Opinions
Greg A. Taylor, CFA, BBA A Comment -- General Comments From an Expert A Commentary COMMENT Jul 17, 2024
You might be interested:
He expects an agreement to agree on something at some point down the road, and the markets to be OK with that. Historically, these things are measured in years to fully play out. He does expect something of that order between now and that July 9 expiration date, though that date could be extended in view of Trump's volatility.
It's going to be President TACO going forward. Look at the "deal" they got from China last week. All of a sudden, it's still 55% tariff rates. Most importantly, the market seems OK with the tariff thing at the moment. The next moment could change that.
It's still a risk to the markets, but tariffs in the current package are inflationary. Trump needs tariffs to offset the costs of the "big, beautiful bill" that he wants and needs to pass. Still lots of uncertainties in front of us, but there's always stuff in front of us in terms of the market.
In an update to the dot plot, there's no expectation at all for a rate change. The question is will they choose to tilt a little bit at this meeting? Do they have enough information to say that they're leaning more towards an ease? Tightening is out of the picture. Even if inflation upticks for the next 6-12 months, extremely unlikely and difficult for the Fed (given the upcoming change in leadership, etc.) to want to raise rates.
The next move will be a rate cut, timing is uncertain. A lot will depend on the unfolding situation in the US labour market. Over the last month or so, we're starting to see weakness in the initial and continuing claims. These aren't worrisome by any stretch, but should be on the front burner now.
Prices are going up. In soft surveys of companies, 40% of companies said they're going to pass through some degree of pricing. Inventories that were built up in advance have, perhaps, already gone through the books for cost of good sold. There's more to come. To think there isn't, is a naive assumption.
It won't be a dramatic jump from 2.8% to 6%. But it'll creep into the mid-3% range. What happens now with oil prices is a real front-burner risk. When you have to spend an extra $20 a week to put gas in the tank, it really matters to the marginal consumer.
Oil: There's no way knowing if oil can stay above $70; the oil price is tough to peg. It is a risk asset that responds to geopolitical tension, but after this tension in the Middle East the price will probably not all down, but find balance and this issue will become a non-topic. He wouldn't be surprised to see oil a little higher by year's end. Cash levels: remain high as investor sentiment remains cautious. April remains in the memory, and caution is a good thing for the market. The time to worry is when people are super optimistic. He'd like to see this money bleed into the market as optimism improves. US Midterms: He expects Trump to be less unpredictable and less chaotic because the Republicans need to maintain their power which will be investor-friendly.
A broad topic. Defensive means predictability: utilities, consumer staples. Stocks that pay dividends and/or buyback shares. Also, telcos. Utilities are super defensive, because they basically issue a yield. Also, do you want that income stream coming from Canada or the U.S., considering taxes.
His funds were down around 15-20% only 2 months ago, but now are up 2-3%. Everyone took their eyes off AI and focused on tariffs. And now it's returned to AI. Heavy spending on AI has continued without a decrease. Last year was capex spending by the hyperscalers on modeling (large language models), and this year it's on the applications.
A.I. Investment Themes: Personalized investment advice
AI enables a new level of personalization in investment advice, going beyond standard risk questionnaires. By analyzing an investor’s full financial picture, including spending habits, career trajectory, geographic location and even life events, AI can deliver highly individualized recommendations. These systems adapt over time, continuously learning from investor behaviour to refine advice and keep portfolios aligned with personal circumstances and preferences. This AI benefit should be quite helpful. To advisers, it simply speeds up what they are doing already, under Know Your Client rules. But it will encompass a larger set of circumstances and will allow more continuous updating. This should reduce complaints, free up adviser time and allow clients to have a portfolio that better matches their circumstances, even when these are changing rapidly.
Unlock Premium - Try 5i Free
Premium content
An area that could start to do well in the second half of the year and beyond. When you think of how to trade the sector, it really comes back to timing the homebuilders. The homebuilder sector had been under pressure for the last year and a bit, because of higher interest rates.
If we start to see more of a break in interest rates, really good for homebuilders. Starting to see those stocks start to move up in the US. In general, once the homebuilders start to go, the price of lumber and lumber stocks start to follow after that. BOC has signalled cutting; the Fed's getting ready to embark on a rate-cutting cycle.