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

Would buy a 2-year note paying a near-4.9% yield. A great place to hide.

The market is up so much since the Oct. 27 lows. History says that we are due for a correction and tech is vulnerable. He's sell tech (take profits). The markets are 100% frothy.

Believes mechanical buy signals on gold, US 10 Year Yields, WTI Crude. Markets faced with difficult road ahead (valuations too high). Expecting markets to fall in the short term, but long term - is bullish. Business cycles generally follow 4 year intervals. 15% upside target on S&P 500 in the long term. Bull market cycle believed to have started in 2022. Expecting support at the 5000 level for the S&P 500.

Market Update:

The US consumer price index (CPI) in March came in hotter than expected, a 3.5% annual gain compared to the economist forecast of 3.4%, indicating the June rate cut becomes unlikely. On the other hand, the Bank of Canada held its interest rate steady at 5%, mentioning it needs to see clear evidence that progress on inflation is sustained before any rate cut. The Canadian dollar was 72.9 cents USD. The U.S. S&P500 ended the week flat, while the TSX was down 0.3%.

It was a mixed week of greens and reds. Materials rose 3.4%, while energy gained 1.9%. Consumer staples and industrials edged up by 1.0% and 0.5%, respectively. Real estate stayed flat while financials slid by 1.1%, while information technology and consumer discretionary both ended the week down 0.8%. The most heavily traded shares by volume were Toronto-Dominion Bank, Crescent Point Energy and Argonaut Gold.
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That's right. Belatedly for Canadians, we've seen the S&P/TSX Composite Index join its US equity index counterparts breaking out to fresh all-time highs in the last couple of weeks. He's increasingly encouraged with the durability of this ongoing cyclical bull market, in no small part due to the fact that it has broadened out.

In Q1, we saw 9 of the 11 economic sectors in Canada participate in the rise in the equity indices; 10/11 sectors in the US. Notable laggards are the interest-sensitives of utilities, telecoms, and real estate. 77% of all S&P 500 index members rose in Q1; 69% here in Canada. Historically, pretty strong breadth numbers. The foot soldiers are advancing alongside the generals (Mag 7). This increases confidence in the bull market.

Have to be mindful in the short to medium term that we've just had two back-to-back breathtaking performances by both Canadian and US stock markets. Markets don't move in a straight line. Reversals can be sharp, swift, sudden, and seem to come out of nowhere. One of the tells often is an extreme in sentiment.

He looks at the American Association of Individual Investors survey. Right now, 50% of US investors are bullish, and 22% are bearish. That's a lopsided sentiment. Not extreme, but fairly stretched. Signalling a yellow flag of caution. Could see a garden-variety correction of 5-10% in equity indices at any point.

Numbers in the US weren't as bad as the market's implying, but they were higher than expected. It was easy bringing inflation down from 8-9% to what it is today, since the supply bottlenecks from Covid have dissipated. 

But the big issue is that the last 1% is going to be difficult because it's due to housing, rent, and services. Much harder to bring down. Market predictions for rate cuts keep going down. Rates should probably stay where they are for some time.

Weird time for the Fed. They have meetings in June, July, September, and November 6-7. November is the US election, so no rate cuts that day. Very short timeframe in which to bring down rates. The 2% inflation target was chosen many years ago by central banks. That was the line in the sand, and they have to stick to it or it will diminish their credibility. 

One more thing. Historical average on rates is around 4%. Rates are not outrageously high; yes, on the short end, but they'll come down over time. Normalization of rates is important for people who are risk-averse, they can put money in GICs today at 5%. They went up the risk curve, into things they shouldn't have been in, and that hurt the average investor. Normalization is healthy for the economy in the long run.

A lot of companies have to raise prices, like the food industry, because they're just not making any money otherwise. There was a long period of time when they couldn't raise prices at all. Those companies may not be gouging, but that's where people feel it the most, so politics has to get involved.

Banks in the short term, as they're more interest-rate sensitive. Insurance companies have longer-term liabilities, on which they hedge exposure to interest rates. Lower rates help general asset markets, which insurance companies invest in. Going into financials in a declining interest rate environment is probably what you want to do.

CRTC wants to have more competition, but we're a small country with only 3-4 providers. US is 10x our size, and they have really only 3 big providers. So it's a weird request. As well, Canadian providers have to provide service to outlying areas that aren't necessarily cost effective.

There's possible downside risk in smallcaps. Growth looks better than value and will continue to lead the market. The Nasdaq will move sideways or even pull back in the next few weeks until earnings begins the week of April 22 which could boost the entire market

Pros of Investing in the US Stock Market:

1. Diverse Opportunities:

The US markets offer a wide range of sectors, including technology, healthcare, and consumer goods. The US is home to mega-cap tech giants that help drive innovation and have a global impact. The US healthcare sector is also of global importance, with large pharmaceutical, biotech, medical devices, and other companies.

2. Liquidity and Depth:

The US stock market is the largest in the world by market capitalization, and it encompasses a variety of of publicly traded companies across different sectors. Its high trading volumes ensure easy buying and selling of stocks. Investors appreciate this liquidity because it allows them to execute trades swiftly.

3. Innovation and Growth:

The US is a breeding ground for cutting-edge companies that drive technological advancements, disrupt industries, and redefine how we live and work. Silicon Valley hosts a cluster of tech giants, startups, and venture capital firms.
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Earnings will be crucial going forward. Markets have made such a big move since 2022, and if you missed 2023, sorry. He's surprised about the strength of 2024 so far. The US economy is strong, but Canada is starting to weaken. What will happen to the mortgage market when we head into 2026-7 as those mortgages come up for renewal. Nobody knows what will happen and something good or bad can derail a market. So, best to be a long-term investor. Ignore the macro and stay invested.

Believes CPI report in the USA will be indicative on health of economy. If inflation numbers are high - will make it difficult for US Fed to cut interest rates. Zero interest rate cuts will be a sign that the economy is not as strong as assumed by the broader market.