Stockchase InsightsA Comment -- General Comments From an ExpertA CommentaryCOMMENTSep 06, 2023

They're putting on a really brave face here. So many challenges:  another tough inflation print today, a hawkish Federal Reserve, market was poised for lower rates, political unrest, trade uncertainty. Yet markets are near their highs.

Then we have MU last night that tore the cover off the ball. But the NASDAQ's down this morning, and who would have guessed that? It's a tug of war between the haves and the have-nots. The memory guys are saying that our cycles are going to be longer, so they can make more money for longer.

At the end of the day, it's an earnings-driven story. Many different pockets to put money to work, even including the crowded trade of tech stocks. Take NVDA, whose PEG is cheaper than all the rest.

You always want to see breadth widening. Mag 7 leadership has done much of the heavy lifting for markets for quite some time. Now 62% of stocks in the S&P 500 and the Russell 2000 are above their 200-day MAs, and that's what you want to see for a healthier, balanced market. 

Breadth isn't fully healthy, but it is improving. Hasn't gone in a straight line. 

At the end of the day, you have to take the markets that are in front of you. And we're still in a bull market.

Lots of opportunity in tech and in Canada with the nation-building theme. Banks have done really well and deserve the multiple they're at, with earnings improving and probably more to go.

Some software names have really come down a lot. Some really good opportunities to buy stuff that's cheaper than it ought to be.

Gift to all banks with OSFI lowering capital buffer, which really increases ROE picture. Since GFC, they all traded at 11-12x PE forever. Surged up to 15x, and their growth profiles are really growing into valuations. All passed the bank stress test beautifully.

With valuations where they are, he'd be careful.

Yes, unless it isn't ;  Depends what the post from Truth Social is at 3 am. The most likely scenario is that we're through this particular bizarre phase. Whatever "exogenous shock" is going to hit the market probably won't be Iran, but could be something totally different. There will be a bit of a hangover in the markets, just because after these traumatic events everyone's on a sort of mental high-alert.

Energy prices will probably continue to come down. Neither the US nor the president has any appetite to renew hostilities with Iran, as Trump really is looking down the barrel of the midterm elections. A lot of what happens in US foreign and domestic policy, as well as monetary policy, will be governed by the looming elections in early November. Those could determine whether Trump can continue to run things the way he has been, and he's going to do everything possible to achieve his desired outcome.

The pullback in the gold sector, for one. He's not asking anyone to catch a falling knife, but thinks the sector will continue to rally. The lack of faith in fiat currencies and government-issued currencies will be here for a while. Other stores of value will continue to be important.

We saw higher-than-expected inflation, thinks those numbers are understated. A lot of that inflation is because of supply constraints on oil, so it's not demand-driven. We may see inflation come back a bit, but governments aren't going to spend any less money.

Buying and selling.

If you're not sure whether to buy something or not, buy a little bit. It gives you confidence to buy a bit more, and a bit more, as you ease your way into a position. 

Selling works exactly the same way. If it goes down, you're glad you sold some. If it goes up, you still own some.

Earnings have been strong coming into 2026, being estimates, and GDP is higher than in Q4 2025. The US consumer has been robust. The one glitch is rising inflation because of the US-Iran war, raising inflation and rates. The Fed is hinting at a rate increase later this year, but should return to better inflation numbers later. The Fed is worried about inflation, still targeting 2%, which hasn't been at that level for 5 years. Nothing wrong with the Fed adding liquidity to the system in 2020, but they never pulled back from it; they should liquify only to save the economy, then stop it.

Are many positives with the Canadian banks: strong cash flows, buying back shares, raise dividends and expanding into other businesses and territories like the U.S. Also, M&A, retail, mortgages and asset management are doing well. But the PEs are much higher than before (higher than American banks). Don't sell them here, but don't expect this momentum to last. Banks are in the sweet spot.

Be cautious. We've seen this before and it ended badly. Many good things are happening: the US economy is doing well, Canadian jobs numbers were solid, the housing market is firming up a little, the AI boom. Though he's skeptical, the Middle East war is de-escalating. We're near the end of the bull market: are record-high multiples and the market should mean-revert in a correction. U.S. 10-year treasury notes are not being issued because 85% of the issuance is now at the short end. Even defensive stocks aren't cheap. Only energy and tech have gained in the last 12 months; all else has done poorly. In Canada, telcos are cheap because of competition and regulatory threats. Canadian banks have shot up to all-time high PEs. He's not in a hurry to deploy new capital.

Inflation should decline when gas prices normalize, assuming the peace holds (between the US, Israel and Iran). Meanwhile, there'll enough excess supply in other regions in coming years, such as Venezuela. However, it's projected that after 2032, oil prices fall to the $50 range. The premium is in the next 18 months before it reverts to pre-US/Iran war. Historically, in Q2 and Q3 before a US Midterm election there's more market uncertainty--will there be a turnover in Congress? Congress typically spend less money in those years. Overall, upcoming earnings will be pretty good again. So far so good, but much is due to massive spending in AI. Debt: he's more worried about spending by world governments than corporate debt.

These ETFs include some fixed income, but fixed income no longer offers a good return for the risks you take (government debt, inflation). You won't get that income if you're senior from these ETFs. Instead, look at private credit markets for that higher current income.

Look at Globex's corporate ETFs with no annual dividends, yet offers long-term equity growth.