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

He's been expecting--and is positioned for--interest rate cuts. Powell is set to do this in September. He's a long-term bull and cuts will boost the forgotten stocks of the last 18 months. Megatech still has great value (i.e. Microsoft, Apple) at decent multiples. Nvidia's report will be influential, of course. He's bullish utilities and REITs. The market has been expecting a wider slowdown for 2 years, but the decline in inflation is allowing banks to cut rates and re-stimulate demand.

Most of the big banks report this week. BNS will be interesting because of its foray into the US. The yield curve in the past 2 years is an inverted one. Rate cuts should help the banks' margins. We have yet to have the hard landing typically seen at the end of a business cycle and isn't reflect in stock classes--that's his biggest concern. Don't chase the banks if they report positive earnings, though definitely buy dips. Last week from Jackson Hole, Jay Powell didn't talk about the balance sheet which is a big part of QE easing, which the market needs to hear. Powell was clearly dovish, but the market missed the go-slow message. Instead the market priced in 200 basis points of cuts in the coming year that we won't see. The market is too optimistic; he sees a bumpier market. Lastly, the volatility around Nvidia and AI is very high, so NVDA's report tomorrow will be a big move one way or the other.

No. He expect bond yields to fall. We'll stay in this yield range and we're likely now in the low end of that range. Most investors follow trends, when they need to anticipate trends.

Although the market has been on an upswing since the downturn in August there is still reason for some caution. There are a couple of cycles coming. The months of September and October can be volatile. Also this is an election year in the U.S. and this can create more volatility. He is bullish on commodities  although not necessarily three months from now. Gold does not have a relationship with the stock market but it does with the U.S. dollar which is at the bottom of its trading zone. Gold moves up when the dollar moves down and vice versa. The U.S. dollar could climb which could cause the price of gold to pause. The market is now going beyond mega caps to small and mid caps which is a positive sign.

The question was on the state of the market. It measures a lot of things and he uses a Bear-O-Meter which has been in the neutral area. There has been a lot of good news but pay attention to the chart. It looks OK with the recent breakout. He gives a nod to the TSX over the next few years with a lot of commodities in it.

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CASH is the Global X High Interest Savings ETF. CASH invests essentially all its assets in high-interest deposit accounts at Canadian banks. One of the big benefits of CASH, is due to its ETF structure, investors are free to remove their money as they please, whereas actual savings accounts will have minimum investment periods and amounts. CASH is highly liquid at $5.15 billion in net assets, has an MER of 0.11%, pays a 4.95% yield, and is up 5% over the last year. CASH is quite new with an inception in November of 2021, but its annualized return since is 3.79%.
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J.Powell indicating lower interest rates in Jackson Hole. As a result, market has responded favorably. However, if markets feel rates are cut due to weak economy, stocks may fall. Appears markets are heading towards a soft landing. If anything, investors might be in for a stronger than expected economy (higher inflation). Regardless, positioning investments towards growth in tech (Apple,Amazon, Meta, Google). Also diversifying into healthcare and industrial sector etc. 

ETF Highlight: XBB

XBB provides investors with exposure to the Canadian investment grade bond market. It is highly liquid at $7.625 billion in net assets, has an MER of 0.10%, pays a 3% yield, and is up 9.4% over the last year. XBB’s portfolio is primarily comprised of government bonds (federal 39.91% & provincial 33.28%) but financials are the next largest holding at 9.54%. Two important metrics being a bond ETF are the effective duration at 7.26 years and weighted average maturity of 9.98 years. These two metrics tell us that XBB’s holdings have a medium-term tilt. XBB is a longstanding ETF which has an annualized return of 4.48% since inception at the end of December 2000.
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Silver lining in a rather tumultuous day of trading in the US on our August civic holiday. Started to unfold from about July 10-11, with a pretty benign inflation print in the US. Market was speculating about more aggressive US rate cuts, prompting a rotation out of large, secular growth leadership of the Magnificent 7 and into value, cyclical, and interest sensitives.

Mag 7 have reasserted some leadership since the lows, but still being outperformed by the rest of the market. A healthy development. A rally where only the generals are advancing is not sustainable; you need the foot soldiers to advance as well to be able to hold ground.

Shows that sentiment changes quickly. Less liquidity in that market, and people are slow to put a lot of $$ and conviction behind a nascent theme. Tug-of-war between what's a demonstrably established 1.5+ years of entrenched leadership and the broadening rally. Tentative signs after a month and a bit.

It's part and parcel of investing. A summer analogy is that the potential of unexpected storms doesn't deter us from enjoying summer activities or time at the cottage. Likewise, don't let prospect of sharp and dramatic bouts of market volatility, domestically or overseas, undermine a well-constructed and well-diversified investment portfolio. Keep calm and carry on.

Wise to consider "tail risk", highly improbable but impact would be severe. That's what risk management is all about. Risk is the product of probability. No cut would be rather shocking to the bond market, USD and all foreign currency trades (remember the recent Japanese carry trade chaos). Equity markets are begging for rate cuts. So you'd see a broad-based selloff in US equity markets. Not much would be unscathed aside from very low beta defensive sectors like consumer staples. Utilities, real estate, home improvement retailers, durable goods, and growth stocks would be affected.

Risk of not cutting in September is very, very low. As of yesterday, a 130% probability is priced in of a 25 bps rate cut on September 18. Very high confidence of sophisticated investors.

Look for clues tomorrow at the Jackson Hole press conference.

S&P 500 has been unstoppable for the past 2 years, up until the start of August when there was quite a bit of shakiness. Stemming from Japan and some unexpectedly bad US unemployment numbers.

From an ETF lens, interesting to see that there was more buying of S&P 500 ETFs than other global market indices, all while the actual stock markets were selling down. Shows, once again, that when the markets turn tough, people generally sell individual holdings and flock to ETFs that have been beaten down. When people find themselves in panic mode and selling individual positions, they still want some type of exposure and ETFs are ideal for that.

A lot of people are asking how to get exposure. People are sometimes worried about the prevalence and weight of China in those indices, which can be 50% or more of EM exposure. Some investors are trying to apply more judicious focus by, for example, looking at India or Asia-Pacific broadly. Even though the area has been volatile, the interest still remains.