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

Fitch Ratings downgraded America's default ratings, and markets slid. the last time this happened (2011), markets rallied wand recovered within a year. He suspects money managers used today's selling to trim frothy positions. Today was a buying opportunity, but he would wait a little to see if markets decline further before he starts buying.

He predicts a short-term pullback in the S&P starting today. Around Sept. 11, there's an 81% chance of a rally into the first part of November, then a slight pullback, the the market keeps rallying. Be patient for now before pulling the trigger. His prediction is based on patterns since 1924. Also, the CFTC COT report (of spec traders) showed they were selling as the recent market was rallying, which typifies an intermediate pullback.

The 7 high tech stocks involved with AI have lead the S&P for months. Not a problem per se, unless it's the only song in the playbook. This is starting to change because other sectors are rallying. He cautions that things are a little overbought and we're entering seasonality. Plus, there are signs of exuberance. Energy, staples, industrials and materials are starting to show strength and are places to invest in the next 6 months. August-September are historically the most volatile months.

Corporate earnings the past two weeks - only 60% of major companies beating "top line" estimates.
Top line revenue downward trend means growth is slowing. 
Since inflation is falling - companies unable to charge higher prices. 
Believes inflation will be sticky, and present challenges to the economy.
Positive trends for higher energy prices going forward (oil above $80). 
Too much optimism in the markets with A.I. euphoria. 

ZWB vs. ZEB.
Question is when to use each product. 
Defensive investors best for ZWB (includes dividend yield).
Bullish investors are best to own ZEB.

Wait until recession hits before moving to a "non-enhanced" ETF.
Until then, getting higher dividend yield is good.
10-15% fall in equities possible if there is recession. 

Believes interest rates are going to go up, and recession is looming.
Hard landing will hurt the economy. 
US Federal Reserve trying to paint the narrative of soft landing.
Probability of recession has gone down according to US Federal Reserve (which is wrong).
Enormous borrowing by US Treasury not sustainable.
Higher interest rates will erode confidence in US banking system. 

Odds of a Recession: What Could Change?

The economy is still susceptible to risks if inflation continues at elevated levels, pushing central banks towards a hawkish mode. Nevertheless, the recent CPI reading provides some comfort on that parameter as well.

Another potential outcome is the economic overcooling resulting from consumers experiencing significant financial strain due to two years of high inflation and the impact of elevated interest costs. Although there might be a time delay before these effects fully manifest, the most recent job reports do not currently indicate any immediate signs of an overcooled economy.

The market sentiment is shifting. Bank earnings are coming in strong; companies are beating street expectations and many investors are revising their recession forecasts.

As we always say, time in the market is more important than timing the market.
Unlock Premium - Try 5i Free

Are a technical analysis tool for oversold and overbought signals, typically two standard deviations from a simple moving average. Right now, we see weakening strength which is a concern. There's some consolidation happening, so don't get too bullish.

The S&P Equal Weight Index  gauges the S&P's breadth in rallies and declines. Look for breadth in the rally, and we see that now. Are higher lows so far this year, a good trend.

Because of big market gains this is not a time to chase growth stocks. Look for opportunities in areas the market is ignoring for various reasons. There are opportunities in the commodity and emerging equity markets especially in Asia. Inflation is slowing and the market is expecting a Chinese stimulus which may or may not happen. China and India have mopped up the Russian demand for oil. The U.S. may have a recession but it is too early to tell.

The question was on the cyber security space. He is very positive on the sector since consumers, corporations and governments need it. He favours more mature companies with profits over new performers but it is a good strategy to start looking for opportunities. If there is a recession tech will go down which will make a good opportunity to buy.

The rally continues because earnings continue to deliver. Consensus expects the topline to see some slowing, but better margins will make up for that. Can we continue to deliver that topline into 2024? Her concern is that the rest of the world (ex-USA) is rapidly contracting. The market expected China's reopening to drive demand for cyclicals like energy and materials, but have lagged this year--Chinese demand wasn't there.

The trough in earnings for energy isn't there yet. There has to be better earnings to entice more investment in energy. Also, China wants to offer more stimulus in green energy.

Keep you cash at 5-10%. It looks like the soft landing is intact. In fact, a no-landing is a risk; the Fed will crush that. The S&P is up 20% YTD and that's a little frothy. It will probably continue until September, a notoriously tricky month.