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

The sector could do no wrong for a while, and all the stocks went straight up. They paid too-high dividend yields. Lots of competitive pressures. Doesn't like the sector. Prefers secular growers.

Unsure whether the market has realized there might not be interest rates cuts. Believes interest rates are unlikely to move before the US Federal election. Real estate investors in Canada are realizing that rates might not fall - creating interesting dynamic in markets. Commodities (gold etc) not rising as fast as expected (due to Bitcoin). However, gold prices appear to be appreciating. Uranium appears to be strengthening as a result of demand for Nuclear energy. Record high US debt also making economy unstable. 

Believes selloff has already occurred given large selloff in the markets. Perhaps the worse of the selloff is behind us. Could be a good time to buy equities that have been priced well. Large tech names have already started to recover. Is a good time to buy FANG stocks. 

Weak job numbers last week are not indicative of overall strength of economy. US economy firing on all cylinders which will cause further inflation. US Fed in very tough position - high debt loads make it hard to raise interest rates. US Fed can't cut rates either, as will increase inflation. Higher jobs numbers and inflation will continue to fuel inflation. Expecting hard economic landing - just not sure when. Inverted yield curve is setting records on length. Recent earnings with tech, not very strong. Strength in economy is very narrow (tech). Warren Buffett trimming Apple indicative of strength. 

Alternative income becoming more important for investor portfolios. Alternative investment conferences planned for Toronto in coming weeks will be indicative of sentiment in private equity and private credit. Public debt is not creating enough yield to keep up with inflation. Investors must find better options in the private markets. Top sovereign wealth funds (CPPIB) have directed investment to private markets. 90% of investment universe is located in private markets. VPC is a good option to get exposure to private markets in the USA. VPC comes with volatility in public markets - so would still recommend traditional private investments. 

Preventing Investment Scams: Watch out for identity scams

The development of AI means this will be a far greater problem in the future. A grandfather might get a call from a grandchild saying they are in trouble and need money. They might sound exactly like the relative, with the scammers using AI technology to duplicate their voice and even image. We have heard of scams where a victim fears a relative has been kidnapped and pays thousands of dollars in ransom. Meanwhile, the relative is wandering about town just fine.

There is an easy solution to this scam: All families should have a verbal password of some sort. If there are any weird conversations, a password confirmation can help sort out identities. Or ask the caller a question that a scammer would not know. Be careful here as social media provides a lot of that information, so a scammer might know a lot of answers. Make the password or question highly specific, not something simple such as, “What is your birthday?”
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Markets appear to be recovering from weakness in April. Investors are cautious with under performance in tech since January. Will be interesting to see if trend in tech slowness will continue. Energy & industrial sectors appear to be benefiting from rotation. Defensive stocks appear to be the latest trend in investor tastes. Expecting strength in defensive sector as investors seek protection from "sell in May" traders. Will be opportunities in the spring/summer for stocks that have sold off. Four year election cycle will weigh on certain stocks - uncertain which sectors will benefit the most from spending by politicians looking to get re-elected. 

Preventing Investment Scams: Don’t answer that call

A lot of scams start with a random phone call. It could be someone offering you an investment or it could be someone posing as an employee of the bank you deal with. But think about it: Do you really think that there is a legitimate random stranger phoning you with a legitimate, safe, high-return investment opportunity? This is not how the investment world works.

Banking and other scams, on the other hand, prey on fear. A caller might tell you that your bank account has been hacked and your savings could be drained. But again, you need to use common sense here.

If your bank account has been hacked and the bank knows enough about it to call you, the easiest solution is to simply freeze the account until the problem can be investigated. You can go to the bank with identification to help solve the problem. At the very least, hang up and then call the bank back. Not on the number the scammer gives you, but the number you might regularly call or the main number from the bank’s website.
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Since 1928 on average, S&P 500 has a correction of at least 10% in a typical year, and 3 pullbacks of 5%. Volatility we've been seeing, down about 4%, is very normal. We will see these pullbacks and corrections throughout the years. 

Yes. We're looking at almost 7% profit growth in the US in 2024, and 14% in 2025. We want to pay attention to corporate earnings. Had a really great move from November through March, so no surprise that we're seeing a little volatility in the markets today. Markets and investors are digesting some of those returns.

Good news is that we're seeing more participation outside of tech and communication sectors. Recall that 2023 was all about tech and communications. Now other sectors are participating, which is great for investors.

Near term, be slightly guarded in how you deploy cash. Allow this consolidation phase to play out a bit before the next leg of an upturn happens.

Certainly lots of dry powder in money market funds. $6T is near historical highs. That can fuel further stock gains later this year. If rates start to come down a bit on short-term notes and money market, perhaps some of those funds will shift into equities and bonds.

55% US equities, 30% Canada, 15% elsewhere. He's been overweight the US for quite a while. US has better depth, better earnings, and a stronger economy. Plus a bigger sandbox to play in. The USD has helped in terms of the currency moves. 

He'll probably continue to be overweight US relative to Canada.

Sometimes ETFs in the US will have slightly less expensive MERs compared to Canadian counterparts. If looking at the S&P 500, it's not a cheap index at this point. You want to be very selective in terms of the names you own. S&P 500 as a whole is about 27x, rich. But it's also very heavy in tech, about 35-40% in true technology names. And the tech sector is around 7.5x price to sales right now, expensive.

Right now, he doesn't own any S&P 500 ETFs. He'd prefer an ETF with a quality factor that looks at quality names, such as QUAL.

Makes sense to hold some technology, as we've seen momentum over the past year. However, in the past few months, tech hasn't necessarily been a full leader. In fact, over the last month it's been at the back of the pack. Perhaps an opportunity to purchase, but be very selective with your names. He owns GOOG, AMZN, NFLX and MSFT, but no AAPL, META or NVDA. 
 
Looking at the index, average price to sales of the Mag 7 names is 6.5x, PE is 36x. Pricey. The S&P is closer to 2x. Be careful of what names you own, what the growth rate is and, more importantly, what your portfolio allocation to tech is.