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

Market Update:

The TSX index was up 3.5% for the month of December 2023, up 8.68% for the year 2023. This compares to the performance of the S&P 500 which was up 24.2% for the year; DJ Industrials up 13.7% and the Nasdaq  Index up 43.4%. Globally, 2023 was a strong year as hopes for interest rates to turn down in 2024 led to general price earnings ratio expansion as the year ran out. However, inflation rose to 3.4%Y/Y for December 2022 in Canada and the US inflation rate also ticked up to 3.2%. On the employment front, full time employment was sinking in the US and Canada. The high immigration rate in Canada softened the employment drop in Canada. That fact will also soften a drop in home prices, but support rising rental rates. Rate cuts are still expected in 2024, but perhaps at a slower rate than previously anticipated. With this background the following Table presents the high and low stock market performers in Canada in December 2023.
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He wasn't surprised with Powell nor the sell-off. People fool themselves into unjustified euphoria. Yes, in 2024, stocks can indeed go down. The risk is for the Fed to cut too quickly and then we get a hot inflation number. Instead, Powell is doing the right thing.

Last year, markets did very well because of tech, but the rest of the sectors were very mixed. A mixed year. 2024, we'll likely see the opposite, because the economy is weak. So, tech will not perform as strongly. Some names are left behind, so this is a great stockpicker's market. Profits will come under pressure this year.

Watching for US Treasury announcements this week on quarterly refinancing needs. Appears requirements will be less than originally planned for. Upcoming US Fed meeting will also be indicative of US economy. If US Fed starts to issue more bonds than expected, not a good sign for markets (need to raise capital is bad). Widely expected that US Fed will keep rates flat, and appears rate cuts are on the horizon. Reduction of US Fed balance sheet will also be interesting to watch. Upcoming earnings from big tech companies will be defining on direction of markets (could break momentum of markets). 

Educational Segment.

Best place to get growth in portfolio that is not tech oriented is ETF called PAVE. Offers investors an option to get infrastructure spending exposure. As globalization reduces, more spending will occur "at home" in North America. Bricks & mortar staple businesses also provide traditional cash flows. Not a cheap valuation, but would recommend buying on share price weakness. PAVE ETF also pays a nice dividend yield for defensive investors. 

Case for Owning Equities Over the Long Term: 

This might make the prophets of doom quiver a bit. We ran a Bloomberg screen this week, using Jan. 9’s closing market prices, on every stock in North America. The market at that time had been open for a grand total of six trading days, yet we found 21 stocks that were up more than 20 per cent this year, ranging from a high of 106 per cent for Athena Bitcoin Global to 20.6 per cent for Structure Therapeutics Inc. Since we are on the topic of pie-in-the-sky news, how about annualizing those returns? Wow, that would be something.

For our screen, we only used companies with a market capitalization of more than $100 million. The two companies noted above are more than $1 billion each. If we take off our market cap restriction, we get even more early winners.
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Garner predicts a surprising but sharp uptick in grain prices though agriculture has been hated. Tech has made farmers more efficient. New production came online after the grain shortage following Russia's initial invasion of Ukraine. But demand from China has softened. However, the bears/pessimists have sold by now until we're now seeing a floor/bottom. Garner predicts corn rally to $5.50. Don't buy wheat now, only on dips. He expects wheat to rally with corn. Wheat's chart shows an inverse head-and-shoulders, so wheat is pointing up and could rebound to the neckline of $6.60; a breakout could touch $7.60. Soybeans could see short-term weakness, but a breakout past $13 could see the price reach $14, and can bottom at $11-11.80.

Historically it is a good sign that U.S. markets keep hitting record highs after 18 months of not making new highs. Also we are in an election year after a negative mid-term (presidential) market. This is good too, historically. There has been 5 new net term highs in January which predicts well for the rest of the year. A number of global markets have woken up after 15 years, including Japan after 30 years. There is a substantial improvement of the breadth of the market and in putting new money to work. Along these lines there could be a fair bit of money coming back into Canadian stocks. Also there are a lot of Canadian companies not just focused on the Canadian domestic economy, especially in industrials. Latin America and parts of Asia are interesting - not just the U.S. U.S. earnings are improving after a contraction - could be up 15% by the 4th quarter. There are corporations and individuals with high cash rates.

The question was on ballooning U.S. debt and the U.S. dollar. He owns no U.S. debt or anything that has a lot of debt. He owns companies with excess cash. He would sell the U.S. dollar for other currencies including Canadian.

Lots of chatter in the markets about high valuations. Depending on investors outlook - will affect investing strategy. Small cap stocks appear to be valued much better. Would advise investors to diversify in order to spread out risk. 

Reasons to Own Stocks For the Long Term: How about a one-day stock market return of 14.1%?

We are not talking about a single company here, but about an entire market moving up 14 per cent in a single trading day. Sounds like a fever dream of an investor on margin, but it can happen. Indeed, it happened on Jan. 3, 2001, after the United States Federal Reserve surprisingly cut interest rates to fend off a recession. Tech stocks soared like they never had before. I was a (younger) portfolio manager at the time. It was a very fun day.

Sure, the best market days come during troubled times, and the top 10 Nasdaq moves (all more than 7.8 per cent single-day moves) were all during the COVID-19 pandemic or in recessionary times. But you have to own stocks to get those moves.

We can hear you say, “But that’s the Nasdaq market where stocks are always extra volatile. What about the Dow Jones industrial average?” Well, in March 1933, it rose 15.3 per cent in a single day. That was in the middle of the Great Depression, but it is still the largest upward move on record.
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Yes, but unduly confident. We saw GDP numbers from the US yesterday, and they were more than 50% higher than expectations. Earnings are still robust, and stock markets are at record highs. The Fed may have tamed inflation, but the next logical step isn't that we're going back to 0% interest rates. In this environment, it just ain't gonna happen.

Either the market's going to be disappointed, or it will come to accept the rates as they are. This is something that's closer to normal where people have to pay to borrow money, rather than what's been going on the better part of 20 years.

Yes you have 5%, give or take, on CDs and GICs, so they're a viable alternative to the stock market. Why do I need the stock market if I can get 5% from a GIC? The same sort of issue happened 40 years ago when interest rates went up precipitously to 20%, so people put money into Canada Savings Bonds that reset every year. 

There are 2 options. If you really believe interest rates are coming back down again, buy longer bonds. But with an inverted yield curve, where longer-term rates still lower than shorter-term rates, others are choosing GICs. 

If interest rates are coming down, you can ignore both of them and just own the stock market. Whether interest rates go up or down, companies with good strong earnings are in a position to raise their earnings and dividends. So you're better off in the stock market than in either bonds or bank deposits.

The environmental, energy-conscious people tend to dismiss the nuclear power option, because it's nuclear. It has really the only possibility of providing sustainable, cheaper, renewable power for a long time. It's dependable. He likes the sector for 2024.