuberance. Companies reported and didn't blow numbers out of the water, or project higher and higher results. So the market said hang on a minute, maybe we priced things in a little too high and too soon.

It doesn't mean that these aren't great companies with great prospects. It's all about pricing. The market spends very little time in fair value. Mostly the pendulum swings from overbought to oversold, and that's what makes a market.

Yes. If you look at the Magnificent 7, which control 30% of the market value of the S&P 500, he's about half weight. So he has about a 15% exposure. Long-term wonderful companies, including GOOG, AAPL and AMZN. But there comes a point where you let risk become too big a part of your investment thesis. Over-concentration is a big definition of risk.

He wants to participate in these major themes, but he's pulled back a bit. Loves these quality companies from the bottom-up. Thinks he can supplement the missing 15% with other companies that are, perhaps, a little bit neglected, better value, more stable. Those can give his clients just as good a return, but with less risk.

You should absolutely get advice from both the investment and accounting sides. Highly complex, specific to each individual. Corporations don't get the inclusion rate advantage, so if there's something in your portfolio you're not sure about and it's on the chopping block, sell before June 25.

Other than that, you might want to get ahead of the game by selling off a little bit. But remember, you're pre-paying the government. And with those dollars, over perhaps 4-5 years, you could recoup the loss that you'd have going from a 55% inclusion rate to 66%.

Be aware of it and plan, but he's hesitant to say you should be on the trigger to pre-pay on capital gains. Plus, a different government could potentially move the rate right back to where it was. Important to at least have the discussion.

For a general understanding of capital gains, see the blog from 2022 at goodreid.com.

His firm doesn't use them at all. A vehicle used to lever your outcome. Be very careful, you have to understand them well. As a retail investor, take a plain vanilla view -- you can make a good amount of money just by being a long-term investor in quality companies.

Believes latest earnings from US large cap stocks are strong. Smaller/mid cap stocks not reporting as strong (feeling higher for longer interest rate expenses). Equity markets on the cusp of all time highs. Upcoming US Fed economic (inflation & job numbers) data will be indicative of state of economy. If economic date is indicating strength - will be a soft landing. If inflation stays high - will not be any interest rate cuts. Large tech names indicating strength for A.I. and cloud technology. Google paying a very healthy dividend, and strong buybacks at Apple indicative of growth concerns (too much cash). Believes Apple price too high - waiting for weakness is share price before buying. 

Believes structured notes can be a good way for investors to get returns in a TFSA. Not a "one size fits all" approach. Many ways to setup account to generate ~8% return with guarantee of principal return. Very expensive, but good options for investors who want security with reasonable amounts of dividend yield. Can be an opaque market - would not recommend for retail investors. Learn more about structured notes at Larry Berman's website. 

It is a challenging market with interest rates at their highest level in decades along with rate reductions being pushed out further. and economic growth being stagnant or slowing both here and abroad. In spite of this, there is still lots of momentum investing going on and there's even a momentum ETF (MTUM) which is up 30% since November. Even stocks that have consistent returns have rising valuations: eg. Costco with only 6% growth in the top line. Investors should be aware of why a stock they own is rising. Is it because of fundamentals or just momentum which is really a form of speculation.

The question was on the consumer retail sector. It is under pressure since the consumer is now feeling squeezed. They have now spent the last of the extra pandemic money and are saving less now. Credit card balances are maxed out and are at their highest levels. Even Starbucks has 2% less sales. Pick retailers that are building more stores such as the one mentioned in his top picks.