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

Manulife (MFC) vs. Sun Life (SLF):

Manulife (MFC)

Manulife Financial (MFC) is a Canadian multinational financial services company that operates under ‘Manulife’ in Canada and Asia, and through its John Hancock division in the US. It offers services include life insurance, wealth management, and investment services to individuals and businesses. 

Sun Life (SLF)

Sun Life Financial (SLF) is a financial services company that offers savings, retireent, and pension products globally. Its operations include five business segments: Asset Management, Canada, US, Asia, and Corporate. Its services include life insurance, health insurance, and investment management. 

Looking at valuation, we can see that both names are trading at similar levels (SLF at 11X forward earnings and MFC at 10X forward earnings). Although, SLF has been trading at a premium valuation relative to MFC over the past few years, and we think that MFC’s recent strong execution has caused it to re-rate. Both names have similar dividend yields (around the low 4% level). We can see how since early 2024, MFCs returns have begun to take off, and this is largely attributable to a combination of a previously cheap valuation and execution in cost management. 

Both names have performed well over the years and have sustainable dividend policies, but recent performance has begun to shift from prior years. We think with declining rates, that both of these names have certain tailwinds, particularly in the asset management space, but MFC has shown strong execution in its recent earnings results. We think that investors looking for a strong momentum play and a larger name might prefer MFC today, however, for a more conservative play, we give SLF the edge due to its longer track record of success in margin expansion, causing it to trade at a premium to MFC, and its generally lower levels of volatility. 
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What's key to a soft landing is that the US economy is holding market up and the job market fairly constructive. In Canada, the inflation number was also good. The risk to the market is that we don't get a soft landing. The market has priced in a soft landing already, possible but unlikely. AI will probably take us to places we can't imagine, just like old mainframe computers did and some lacked the imagination to see their potential.

Wednesday will see the first interest rate cut from the U.S. Fed. There's a lot of economic data already priced into the market. He wants to see what guidance is and he predicts a 25-point cut though some expect 50. We've seen a rotation from the FAANG into value, and the TSX has seen some of that. But if the economy is slowing, the TSX will lag, because Canada is lot more sensitive to interest rate activity than the U.S. 

Doesn't know if it will hit $3,000, but it's going higher. He's bullish, but it's had a tremendous run up and short term, gold is overbought. Buy any pullback and don't chase strength. Also, physical gold has already factored in rate cuts, so disappointment is more likely. He'd sell gold.

Before each US Fed meeting, he looks at what's priced into the market and what are the street's expectations. George Soros said you make money by discounting the obvious (what's priced in) and bet on the unexpected. His data says that a Sept. cut has a 158% chance, no surprise. There's a two-thirds chance they cut 75, not 50 points. In the coming year, he's pricing in ten 25-point rate cuts (250 total). Last June, the FOMC indicated their median forecast for end-2025 was 5.1% vs. the market pricing in 5 cuts this year to 3.9%. So, the Fed must be aggressive in lowering outlook. If the Fed cuts more than they projected this and next year, it means the Fed is worried about the state of the US economy.

The markets have been all over the place and the pullback in September was expected. The Feds meet on Wednesday which is meaningful for markets. In August there was a 20% chance of recession. There has been a weakening of the employment market in The U.S. and Canada so maybe there won't be a soft landing. 
Banks are a little less restrictive on capital and he is becoming more positive on banks from underweight in 2022 to market weight now. Provisions for the default rate are low in Canada and the Bank of Canada is not too concerned about mortgage renewals. Canada really needs lower rates since they are restrictive. The U.S. economy is OK for now but rates are restrictive there too. 

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Believes reason for oil price sell-off is difficult to explain. Large difference between financial & physical markets for oil. Overall, oil demand is growing (highest ever), but paper demand for oil has reached all time low. As a result, large discrepancies in the market for oil are developing. US shale not growing - which will also help further strength in oil markets. $65 oil remains lowest price for no growth in markets. Is optimistic on overall outlook of energy markets. Bearish outlook for oil markets not justified. Expecting a ~$80 WTI prices going forward. 

He expects a 25 basis point cut in interest rate next week from the Fed. Sure, a 50 could be warranty, but he believes the Fed's decision should be measured in case inflation flares up again, and 50 could trigger panic on the Street. The Street is 50/50 on a 50-point cut, much higher than before.

Low Volatility Stocks Near Their 52-Week Highs:

• Pembina Pipeline Corporation (PPL): PPL is a leading energy transportation and midstream service provider in North America, and it is up nearly 24% year-to-date, with a one-year volatility level of 11.6. This indicates subdued levels of volatility, particularly compared with some of the high-growth tech names in Canada. 
• Enbridge (ENB): ENB is an energy infrastructure company, specializing as a natural gas utility provider and distributor. It has a strategic asset base, strong cash flows, and on a year-ot-date basis, it is up a total 21% with a volatility level of 13. 
• Royal Bank of Canada (RY): RY is a leading diversified Canadian bank, providing personal and commercial banking, wealth management, insurance, investor services, and capital markets services. It has a strong industry position and is up a total 27% year-to-date, with a one-year volatility of 14.5. 
• Hydro One (H): Hydro One is a major electricity provider and distributor in Ontario, providing electricity for homes and businesses. It is a solid income name, with a dividend yield of 2.7%, a year-to-date total return of 19% and a one-year volatility of 14.8. 
• Sun Life Financial (SLF): SLF is a life insurance and investment management services company, with a large asset base and a robust financial position. It is up a total 12% year-to-date with a volatility level of 15.7. 

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Seeing heightened volatility in September. If you go back to 1950 during election years, September and October are negative on average; the win ratio is 50% for each month, so we're going to see those ups and downs. Especially with the election coming up, and economic data pouring in, that might change the trajectory of what the Fed might do. All those things are playing into what's happening with the markets. 

On the positive side we're seeing double-digit corporate earnings growth, which is the most important thing. Next year forecast at double digits as well. We just need to get past these next few weeks, or couple of months, of volatility.

It's certainly another factor that plays into his analysis. But if you look back to the macro picture, whenever you have the beginning of a rate cycle, 12 months later the markets are up quite significantly by double digits, presuming a recession does not occur.

Right now his base case is for a soft landing. Lots of data points to that, inflation down to 2.5%, US unemployment down to 4.2%. Adding to that, US money market assets are up to $6.3T USD, lots of cash on the sidelines that can be used.

As to age of the bull market, we're really only about 5 innings in, so we're mid-way through the average bull market. Still room to run. Brace for volatility into the US elections. After that, the focus will shift back to the fundamentals of corporate earnings, interest rates, and economic data.

Market ran up a bunch in July, not abnormally for a summer rally. Selloff now in September, somewhat seasonal. It's just a technical thing. Market's bouncing around. It only has 2 directions, up or down. If it doesn't go up, it goes down.

The market ran ahead of the economy, and we're waiting to see if the economy has a soft landing or goes into recession. Does inflation continue to come down? Inflation numbers this morning left a bit of a question in that regard, didn't really continue to support falling inflation.