Opinions
Danesh Rohinton A Comment -- General Comments From an Expert A Commentary COMMENT Sep 30, 2024
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There's been A LOT of volatility this year, from the Epstein files to the bombing of Iran and today Trump complaining about the Cracker Barrel logo. What is this all about? Can Trump legally fire the Fed governor? This will be messy to resolve through the courts. Trump is pressing the Fed to lower interest rates. The stock market is at record highs, so there's a disconnect between the market and economy. Typically, you cut rates when the economy starts to weaken. Some areas are, like job losses and company bankruptcies. Suppose the stock market corrects during a rate cut? We cut see a 25 bps cut in the U.S., but no more, based on conditions. If there were no tariffs, inflation could decline. If tariff inflation gets bad, there will actually be a need to raise rates.
He's held cash for about 3 months now, as he typically likes to hold cash over the summer. He shuffled a few things around.
Continues to believe that certain tech stocks (Mag 7) are way overvalued. So he's been trying to go into whatever is not in that category -- value stocks, commodities, etc.
He's seeing it flow into a lot of the defensive sectors. This tells us something.
It was all about tech since the April selloff. But as of the middle of August onward, tech has taken a backseat. They had a bit of a bit last week with the speech from the Fed. But $$ is shifting into the defensives -- staples, utilities, industrials, and even healthcare (the dog of the universe for the past few months). He did a video last week that shows relative performance of the sectors.
Not a bad idea to choose from these sectors and avoid tech.
You might just as well ask, "Why did it snow last January?" There are a lot of vacations and golf playing and so forth. Volumes are always low over the summer.
All he does is pay attention to patterns, and half the time he doesn't care about the "why" of stocks behaving the way they do. Whatever the case, as we get into October/November, you'll see that markets start to find a bit of legs. Probably because traders are off their vacations and are back at it.
When it comes to indicators, there's a longer way to look at it rather than just overbought/oversold. This could be a half-hour discussion by itself, so he'd steer the investor to a couple of videos.
He just recorded a video yesterday (being posted to his YouTube channel tonight) on how to prevent falling victim to topping stocks. He also did one a couple of days ago on bottoming stocks.
A Canadian company (such as ENB) is a Canadian stock. If you look at the chart for the US listing, you're now also looking at the effect of the currency exchange. That will distort things, so there's no point. For example, this year the USD got smashed; once converted, that would make the US chart for ENB artificially look better than it actually was.
So for a Canadian company look at the Canadian chart. For a US company look at the US chart.
Premium contentHis team thinks so. An object in motion tends to stay in motion until it doesn't.
There's a lot of flow coming into the market. Part of that may be because a lot of market participants don't want to be in the bond market -- returns are low, perhaps not better than inflation, and could be facing a loss if interest rates do go up. Part of it could be FOMO, because the last 2 years have been great, and now European and Canadian markets are really shining. Third thing is margin debt; in the US, it's almost back to record levels seen in 2021 before the huge S&P correction from 4800 to below 4000.
He's cautiously optimistic. Short term, markets may need a bit of a pullback. We have PCE numbers coming out tomorrow in the US. Next Friday, September 5, we have the labour report for August and we'll see how the market reacts. Then we're back into earnings season in October.
We need to make a distinction, because there are some great bargains in that sector. NVDA is the poster child; it's gone up a lot, and its valuation is probably 40x forward PE. That's quite expensive, unless you believe that they can maintain the treadmill of that kind of growth. He's not saying the growth is over, just that maybe the growth slows down from here. Perhaps the valuation on this type of name has to stay here while earnings catch up, or it has to come down a little bit.
Doesn't mean that capital can't rotate into other parts of the AI growth market, or even into NVDA's competitors which have lower multiples. See his Top Picks.
Two dynamics. Existing home sales were down when supply disappeared because the next person to buy had to spend 7-9% for their mortgage. Very different from where we are today.
Homebuilders went even further by offering a 3-2-1 buydown mortgage if you bought a new home. So new home supply has taken a lot more market share from existing home supply.
Jury' still out, but he expects inventory to unlock as rates come down. On an absolute basis, rates are still 200-300 bps higher than in pre-Covid era. Needs to be a big step down in the yield curve, especially on the 30-year end, to make this conversation more live than it is today.