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

Investing Basics: Dollar-Cost Averaging vs. Lump Sum Investing

For investors who find themselves with large sums of money looking to deploy into the markets, the strategy of how to best do this is often debated. Investors typically choose between the strategies of dollar cost averaging (DCA) or lump sum (LS) investing. Dollar cost averaging or a ‘constant dollar plan’ entails investing the same amount of money in a specified stock or portfolio of stocks over a given time-period, without giving consideration to future price changes. Comparing this to lump-sum investing, where an investor would deploy the full amount of money available to them immediately into a single stock or portfolio of stocks. 
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1) Will all of the Magnificent 7 stay on top? Likely a few will rotate our and new ones come in. 2) The impact of the Presidential election. 3) The continued impact of the weight-loss drugs. 4) China's slowing economic growth. 5) Mergers and acquisitions return. 6) Interest rates.

Inskip predicted last's August market sell-off, and she points to history which says that the S&P rallies 75% of the time in election years, and during Biden's term that seasonal moves have been stronger than history. She tracks the S&P's moving averages (13-, 26- and 40-week) to track momentum. Currently, all three are positive. There's a floor popping up at 4,750 that the market is now testing (will it hold?). Also, the S&P has made a cup-and-handle and has broken that handle--and could blast higher to new all-time highs. That said, history shows we could consolidate from now till May, meaning the market will go nowhere for 5 months before hitting a summer rally. Be patient--gains are likely to be back-loaded. Another chart shows the S&P equal-weight (SPXEW) with market strength concentrated in the megacaps. The ceiling on SPXEW is $6,321; last week, the market fell below this level, thus suggesting the S&P will be sideways for a while. He expects the next move to be a pullback. Consider the chart of Apple: This year so far Apple has pulled back hard, below its 13- and 26-week averages, which is crucial, though above its 40-week (barely). If it falls lower, it would be bad news, unless it holds above $180 by Friday, whereby Apple is a buying opportunity. She says Apple could go either way, be he still says to own, don't trade, Apple.

Given slightly hotter-than-expected Canadian inflation today, he expects a very choppy quarter. See what happened with U.S. CPI came in slightly higher. We won't see a tidy straight line down, as the bulls expect. Also, he expects Washington to continue spending on the military, healthcare, shelter and renewable energy transition--all this will offset deflationary trends. Definitely, the US is the most expensive market at 18.5x PE. Without the Mag 7, then it's 16.1x PE vs. the world's 12x. Ex-"granola stocks" (i.e. LVMH, GSK, Roche, Loreal, Nestle, AMSL, SAP) then it's 11x PE.

Large caps are trading at a 2 turns premium to their normal historical multiples over the last 20 years, whereas small caps are 5 turns cheaper than their long term multiples. He uses P/E multiples so translated into numbers, 22X forward P/E is usual for small caps and they are at 17X now; large caps are usually at 20X P/E and they are now at 22. This is all based on U.S. data. Also small caps normally trade at a premium multiple to large caps. There are lots of great small cap companies in Canada and many investors are underweight in this type of company.
There were a lot of takeouts in small caps in September/October and there is more to come with the good valuations. A lot of deals can be done for cash and refinanced later if rates go lower. The IPO market is quiet right now but we could see more later

The question was on whether he would use an ETF for small cap investing and would he go with one focusing on growth or on value. He would not use an ETF which he feels hold below average businesses in the small cap area. He looks for small caps with both growth and value and feels he can outperform by holding the individual stocks themselves. If you need to buy an ETF you could go with the Russell IWM.

Believes geopolitical tensions in Middle East & election in Taiwan will result in structural changes in economy, and are not temporary. Not surprised that investors don't believe inflation will abate quickly. Expecting US election to bring a surprise with a re-election of Donald Trump, however doesn't think that is a positive for markets. Unofficial kickoff of earnings last week will be indicative of North American markets. Appears investors and consumers are cautious right now due to fears of recession.

Believes markets are currently over-valued, and heading for a downturn. S&P 500 reaching all time heads indicates weakness going forward. Believes investors should be cautious. Seasonal patterns are setting up for US election year. Generally speaking, first half of year will be flat to down on election year. Recent market rally, not guaranteed for investors going forward. Expecting US Treasury to issue more bonds, and raise interest rates. Will be able to reduce rates in order to stimulate economy which will be politically driven. 

Top ETF Choices - A Few Ideas:

In general, we would prefer to own more shares in fewer ETFs, than owning less shares in many ETFs (10+). Much depends on the quality and liquidity of the individual ETFs, but for broad market-based ETFs, which already have a lot of diversification within them, we feel that less is more.

While each individual investors’ preferences and risk tolerances are unique, we would prefer a portfolio that includes one S&P 500 ETF (VFV), one Nasdaq 100 ETF (HXQ), one TSX 60 ETF (XIU), and if needed, one ‘theme’ ETF that plays on growth (VGRO), balanced (VBAL), or dividends (VDY).
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Believes January is traditionally a good month for stocks, and expects strength to continue in markets. Profit taking at the beginning of New Year will end, and markets will continue to go up. Does not see any reason to sell stocks and will continue investing in select companies. 

Consider Targeting a 'Theme' to Gain Exposure To:

Investors should consider the specific theme or ‘factor’ that they want to gain exposure to. For example, the VBAL ETF is aimed at providing investors with a balanced investment approach between 60% equities and 40% bonds, whereas the VGRO ETF provides a higher growth focus, but still has 80% in equities and 20% in bonds. We might prefer to own just one of the VBAL or VGRO in an individual account, rather than both, as they each have a lot of overlap, but one is designed for a more balanced approach and the other for growth. Picking a ‘side’ can be important in investing.
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Fabulous 9-week rally to end 2023, but we're stumbling out of the gate so far in 2024. We were overbought quite a bit, so some consolidation should not be surprising. Strong US labour data, some uptick in bond yields, and today's inflation print was hotter than expected. Markets are taking that in stride.

Renewed concerns about the trajectory of interest rates and inflation as well. Data since the 1950s shows that Q1 of an election year is typically flattish. So he expects some bumpiness in Q1. Fun fact: since 1950, in 11 observations of a first-term election-year president we've never had a negative return for the calendar year for the S&P 500. In fact, the average return is 12.2%.

Yes. The MSCI World Index is at 73%. Last 3 months has seen the dominance of tech stocks fading a bit, and we're getting broader participation from other sectors such as healthcare, industrials, and financials. That's great for investors who are diversified, because last year it was pretty much all about tech and communications.

Done well, now trading about 200-day MA. On an uptrend, with ascending higher highs and higher lows. Likes the space. Important to have international exposure given the valuation discount relative to the US.