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

The problem with corporate earnings is that they can manage them very well over the quarter. So beating expectations doesn't mean much when you dropped expectations for the quarter. When you look at what was expected for earnings vs. what they met, earnings were better overall and margins were kept up.

Generally, margins are still pretty good. Yes, the consumer is wavering. Credit card delinquencies have gone up a lot. The savings rate in the US has collapsed from 8-9% to closer to 3%, so people don't have as much money in the bank. So in certain parts of the economy, the consumer isn't going to be able to feed growth there.

People forget that the stock market falls 5-10% every year. 

Stock market has a lot of things to worry about. One is that inflation is not where it's supposed to be. There's a risk that it may pop up, so we have to be very careful. The second thing is that there are a lot of geopolitical issues. Plus, we're going into what he thinks will be a very divisive election in the US.

There's going to be lots more volatility in the stock market. But volatility can be your friend, as in chaos there's opportunity. If you're a long-term investor, look at great companies and see if you can buy them at great valuations at these times.

There's a lot of opportunity in Canada. But he worries about what happens if the commodity complex starts to do really poorly and oil doesn't go up. Lower rates will help a larger part of the index such as utilities and banks, which have had a hard time over the last 2 years. Dividend-paying stocks should do better in a lower-rate environment.

Quite significant. Real shift in sentiment over the last few days. For him, what's most important is that we're entering what's seasonally the weakest and most volatile time of the year for stocks. It runs from about now usually until the middle of October, give or take a couple of weeks on either side.

Correct. We're getting to the time of year when people start going on holiday and there's less volume. When you have less volume to begin with, when you do have an event, the reaction can be much more pronounced. And we've certainly seen that over the last few days.

A very important point. For the first half of this year and into July, we've had a humongous runup in the markets. Remember that the long-term average return for the stock market is 8% a year over 100 years. So when you're talking being up 20% in 6 months, it's a massive move.

Reality is that we went almost straight up from the end of October 2023 to almost the end of July with no major correction whatsoever, except for a few points here and there. So the market was overdue for a technical correction.

The VIX was really complacent for an awfully long time, even during the period when we could see that uncertainty was building. Rather than a slow acceleration, it did it all at once. And that's why we're seeing it come back down. It crept up to 20, and once it hit that, it just exploded to 60 overnight. Now it's worked its way back into the 20s, what you'd expect in a more normal market.

Too early to call. Often with a reset like this, you get different leadership. Interesting that as part of this correction we've had, it's come at a time when we've already seen rotation in leadership. In mid-July, we started to see capital going away from tech into the broader market.

In some ways, that's healthy. You want a broad market with wide participation. A very few stocks driving the market was a sign of risk.

Too early to call. Often with a reset like this, you often get different leadership. Interesting that as part of this correction we've had, it's come at a time when we've already seen rotation in leadership. In mid-July, we started to see capital going away from tech into the broader market.

In some ways, that's healthy. You want a broad market with wide participation. A very few stocks driving the market was a sign of risk.

Golds have had quite a good run this year, very strong. Benefiting from gold as a haven and sense of US Fed cutting rates. Gold and the USD always trade opposite each other. 

Levels are important, as are pullbacks. When you get a pullback, it's important to remember that stocks will often pull back 10-15%, and then they may bounce. So as a longer-term investor, it's important to recognize that stocks can pull back and then rally. A 10% correction doesn't necessarily mean it's all over.

You compare how it's performing relative to the overall market, but also how it's doing relative to peers. For example, if you want to own a bank, there might be one that's showing better relative strength than others. The Canadian banks do show significant differences in performance and relative strength over time.

He looks at RSI to give him an idea of how a stock's performing relative to its peers and to the overall market. Can also use it to compare it to whatever index it's a member of.

When you get into market corrections, is not necessarily upward momentum, but what goes down less. Those stocks that go down less have more underlying support, people are still willing to step in and defend them.

It is interesting, in that real estate has picked up but telcos haven't really gone anywhere. Utilities have been kind of in the middle, but not doing as well as real estate.