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

When you look back at history, geopolitical events like these tend to have a short-term impact but rarely have an intermediate- or long-term impact on markets. After the immediate shock, you find that markets are back to normal 1 or 3 or 6 months later.

Treat this environment as an opportunity to pick up high-quality names or names that aren't affected by what's going on around the world.

Some of the infrastructure and pipeline names look OK. Otherwise, it's a bit extended at this point. Likes the sector for the medium term, but probably a bit overbought at this point.

We're insulated here in NA because we produce more oil and gas than we need. The people who sell the stuff will jack up the price because they can. So it's going to cost people extra money, though the release from oil reserves will help.

We really need to see the conflict resolved in some form so that they can reopen the Strait of Hormuz. 

Still uncertain. Trump's threats will hang over CUSMA negotiations. Most American businesses want free trade to continue. Putting capital to work is much harder without a long runway ahead for your business.

The AI trade is still like buying GM in 1922. Long runway, though you wouldn't know if GM or Ford or Chrysler will be the winner. AI will dominate and change how we do business, especially in white-collar jobs. New jobs will emerge. But there is uncertainty.

He rebalances positions as weighting drops or increases. This forces the team to evaluate every stock that's not moving with the market. When a stock drops, (and as long as there's no reason not to) they buy more to bring it back up to the target weighting. Same thing in reverse on the upside.

He waits and watched event-driven cycles like this US-Israel-Iran war. Don't react to what Trump says on a Tuesday, because it could change on a Wednesday. Certainly, don't change your investment stance. Be long term and buy good companies which will act away from the current noise. Oil companies haven't reacted like oil prices have, and see current moves as event-driven. 

We haven't seen too many spikes like this in history. This has been an over 4 standard deviation move, which hasn't happened in the last 50 or so years. Significant.

The lag time for any pullback depends on what happens with the reason for the spike in the first place. Typically, these moves tend to come back down to a normal trading pattern over 3-6 months.

His team has a dashboard of signals, and there's one called the "early warning indicator". It gives a signal of potential weakening in the market, usually a few months in advance. It's like a flashing yellow light. 

A few weeks ago, it turned negative for both the S&P and the NASDAQ. Still remains positive for the TSX. 

With market weakness last week, his intermediate indicators (a weekly timeframe) turned negative for the S&P and NASDAQ. TSX continues to be strong, which probably has a lot to do with its makeup -- energy and materials. Financials have been weaker the last week, but have had a really strong year.

One of the things he's watching is the volatility index. Though not at historic highs, it's still very high right now and that makes it difficult to put capital to work. When it drops below 20, that's when he'd feel more comfortable moving cash from the sidelines.

Last week we talked about markets pricing in the anticipation of an event. Typically, the happening of the event is a good catalyst to take a profit on the trade. The energy sector really ramped up on stocks and underlying commodities, but now the sector (in US and Canada) isn't making higher highs from when it opened last Monday.

How long it will be a catalyst for market volatility could be weeks, probably won't be months. But certainly longer than it was initially suggested from the US administration.

It's got to be sticky here. Doesn't think the world adapts well to WTI over $100 a barrel. We've seen examples in the last 15 years where that's been the case, with economic weakness to follow.

The consumer can generally deal with a month or two of slightly higher gas prices. But after 6-12 months, it starts to eat into other consumption.

If you're a trader and on the screens all day, then you can react to the latest headline and trade the energy stocks back and forth. But you have to be watching everything that could come out of the White House and the Middle East, and you're competing with the trading desks around the world that do that.

The average investor shouldn't be doing that. During events like this that cause market dislocation, you should be looking for opportunities.

Nat gas is harder to distribute than crude oil, given that it needs to be liquified and there isn't enough global capacity to do that efficiently. Vast majority of distribution through Strait of Hormuz is on the crude oil side, so less (though some) impact on natural gas.