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

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.

Company Highlight: Loblaws Companies Limited (L):

Loblaws (L) is the largest Canadian food retailer, and some of its notable brands include President’s Choice, No Name, and Joe Fresh. The company operates supermarkets, drug stores, liquor stores, and clothing stores. It has two reportable operating segments, its retail and financial services business lines. Its retail segment includes corporate and franchise-owned retail food and associate-owned drug stores, and includes in-store pharmacies, health care services, other health and beauty products, and apparel. Its financial services segment provides credit card and everyday banking services, insurance brokerage services, and other. Management has been repurchasing shares at a fairly aggressive pace, indicating that management believes shares are undervalued.
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She is concerned about the economic landscape with a risk of a slowdown. Savings rates in Canada are coming down, credit card debt is going up, and the consumer is spending less. Bank earnings that came out a couple of weeks ago were really messy and the rate cut last week is a sign that things are not going well. They will have to cut more due to mortgage shock. In spite of all this. markets continue to rise. Guidance in companies relying on discretionary spending is coming down and consumers are taking home less volume. Her company's portfolios are focused on the preservation of capital and safety of dividends. They are overweight in defensive sectors. 

The question was on portfolio construction. Stay diversified with a balance of high dividend stocks and high growers. For example, in the financial sector you could own TD Bank with a 5 1/2% dividend and a depressed price because of the money laundering situation, and compliment it with Manufacturers Life with higher dividend growth. You could do the same type of strategy with utilities and telcos.