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

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.

Yes. Seeing a bit of a pullback from the most recent high at end of March. April hasn't been great, and so far May is not off to a great start. 

Probably positive for the medium- and long term. A bit of a cooling off period for some of these stocks to come back, as they were over-inflated. A time when you can do some buying and probably do pretty well on some names.

Yes, that area is not his preference right now. For the most part, earnings have been good. AMZN came through with solid earnings last night, GOOG was good last week, META not so great the week before. But overall, both the earnings power of those names and their ability to cut costs exceed some other companies. They'll be benefactors of a strong market rally, hopefully sooner rather than later. 

Yes. Primarily because technology in a slow-growth environment will typically outperform. There are different tilts to growth or value throughout the economic cycle. Right now, his preference is to tilt towards growth-oriented stocks. This traditionally takes you more towards US markets and tech names.

You need to have medium-high risk tolerance to own names in this space, as they have more pronounced swings.

He just boosted his exposure to energy, now owning 13 names. If oil continues to trade at $65-85, that's perfect for the oil stocks though, yes, there could be pressure on these names. He just boosted his exposure to financials from 8.8% to 23% over a year. This includes regional banks.