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

Upcoming US election with return of Donald Trump should be good for Crypto prices. Policy of cutting taxes and pro business stance will be good for markets. Other sectors like clean energy - will fall, with traditional energy companies in favor. High tariff policy also not good for foreign companies. Paying attention to US Fed policy of likely interest rate cuts this fall. Lower interest rates will be good for overall strength in the markets. 

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The US market is focused on the first cut expected from the the US Fed, probably not this month, but nearly 100% likely in September. Normally, the first leads to a series of cuts, but these are strange times. There's the US election, which nobody can predict. The polls point to Trump winning, but anything can happen, like the October Surprise. Small-caps do better under lower rates are domestically based (American). Trump could impose a dovish Fed Chair to lower rates, but with more tariffs, inflation will rise and so will longer rates and steepen the yield curve, which will benefit banks.

Makes sense for people to extend the term a little bit. He's not keen on owning 15-25 year bonds at this point, because the curve is fairly flat. Owning something in the 3-5 year range will be far more accretive than just buying really short bonds and maturing them. You can ladder both corporate and government bonds, it comes down to your risk tolerance in terms of credit.

It's a bit different in the US, where there's a much more inverted curve than there is in Canada.

He doesn't actually know what annuity rates are offering at this point, but beware of the tax consequences for sure.

Preferred shares have done exceedingly well over the past 18 months. Partially because the market has shrunk so much. Banks have started issuing a different kind of non-recourse capital lending. Lots of buybacks of preferreds, shrinking supply and liquidity.

He'd have no problem buying a number of different ones, don't concentrate on just 1 or 2 names. Nothing wrong with the George Weston preferreds. The only challenge with the preferred market is lack of liquidity, so difficult to get in or out at any kind of scale, but likely not an issue for the individual investor. Generally, treated very well from a tax perspective.

The market rally started to broaden in April-March, but fizzled in May-June. That's why the market is hesitating to rotate now--is the Dow and small-cap rally today a blip or a true broadening out?

This week he felt that small-caps, value and cyclicals are now a good place to be, though you don't need to get out of tech. Data this week showed that the economy is strong, including consumer demand, like airline flights. Also, interest rates will come down.

Believes seasonality for equity markets supports a strong July, followed by weakness through August and September. This is within the context of the “boring middle” of a new four-year cycle (three to five-year cyclical equity bull market). The Vanguard Total Stock Market ETF (VTI) historically supports positive seasonality through July before stalling in August and September. This implies that strength in July is an opportunity to position for weakness through the summer doldrums of the third quarter. We highlight uranium and homebuilders as two sectors at particular risk of a summer correction.

Our technical work suggests that equity markets are in phase two of the market cycle model, which we view as the boring middle as the underlying economy begins to show signs of strengthening and is typically marked by leadership in information technology, industrials, and basic materials. As a result, the bulk of our best ideas for 2024 are direct beneficiaries of this potential sector rotation. Our technical work indicates that the equity market correction that developed from late July – October 2023 marked a transition from phase one to phase two of the market cycle model.

Our longer-term cycle work supports a 2024 year-end target of 5,466 or another 14.6 per cent upside from the Dec. 29, 2023, close.

Market Update:

The US’s Consumer Price Index (CPI) falls for the first time since 2020 to an annualized rate of 3.0%, a deceleration from May’s 3.3% annual gain in prices. On the other hand, oil prices swung in a narrow range around $82 as demand for fuel consumption strengthened. The Canadian dollar was 73.40 cents USD. The U.S. S&P500 ended the week up 0.9%, while the TSX was up 0.8%.

All but one sector rose this week. Real estate and materials added 3.3% and 2.6%, respectively, while consumer discretionary and consumer staples added 1.8%, each. Financials rose 1.2%. Industrials and technology ended the week flat while energy gave up 2.1%. The most heavily traded shares by volume were Baytex Energy, Fission Uranium, and Toronto-Dominion Bank.
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The 3 words to describe the markets, particularly in the US, are stamina, tenacity and performance. Seeing great returns, really driven by the mega-cap stocks in the US with the S&P up about 18%. But when you take away the Magnificent 7, it's only about an 8-9% return so far this year.

NASDAQ's up 24%, a little less after today's move. The Dow's up only 5%, which speaks to the fact that the Dow doesn't have that much tech compared to the S&P 500.

Sees some substantial opportunities. At the same time it's complex, because there's some significant risk. Looking at the segments within technology, sees a lot of potential in cloud computing, AI and cybersecurity. But the high valuations are something to be careful of. 

When you look at the S&P 500 Info Technology Index, we're seeing 20-year highs in PE, price-to-cashflow, and price-to-sales ratios. Something you have to watch out for.

Generally speaking, sees global GDP growth being solid for the year. Advanced countries being a little bit stronger than developing countries. 

Inflation's moderating, as we saw today with the CPI number being a little less than expected. The first decline since May 2020, so that's good news and should lead to lower interest rates. Of course, we already saw the BOC and ECB cut rates last month. Should see some rate cutting in the US at some point this year.

If you have a 60% or 80% weighting in tech, that may not be the most appropriate weighting depending on your time horizon. Tech is expensive by a lot of degrees, so you want to look at other sectors whether financials, industrials, or healthcare. There are a lot of other growth stories out there, outside of tech.

From a taxation standpoint in a non-registered portfolio, it lets you defer capital gains via a return of capital. These types of strategies are quite efficient, as you're getting dividends as well as deferred capital gains instead of interest.