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

On the SaaS side, things have perked up. With SaaS being very highly leveraged and lots of debt on the books, interest rates coming down are helping out a lot.

It's been very quiet. He thinks so, but probably not in December. We'll have to wait till the new year.

For the whole landscape, pricing and inventories have been an overhang. That's come off over the course of this year. Most companies are expecting prices to go up, and inventories have been whittled down. In a good position going into 2024.

Market Update:

The TSX Index was down 3.4% in the month of October 2023; down 2.6% YTD and down 2.8% over past  year. The Dow Jones Industrial average followed a similar pattern. In contrast, S&P 500 index  was up some 10% YTD and the NASDAQ composite index was up over 20% YTD. Canadian GDP contracted 0.2% annually  in the second quarter; Consumer prices in Canada were up 3.7% annually in September, in line with August. The BOC is widely expected to leave their policy rate unchanged at 5% later this week (unchanged since July 2023). Global uncertainty has been exacerbated by the wars in Israel and Ukraine and by the shenanigans in the US House  of Representatives. Additionally, the direction of the Chinese economy is still not clear: its GDP was up 4.9% annually due to a pickup in household consumption.
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The market has had quite a move this year after digesting a lot of bad news (US debt default diverted, inflation worries, interest rates rising, worries that the US government can't fund itself). Incredible. The Magnificent 7 has led the charge, but now the rally is broadening out into other sectors and even into small caps. This year's Santa Claus rally (after tax-loss selling) could last a week or two into January. Gas in seasonally in weakness, so he has been trimming his energy holdings and will return in mid-December; energy seasonality runs from then into April. Agricultural commodities and copper follow a different seasonality. Corn had a good run from mid-2020 to early 2022 when Russia invaded Ukraine, partially recovered until early 2023, fell again and has been basing lately at current levels. He doesn't trade commodities, but wants to se more basing before declaring the downtrend over.

When resources do well, the TSX does well. Same goes with financials. But the US outpaces Canada and other markets because of their innovation, breath of companies, and deep liquidity in the US market. You can still have exposure to Canada, though.

Will be watching Canadian bank earnings this week. Impact of rising interest rates and how this affects consumers. If delinquencies and consumer struggles are rising, will be indicator of economy. Mortgage resets around the 5 year mark up for renewal, will also be of interest. Bad loans are the biggest concern, as mortgages can be insured from the home owner perspective. Thinks US Federal Reserve will keep rates higher for longer - curious how long this will last. Personally, does not think rates need to go higher. Believes Canadian sales are not rising in material way, and all increases are nominal. 

Benefits of Small Cap Stocks: Believes 2023 year of inequality in financial markets. Large cap stocks dramatically outperforming small cap stocks. Quality of economic growth not very good. Money has been chasing top tech stocks, which is not good for markets. Broader economy not performing nearly as well. In the long run, small cap stocks will catch up to large caps. Small cap stocks could be a great way to outperform market going forward. 

The December/January period is a seasonally strong time of year for equities. There may be a rotation out of large cap tech names into the Russell 2000 type stocks, small cap financials etc. The whole U.S. regional bank sector is down and technically basing so it is at a good value for buying.

Editor's Note: The guest wasn't familiar with the specific equity and talked about indicators in general. Use volume at price. If the price stays below where many have been buying for long enough then many will begin to sell. Support levels are an indicator. Where the price breaks above the resistance point then that is a good sign. Coming up from a low point is also a good indicator. Use moving averages to apply stops.

Upside and Downfalls of the FHSA:

While the FHSA and RRSP share some similarities, contributions made to an FHSA during the first 60 days of the calendar year are not tax deductible on the prior year’s income tax return. To withdraw from an FHSA, there are certain requirements that need to be met, including a written agreement from the account holder to buy or build a qualifying home with a completion date before October 1st of the year following the day of withdrawal. We can see that the FHSA combines the best elements of both the RRSP and TFSA, and has a higher annual contribution limit than the TFSA. Although, an FHSA does have an upper limit on how much can be deposited ($40,000) and the maximum carryforward amount is not all unused contribution room from prior years like the RRSP and TFSA. The FHSA also has benefits over the home buyers’ plan, where Canadians can withdraw up to $35,000 from their RRSP. With the home buyers’ plan, individuals need to repay these funds over 15 years, whereas in an FHSA, eligible withdrawals do not need to be paid back. Overall, the FHSA is an interesting new registered plan offered by the government of Canada to assist individuals with tax-efficient savings for purchasing their first home. Each investor has unique preferences and needs, but for individuals that are focusing on saving for their first home purchase, we feel that the FHSA is a better vehicle than the RRSP or TFSA. 
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Prefers individual stock selection, but paying attention to macro factors including upcoming Presidential cycle (3rd & 4th year administrations traditionally good for markets). Thinks interest hikes are done for now. US Federal Reserve looking forward will be steadfast in keeping the markets steady. Effects of near zero interest rates, combined with extreme fiscal stimulus (Covid-19) will be felt for decades. Unsure what the total effects will be on the markets. 

What is the First Home Savings Account (FHSA)?

The First Home Savings Account (FHSA) is a new registered plan developed by the Canadian government to assist Canadian first-time home buyers. The plan opened for investors on April 1, 2023, and to qualify, an individual must be at least 18 years of age, not more than 71 years old on December 31 of the year opening the account, a resident of Canada, and a first-time home buyer. The plan can stay open for a total of 15 years or until the year that an investor turns 71.

The real benefits of the FHSA are that it combines some of the best features of an RRSP and a TFSA.

The annual contribution limit for an FHSA is $8,000, with a lifetime limit of $40,000. The maximum contribution carryforward limit is $8,000 per year.

For example, an investor that contributes $5,000 in their first year of opening an FHSA will have unused contribution room of $3,000 and is able to carry this amount forward for a total contribution limit of $11,000 in the following year ($3,000 carryforward + $8,000 annual contribution limit). If an investor does not contribute to the plan in their first year, the total contribution limit in the following year is $16,000 ($8,000 carryforward + $8,000 annual contribution limit). If an investor contributes $3,000 in their first year of opening the account, they have total contribution room of $13,000 in their second year ($5,000 carryforward + $8,000 annual contribution limit), and if they contribute $10,000 in their second year, they will have a total contribution room of $11,000 ($3,000 carryforward + $8,000 annual contribution limit).
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Bit better than expected, up 6.5% YOY. We've seen EPS revisions downwards for Q4, but they still remain positive, expected to be up 2%. That's encouraging because typically in a sharp slowdown, corporate profits turn negative. Analysts and companies are saying that, generally speaking, they expect profits to grow, and for next year to continue to grow.

We know that those profit numbers are hugely influenced by the large-cap tech stocks. Nonetheless, that's what the earnings outlook looks like now.