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

As a DIY investor, it's really hard to get access to the best-quality bonds. The fund managers get the pick of the litter before whatever's left gets to the retail channel. Generally if you buy them on the secondary market, you're buying at a premium.

He'd be comfortable owning bond funds through ETF structures such as XCB or XLB on the TSX. There are a lot of bond mutual funds but he doesn't see a lot of value there, especially with a big fee overlay.

Market's actually in a pretty good spot. We're in the 2 toughest weeks of the year, but you always have to look at the state the market comes in on. We have close to 70% of stocks ahead of the S&P on the year, so a nice broad-based market. Equal-weight index is outperforming the market-cap-weighted index, which tells you that the average stock is beating the S&P.

Lots of sectors are working. The time to worry is when breadth is narrow, with only a small number of companies contributing, and if they were to break then you could get hurt. Great opportunity right now for investors to be diversified in the US, Canada, and globally.

So no, not too much euphoria. Lots of people are worried, which is good. In general, signs are pretty good for the fourth quarter.

80% of companies in the S&P 500 are trading above their 200-day MAs. That's as good as it's been all year long. If you look at the conditions underneath the market surface, there are some big stocks that are struggling. But the market in general is acting really well.

Yes. Last year, he converted one of his funds to a pure global mandate, but ex-US (so, nothing to do with the US). The fund is up ~21% on the year. His view is that we'll have several years of global outperformance. 

The one market that was weak was China, and they really brought the bazooka out 2 weeks ago; the economy still has some work to do, but the market's probably put in its lows.

He prefers the infrastructure builders to the owners. Engineering companies, and those involved in construction. Lots of $$ being spent building infrastructure, and a bit more leverage in the earnings. An example is WSP, which he holds.

Long-term moving averages are really important. A 200-day MA, or even a 150-day, is a great indicator of a long-term trend. Look to see if it's trading above it. But, more importantly, is the MA pointed higher or lower? 

Often when a stock comes off the bottom it might rally up and through the 200-day MA. But if that MA is headed lower, more often than not it's going to end up pulling back and bouncing along that 200-day MA until it gets swung higher.

All of his positions are above the 200-day. Usually if a stock goes below the 200-day MA, he wants to be gone. He wants to know the position of the 200-day as it's rising. Then he watches to see how far things get stretched above the 200-day, because often if it goes way high it can get pulled back in.

If you look at one of the big indices, you can tell whether it's in a structural, long-term bull market if it's trading above the 200-week MA.

Investment Theme to Consider: Urbanization and Digital Infrastructure

People continue to leave their rural lives behind and flock to cities in nearly every country on the planet. This means better jobs, more excitement and more service for them. Thus, this trend is likely going to continue for decades.

Investment opportunities abound from this shift. Companies can establish the necessary infrastructure to cater to both people’s move to cities and their rapidly growing and changing digital needs. As the citizens of developing countries become wealthier, they are going to want to buy cars, smartphones, digital TVs and everything else that can make their lives better and easier.

New technologies are bound to emerge and the companies that can capture market share of this new trend could do very well.
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September was surprisingly good, typically the worst month. But Jay Powell's 50-point interest rate cut and China's stimulus pleased the bulls. But he's a little suspicious of October. The Canadian market had a good Q3 and non-tech enjoyed a broadening in the rally. Geopolitics are unknown, but interest rates are heading alot lower as economic data will soften. Earnings expectations are elevated. Be cautious with cyclicals. Thre's still a trade in bonds. Sentiment and valuations are extended. Stay close to the exits.

Capping off a pretty good quarter, which caps off a pretty good year so far. As we're entering the back half of 2024, we're talking about China reflation, inflation coming down, and Fed rate cuts. Generally speaking a constructive market as a whole, and for equities as well.

Tremendously so, and across a lot of yield-oriented sectors. More importantly, it's been global as well. Other global markets have been catching up to the US. Mean reversion in all the positive ways.

20+% in one week. The single biggest positioning squeeze we've seen in many years. And it all started with what are still, largely, not deeply tangible stimulus measures. But everyone believes now that the promise is real, because the rollover in the economic data was happening across services and goods PMIs. The government is reacting to the softness in China with stimulus measures that everyone believes will have a future impact, even if they don't work currently.

That's why the positioning rally has been so extreme, 23% on the week he believes. He partially believes this will work. 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.

The secret with banks (and especially RY) is to buy at 9-10x earnings, assuming there isn't a systemic crisis or looming credit cycle. But at 13-15x, banks start being viewed as more than banks, and that's a great time to sell to someone who has a dream that you shouldn't be dreaming.

One of the biggest risks for telcos as a whole is that leverage for the Canadian ones tends to be on the higher end. Still, debt is in context of a stable structure, respectable margins, and debt servicing that's higher but not stretched.

Leverage profile, combined with any change in the competitive dynamic, creates a spiral situation. It's getting better and a problem for tomorrow, but it is a problem.

The US Fed's Jay Powell said today that he isn't rushing to cut rates, but will be more aggressive if the data warrants it (if the labour market weakens dramatically)...  re: Israel killed the Hezbollah leader which could escalate Middle East tensions: Tension will continue until Iran's government changes.