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

Has been lightening his bank stocks--where's the good news? Is out of all US banks, given their unrealized loss in US treasuries on their balance sheets.

Isn't much more upside from here. The S&P will top at 4,400-4,500. Doesn't see earnings rising to push stocks higher. We will be stuck and rangebound for a while. Stops are popping this week only because yields are falling and the market was wildly oversold.

Spectacular dividends available in Canadian blue chip stocks. Telco & energy infrastructure very attractive dividend yields. Question is whether to invest in industry, or pick a safe Government bond paying 5-6%. Bargains available in energy infrastructure and energy in general. Not sure whether Canadian banks have reached bottom on share prices. Higher interest rates put pressure on Canadian banking and justifies investor fears. 

Market Update:

The US GDP accelerated in the third quarter, growing at the fastest pace in two years, with a 4.9% annualized rate compared to the 4.5% expected, fueled by a big burst of consumer spending and defied expectations of a slowdown. The Bank of Canada held interest rates unchanged at 5%, indicating the economy is not overheated anymore, but left the door open for more rate hikes if necessary. The Canadian dollar was 72.10 cents USD. The U.S. S&P500 ended the week down 1.8%, while the TSX was down 1.5%.

Most sectors ended the week in red. Technology gave up 4.5%, while energy slid 2.7%. Materials edged lower by 2.4%, while industrials slipped 2.0%. Real estate dropped by 1.5% while consumer discretionary declined by 1.1%. Consumer discretionary ended the week slightly down 0.3%. The most heavily traded shares by volume were Corus Entertainment, Baytex Energy, and Dye & Durham.
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You're starting to see commentary out of the Fed, not necessarily that they're going to hike once more, but that rates are going to stay higher for longer. The forecast is for a 1/4 rate reduction by this time next year. Adjustments will have to be made, both personally and within portfolios.

That's right. Before rates started going up, they were called "zombie companies", where they were being kept alive by low interest rates. We're starting to see those companies fracture. In the Russell 3000, the top 20% of companies with high interest-coverage ratios were doing markedly better than the bottom 20%. Refinancing is coming in, and companies are getting less money with higher rates and the debt's coming back to roost.

Companies with either low debt levels and positive cash positions, or debt levels that are serviced with internally generated cash, are the ones that will do better over time. The stronger will do better, and the longer rates stay high, the more that trend will continue.

There's a lot happening geopolitically (Russia, Ukraine, Israel, Hamas), and Washington was gridlocked as it looked for a House speaker, but fortunately Canada was not effected. Canada is stable politically and economically as inflation is declining as are interest rates. TSX is trading at 13x PE vs. 19x in the US. The TSX pays a 3.5% dividend yield vs. 1.5% on the S&P. There's pressure on yield stocks here (telcos, banks, utilities) as investors have shifted out of them, but he sees defence in energy stocks which pay large dividends and are supported by high oil prices. Invest in companies with recurring revenues, profits and healthy balance sheets.

Ghastly Growth: Canadian GDP Lingers Below the Average:

Canadian GDP spiked in 2021 to 2022 following a sharp move lower in 2020, however, it has since begun sliding lower throughout 2023. Canada’s year-over-year GDP growth is now at a meager 1.12%, lower than its long-term average of 2.61% dating back to 1970. Rising interest rates have been putting pressure on businesses and individuals across the country, and interest-rate sensitive industries such as housing, manufacturing, and financial services have been seeing the impacts of a worsening global macro environment. 
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For the moment, the Fed is leaving interest rates alone and sound less eager to tighten. This gives investors the confidence to buy stocks of companies that just great numbers.

Historically, we're starting a bullish six-month period where stocks tends to rise. The last 6 months this year and in 2022 were weak. Why? Historically, people de-risk in the summer, but come back in the winter; analysts start the year positively, then rewrite their outlooks and downgrade so they can meet their end-of-the-year (were too optimistic, then adjusted). A worry is the $2-trillion deficit in the US as America keeps spending. We haven't seen a true slowdown here or there, but governments cannot keep spending like this.

Seasonally strong from February into May, then July to early October, which happened this year. But seasonally weak now. He's bullish oil. Wait on oil till December.

When the VIX falls below 15, the market is less volatile, and very volatile at 40. Today at 19, it's average. Be careful using the VIX to predict returns, not recommended. The VIX around 9 is vulnerable to complacency, and at 40 the market could be bottoming.

War & geopolitical conflicts making headlines, but real concern for investors is interest rates. Believes investors are starting to believe US Fed will keep rates higher for longer. Stronger economy & high US Fed spending will also ensure rates are buoyant. 40 year downward trend in rates is starting to reverse. 

Eerie Stagnation: Major Indices Trapped in a 2.5-Year Time Warp:

The major financial indices, the S&P 500, the Nasdaq composite, and the TSX, have all been mostly flat since mid-2021. This eerie stagnation has occurred through a series of melt-ups, meltdowns, and lots of choppy sideways action. The past 2.5 years have been plagued by high and rising inflation, elevated interest rates, and bursts of economic shocks, leading to a stagnant stock market. 
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