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

When there's a widely held consensus on a stock, assume it's already being discounted or reflected in the market, like investors fearing bad earnings season ahead so Wall Street already considers that as a reality.

When the fundamentals have changed, like missing a couple quarters. A third quarter can beat, and he kicks himself when that happens. But be disciplined.

Market strength only represented by handful of large tech names. 35% of YTD returns on S&P 500 have come from NVIDIA. Small & mid cap names are not getting traction in the broader markets. Average company stocks are not participating in the "bull market". Phenomenon of "indexing" by large amount of investors also increasing markets. Without A.I. and tech - believes markets would not be nearly as high. For example, many commodities are falling. 

Believes US Federal Reserve's main focus going forward will be on cooling inflation, and keeping employment numbers relatively high. Expecting J.Powell to fixate on employment numbers as inflation numbers trend down. Will be a delicate balance between inflation and employment. 

Companyu Highlight: Metro (MRU):

Metro (MRU) is a leading food and pharmacy company in Quebec and Ontario. It operates a network of over 1,600 retail outlets in Canada. MRU operates food stores under different banners including Metro, Metro Plus, Super C, Food Basics, Adonis and Première Moisson, as well as drugstores under the banners Jean Coutu, Brunet, Metro Pharmacy and Food Basics. More specifically, the company operates 983 food stores across Ontario and Quebec, and 640 pharmacies across Ontario, Quebec, and New Brunswick. The company also has a strong buyback program in place, and it has a good track record of solid organic revenue growth.
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Quality of stock market rally in question as small number (~7 companies) responsible for gains. Very narrow band of performance for big tech names. Geopolitical risk along inflation could but gains at risk. US Fed rate hikes are still a possibility. Seeing value in a lot of names that have not caught upwards draft in rally. However, is expecting more growth from "Mag 7" stocks. Might be risky to wait for weakness - not a good idea to be "anti-tech". 

Market Update:

The US consumer price index (CPI) for May rose 3.3% on an annual basis, and the consensus forecast for the annual inflation was 3.4%, showing a path to a rate cut over the next few months. In the Federal Reserve meeting in June, the Fed announced the decision to keep the policy rate unchanged in the range of 5.25%-5.5%. In addition, Fed policymakers see just one rate cut this year and 4 cuts in 2025. The Canadian dollar was 72.73 cents USD. The U.S. S&P500 ended the week up 1.4%, while the TSX was down 1.9%.

All but one sector ended the week in red. Materials slid by 4.4%, followed by energy which gave up 3.1%. Financials edged down by 1.9%, while consumer discretionary and real estate declined by 1.6%, each. Industrials and consumer staples fell by 1.4% and 0.8%, respectively. Technology ended the week up 2.4%. The most heavily traded shares by volume were Canadian Natural Resources, Bitfarms, and Corus Entertainment.
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The S&P 500 is outperforming the TSX. The TSX is down quite a bit today, led by energy. Whereas the S&P has been very resilient, all-time highs, up double digits, though very narrowly led by large-cap tech stocks.

What the Fed said yesterday, suggesting only 1 rate cut this year, was not really surprising. To her, it was reassuring that they still see a path to inflation going down. Unemployment is around 4%, and they don't see that deteriorating too much. Interest rates will trend down over time, as long as inflation does also.

In her growth portfolio, she has just over 50% outside Canada. This year, energy has not been working and oil prices are range-bound. It's anticipated that we'll be in an oversupply situation by 2030. 

Plus, the Canadian economy is underperforming the US economy. Unemployment here is 6.2%, up a lot from the 4% low. That's all impacting the banks, which form a large part of our index. So sectors that are big weights in our index are holding it back.

While there are some Canadian growth stocks, not as much as in the US because our tech sector is so small, and tech is what's been leading the market for the past year.

Rate cuts in Canada would help our economy, and it will help the banks. In the US, if the first one doesn't happen until the end of this year, she doesn't know if that will make much of a difference. 

What we want to look for, when the cut does happen, is the impact on sentiment. Corporations are going to be more comfortable with the rate environment, which they'll see as more stabilized. If it's a soft landing scenario, and the economy does continue to grow, over time that's going to be beneficial for corporate profits.

Yes. Even in Canada, earnings are expected to be up. In the US they're much stronger, again, led by tech stocks. If we have that profit growth, that's supportive for the stock market.

If it does, it's short term. Don't let it influence what you do in the stock market, you have to take a long-term view. If there is some profit taking or selling before June 25, then take advantage and buy some good companies. In general, just ignore the short-term noise. Her own clients haven't been stressing about the change.

Banking industry, in general, seeing a slowdown in growth. Good time to increase weighting in the sector. Lots of dividend-type stocks are lagging, such as banks, utilities, energy infrastructure, telecoms. Don't go full force into the banking sector, just nibble.

US Fed Chair Jay Powell walked the tightrope well today, saying the economy is no longer super heated though gradually cooling. He held rates. Today's CPI print seemed to catch the Fed by surprise.