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

Stanley Druckenmiller says that "the market is the best analyst". There could not have been a more clear message leading up to the election. Certain sectors benefit more under Republicans, and financials have been leading very strongly over the last few weeks. Industrials, and small- and mid-cap stocks, would benefit from deregulation.

When the market comes into an event like this on solid footing, it's likely to come out the other side the same way. Whatever you think about Trump and his policies, markets are unemotional about this stuff. People have probably put hedges on and taken actions to reduce risk, and all that will have to be unwound over the next little bit.

Pendulum of regulation swings a long way in both directions. Coming out of the financial crisis, a tremendous amount of regulation was built in. No industry has suffered more because of heavy regulation. Market sees an opportunity for efficiencies and M&A.

Very positive on financials such as banks, insurance companies, investment banks, asset managers. Mainly because they went through a 15-year bear market and have only ignited the last couple of years.

At the beginning of September, there were 3 days that saw a giant thrust in breadth, where almost everything went up a bunch. When that happens, generally signals the beginning of a longer-term rally. He guesses that the market's going to look at deregulation, which has a larger burden on small- and mid-sized companies.

It also has to do with the fact that inflation may be a little stickier. So short rates have come down, but long-term rates have gone up, with the bond market saying you haven't done enough perhaps. Those companies tend to be  more cyclical; 73% of the Russell 2000 are cyclical stocks.

Investors are looking forward to the next business cycle. Maybe, after the election last night, there are some who think the economic cycle might be a little stronger.

Likely to see a 25 bps cut. The next question is what comes afterwards?

Not his #1 place to put new money right now. Recent backup in bond yields poses a risk to the discount rate of companies, so they're less inflation-protected. On the software side, it's cybersecurity that's performing really well.

Lots of questions on that. Likely to be more willingness to open pipeline capacity to the US. Regulatory environment might be more friendly. Particularly good for long-life assets. Nice pickup in volume as pipeline capacity to US has gotten better. Price differential has been coming down. Weak CAD has also helped these companies, though you have to separate natural gas from oil. 

We'll have to see what policies come forward. He's sticking with the very long-life assets paying great dividends.

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He was surprised with today's rally, but the market ignored the hideous action in the bon market with yields jumping. The banks have been unreleased, held back by regulation under Biden. Expect more IPOs and even bank mergers ahead. Despite today's move, the banks remain cheap (valuation), but this parabolic move could pull bank and likely will fall after this week's Fed announcement. Transports and industrials surged today. The former shows confidence in more economic activity, but industrials had already rallied before the vote.

Whoever wins the US election, the market prefers a divided government between the White House and Congress to avoid extreme policy. Wouldn't be surprised if the vote tally is dragged out which could produce market volatility. She is bullish for the next 12-18 months, but has trimmed positions to increase her cash to re-deploy later.

The US election (tomorrow) is too close to call. Since 1952, the average quarterly return has been 2.2%, and Q4 in an election year gains 4.0%. More of that gain follows the vote. However, the year after the election under the Democrats returns 16.5%, and less than 1% under the Republicans. That said, 2017 was a strong year. US Q3 results are strong, but valuations are getting high. Warren Buffett is reducing his stake in stocks like Apple and raising record levels of cash--are we in a toppy market? He himself is not raising cash, because inflation is being tamed and the worst is behind us. Growth lies ahead, but avoid overvalued stocks. There's a rotation out of mega-caps, including tech, and into smaller caps, which is why he likes mid-caps (US$5 billion-up, and C$1 billion-up). Small caps are riskier and few do well.

They are. Look at DJT as a benchmark. There was a massive move up a few weeks ago, last week there was a lot of selling, and today it was weaker to start the day but up now. There's a lot of uncertainty around the outcome, and it's too close to call.

For his portfolio, he looked at what was cheap. Definitely some stocks have been beaten up, as in the green energy space. There, the risk/return is compelling at this point. If we get a Blue victory, it'll be short-term positive. On the other side, for things that were expensive that got priced in to a Trump victory, he's bought some puts on or taken more defensive moves. Such as regional banks in the US.

Unless you're really actively seeking to outperform the market on a very short-term basis, you actually shouldn't be trading. You should be setting your portfolio for a much longer-term outcome, ignoring the noise.

Geopolitical tensions are up, OPEC deferred output increases, plus rhetoric out of Iran on attacking Israel. So energy markets were good this morning, which is an implication for inflation. So many uncertainties, can't forecast them with any degree of confidence. It's fun for trading day to day to try to figure these things out but, longer term, portfolios really shouldn't be touched around an event like this.

Virtually certain that it will cut by 25 bps. What they say in the press conference about the future will be important. The previous cut at an aggressive 50 bps surprised the market, and it priced in a dramatic number of rate cuts. But economic data since has been a bit hotter on inflation and growth, so all those bets have walked back.

We'll hear from J. Powell on Wednesday, unencumbered by the election even if we don't know its outcome.

If we get tariffs, US dollar will be stronger. If we don't get tariffs, or they're less aggressive or fewer, USD will be weaker. The USD vs. the euro under Trump might get down to $1.02-1.04, from the current $1.09. Under Harris, who is a bit less hawkish in terms of tariffs, we might see it at $1.12-1.14. This is all in the context of the next 6-12 months.

The dollar will move, and that's one of the trades. We saw a stronger dollar, but it's weakened over the last 48 hours.

Simple answer is whether your account is taxable or not. If in a registered account, then the tax treatment doesn't matter whether the dividends come internationally or not. 
 
Some of the best dividend payers are here in Canada, where you have exposure to banks, lifecos, and energy names. Put those in your non-registered account. He'd argue why are you investing for dividends in a registered account? There, you should invest for growth because of the tax treatment.

Internationally, you have foreign withholding tax without the superior tax treatment given to Canadian dividends. When investing internationally, his preference is to seek dividends in a tax-efficient way, and he likes the covered call overlay strategy. The covered call tax treatment is by way of capital gain, so you get a more efficient income internationally. 

BMO has the biggest suite of covered call strategies around the world. There's ZWP and ZWE as a way to play European markets, and he loves both (though ZWE is the way to play at the current time). For US high-dividend covered-call strategies, ZWS or ZWH are really good (one hedged, one not).