David Cockfield A Comment -- General Comments From an Expert A Commentary COMMENT Jan 31, 2020

Reality is that, off the bat, companies are working hard trying to eat some of the tariff costs. The questions are how long will tariffs be in place and how high will the costs be? Ultimately, companies will have to assess that.

Inflation is still pretty sticky, though it could moderate. For those who want rate cuts, moderating inflation in the near term is positive. That's going to be a bit tricky. Over the last few months we've seen an uptick in commodity prices, and that will start feeding through into the inflation data. Energy prices, for example, have started to tick up again. 

The market's signalling that inflation is still a concern, because inflation-oriented assets are outperforming. He doesn't see any change in that.

Two months ago, who would've thought we'd be at record highs for the TSX, with the S&P up ~20%, NASDAQ up ~28%? The S&P has rebounded nicely, a little more in fact than the TSX since those April lows. The S&P has had a really great run, and trying to reach those all-time highs again (we're 2% away) is a bit tougher. Compare that to the TSX, which has lagged the last couple of years.

Yes, he thinks so. It looks as though they have a deal in place, pending final approvals. All eyes are on that, and we'll see what happens. Some other countries still need to reach agreements.

Recession fears are easing, inflation numbers are cooling to a certain extent, and the labour market is very steady in the US. That economic backdrop is still strong, and that's what's carrying the markets these days.

He is moving a little out of the US and TSX, simply because he sees valuation discounts outside NA. So he's looking at European and international markets. An uncertain US dollar helps those markets in terms of investment. Falling interest rates outside NA also helps.

He doesn't look for particular countries or regions, he's more company-specific.

Geopolitical risk is always there under the surface. The thing is, Iran doesn't have many friends. Both Assad and Hussein are gone, Hezbollah has been smashed, and Hamas is under ongoing attack. So geopolitically, doesn't think there's a huge risk here. The US is pretty dominant in this area.

Trying to predict what Trump is like trying to use a Ouija board. You just don't know, and John sometimes wonders if Trump really knows. In markets like this, it's very important that investors know what they're going to do. He often says that he doesn't know what markets are going to do, but he knows what he's going to do in different types of markets. You need to have a strategy if the market drops 5%, for example. For him, he ignores it. At 10%, he starts paying attention. At 15%, he starts adding back in. At 20%, he adds another 5%.

Look at your asset allocation risk tolerance (and understand what it means), and make sure you have good-quality assets. If markets decline, you can be reasonably confident they'll come back and it gives you a great opportunity to buy more.

The last thing you want to be doing is buying into a market that's at its highs for fear of missing out. The other bad thing is panicking and selling when markets are down. It's the old buy high, sell low; exactly the opposite of what you want.

When he hears this, he immediately runs for the exits. The risk on this is just too high. It's a real factor in terms of markets and currencies, but it has too many issues.

There are some products that combine the two, but he's found that sometimes they go and change the asset allocation. He wants to be in charge of that. He'd tend to go instead with an equity ETF and a separate bond ETF.