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

Believes structured notes can be a good way for investors to get returns in a TFSA. Not a "one size fits all" approach. Many ways to setup account to generate ~8% return with guarantee of principal return. Very expensive, but good options for investors who want security with reasonable amounts of dividend yield. Can be an opaque market - would not recommend for retail investors. Learn more about structured notes at Larry Berman's website. 

It is a challenging market with interest rates at their highest level in decades along with rate reductions being pushed out further. and economic growth being stagnant or slowing both here and abroad. In spite of this, there is still lots of momentum investing going on and there's even a momentum ETF (MTUM) which is up 30% since November. Even stocks that have consistent returns have rising valuations: eg. Costco with only 6% growth in the top line. Investors should be aware of why a stock they own is rising. Is it because of fundamentals or just momentum which is really a form of speculation.

The question was on the consumer retail sector. It is under pressure since the consumer is now feeling squeezed. They have now spent the last of the extra pandemic money and are saving less now. Credit card balances are maxed out and are at their highest levels. Even Starbucks has 2% less sales. Pick retailers that are building more stores such as the one mentioned in his top picks.

Believes stocks are at a cross roads between inflation & opportunity in technology. Investors should focus on companies that are not held hostage to interest rates & inflation. Housing prices stubbornly high, but companies like Amazon bringing down costs in consumer goods. Markets are awaiting upcoming CPI reading & jobs reports. New A.I. tech making record breaking advances. Machines are being used to speed up development time for new drugs. Would advise investors not to get too optimistic about inflation coming down. Immigration keeping down wage inflation, but also adding to housing costs. New Chat GPT 4.0 is incredible with translation skills. However, new technology doesn't solve housing problem, or demand for other physical goods (cars etc.) Near term, there are major concerns. Reminder of past internet bubble where promises of tech revolution eventually came true - but took years.  Also - like 1999 - tech promises didn't solve short term problems (costs etc.).

Preventing Investment Fraud: Don’t ever send money back

A common scam is that someone sends you a cheque and asks you to send money back to them. Sometimes, they message you for whatever reason, or want to buy something you are selling online, and “accidentally” send you a cheque for too much and ask you to send back the extra money. In some cases, you’ve allegedly won a prize, but you’re told to send money to cover taxes and fees.

Using your intuition helps here. Everyone knows, or should know, that banks will often hold cheques until they clear. There is no reason to do anything at all until you know you have the money in your bank. Also, how many times have you bought something and accidentally paid thousands of dollars too much?

Sure, mistakes can happen, but that’s why banks allow cheques to be stopped. Asking for cash to make up the difference is a giant red flag of a likely scam.
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Approaching record territory for S&P 500. Copper & gold prices remain strong, while oil prices have fallen off a little bit. Energy stocks gaining strength as the market broadens out. Large Canadian banks are at bargain levels prices for investors. Expecting gains for large Canadian banks going forwards. High multiple stocks like Meta are experiencing large amounts of volatility. Strong results from major tech stocks is propping up highly valued stock market. Perhaps money is starting to rotate out of FANG, into more companies throughout the economy. 

Markets starting to become confusing to bear investors. Done Jones closed up for 8th straight day in a row (up ~100 points today). Investors realizing public figure statements are not to be trusted as accurate all of the time. US Fed viewpoints are far from certain. Predicting US Fed "hawkish" stance will be pushed in order to to cool markets. Cool economy will allow US Fed to cut rates. US Fed Chairman - J Powell is very capable which is encouraging. Upcoming earnings from "Blue Chip "companies like Home Depot will be indicative of economy. CPI reports the most visible reading on markets - upcoming reports will be closely watched. 

Market Update:

The Bank of England maintained its interest rates at a 16-year high of 5.25%, edging closer to a rate cut as early as June. On the other hand, the U.S. Labor Department reported the jobless-benefit claims of 231,000 in the week ending May 4, the highest level in nine months, compared to the estimate of 214,000. The Canadian dollar was 73.06 cents USD. The U.S. S&P500 ended the week up 1.6%, while the TSX was up 2.3%.

All but one sector rose this week. Materials and energy added 5.0% and 3.3%, respectively, while industrials gained 2.7% and financials added 2.4%. Consumer staples and real estate edged up 1.5%, each, and consumer discretionary rose 1.3%. Technology ended the week gave up 2.3%. The most heavily traded shares by volume were Athabasca Oil, B2Gold and Argonaut Gold.
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Yes, but it's also because markets have gone up so much. It's not about the actual print, but more about the expectation prior to the print and did it meet, exceed, or miss that expectation? That's where you have the emotions that run wild.

We're not looking at valuations in a vacuum. Investors can go to cash, bonds, commodities, real estate, private equity, equities, or other asset classes like collectibles. Cash is no longer trash. You're earning a higher return on cash, there's not this impetus to get out of cash and into something else. 

At the end of the day, asset classes are always competing for participants' money. The question is where is our money going to be treated best on a risk/reward basis?

That's not a stretch. It's like a roller coaster where things start to go down, and then they go down all at once and you didn't see it coming.

Savings rate in US was lofty in 2021 during Covid when we were all shut in, hitting a high of 20-30%. It's been coming down. What's alarming is that savings levels have come down to what they were in 2005-2007. We know what happened after that.

He's not trying to be an alarmist saying a recession is on our doorstep. What you are seeing is companies like those mentioned saying that the consumer is not willing to spend the way they were before. Revenge travel is not as buoyant as it was last summer. So, what does that all mean?

But that's the opportunity. He shies away from buying expensive stocks, as you're always worried that if the growth stops, you're going  to have a downdraft to the downside. When buying a stock that's reasonably priced, you have a margin of safety (you hope).

Absolutely. It may not be a situation where the whole business is in jeopardy. But again, you have to decide where is your capital going to be treated best? Sometimes best to just sell at your stop loss and move on.

A year or so ago, everybody was debating hard vs. soft landing. As we moved through last year, the Fed really couldn't have asked for much more, keeping rates up and having inflation slowly come down. US unemployment is still incredibly low by historical standards.

Now, employment is still strong, and inflation is still stubbornly hanging in up there. Calls are for fewer than 2 rate cuts through 2024. Whereas in 2023, expectations were for 4 or more cuts.

Interest rates are like a tide that pulls equity valuations down. Fewer rate cuts will impact equity valuations going forward. Some concern in early April, when market valuations pulled back, as the market anticipated fewer rate cuts for this year. Luckily, earnings season is now 80% done in the US. Earnings growth is very strong, hasn't been this good in about 2 years. YOY earnings growth up about 5%, revenue growth up 4%. Investors are starting to look more to the fundamentals, the underlying growth of companies. Economic growth is still hanging in pretty well.

Next week on May 15, US numbers come out for CPI. That's going to be a big indication of whether those 2 rate cuts that are priced in will happen by year's end or not, and that will impact equity valuations.