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

$100 oil is possible, because the Saudis have cut supply and China will wake up and demand more oil. Also, US demand in driving season was good. Don't chase crude oil at these levels beacuse there will  be volatility. Marathon is America's bigget oil refiner, and there's a lack of refineries, but still demand. He's bullish.

You can't pick a bottom, but we had a great first-half 2023 that will carry forward into Q4. He's bullish heading into Q4 and expects yields to decline and this could end Q3 positively.

To feel confident about investing Q4, then earnings have to beat estimates. How can RBC quantify that the market has already absorbed a government shutdown, if that happens Friday?

Agreeing with Joe Terranova, how can RBC quantify that the market has already absorbed a government shutdown, if that happens Friday? But the real concern is that last week for the first time in weeks, earnings estimates ticked lower. In July, earnings estimates rose, doing the opposite.

A small group of stocks in the U.S. and Canada have lifted the market so the breadth is very poor. Most companies are flat to down especially in the small to mid-cap sector so there is lots of value and opportunity out there. There's also value in short term corporate bonds along with the best risk/reward at 6 to 8% returns in many years. Corporate bonds have had a big sell-off and this is the best opportunity in many years.

The question was on REIT's. He stays away from the sector which is still potentially over-valued even though prices have come down. Look at vacancy rates, especially with office space REIT's, as well as debt. The only one he owns is Flagship Communities  (MCH.U) which is a micro-cap.

Markets are digesting this. All year, stocks have said no recession, soft landing, rates will be cut next year, while bonds have signalled recession. Stocks are right; we're seeing the un-inversion of the bond market.

What's next is earnings season, and expectations are higher over last year. There's a chance that earnings will fall short of expectations. He's been cautious in recent weeks and has been trimming exposure. He's amazed that some on Wall St. expect a soft landing and the the Fed will cut rates. They won't, and sees a recession coming, because inflation isn't under control: oil costs more, UPS and the UAW are on strike and the IRA hasn't deployed capital yet. Car leasing has soared 20-40%. Consumers will be making hard choices. The market will go lower, not higher.

How do you stay invested in this period of digestion where there's a lot of risk. There remains inflation pressure on consumers that will impact spending. Stick with companies that have healthy free cash float, moats, competitive advantage and most importantly, valuation. We're in the middle of a correction that is testing moving averages. What can earnings and valuations do? The Fed will be higher for longer.

Consumer staples have badly lagged this year, but are clearly a defensive play. Food and energy inflation have shrunk consumer discretionary spending. Not surprised to see household retailers trade. The challenge for staples in recent years is their lean margins, but she expects a shift given disinflation.

Investors should not expect lower interest rates going forward - current rates are historically average. 
Believes market is oversold at current prices - expecting rally before year end.
Investors have exited the choppy period of the year.
Select few tech names inflating the markets (NVIDIA, Alphabet etc.)
US Federal Reserve interest rate policy appears to be successfully avoiding a recession.

US banks positioned favorably going forward.
Increased interest rates will benefit profits.
Capital markets business - starting to show some green shoots.
Owns several US large cap banks (JP Morgran, Bank of America, Morgan Stanley).

Take a long-term view.

In the short term, the market is a voting machine. In the long term, it is a weighing machine. Short-term stock prices are influenced by a multitude of factors: interest rates, inflation, sentiment, politics, analyst upgrades and so on. But in the longer term, it is how a company specifically performs that will determine its true value. Nothing else really matters if one is looking at an investment period of 10 years or more (and you should).

Academic studies have proven that over one day or week, the odds of having a positive investment return are worse than 50/50. Over a one-year period, this rises to 73 per cent. Over three years, 84 per cent. Over five years, 88 per cent. Over 10 years, 94 per cent. Over 20 years, it’s pretty close to 100 per cent.

As they say, it’s not timing the market, it’s time in the market. But most investors do themselves a disservice by not sticking it out long enough. We get customers saying, “I’ve owned this stock for three months and it is not performing. What should I do?” Sometimes, stocks take a while to perform. Patience is certainly required at times in the market.
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We know the economy's slowing. In Canada, Q2 GDP was down 0.2%. The US came in much better at 2.1%. The consumer's held up relatively well, especially the US consumer. They were drawing on savings that were built up during the pandemic. Most of those savings are gone now. The savings rate is actually back down below, yet credit card debt is higher than, pre-pandemic levels. Also, lines of credit are going back up. Delinquencies have been slowly going up, though not yet at the level that spells trouble.

What all this tells her is that going forward, household spending will rely much more on employment and interest rates. From yesterday, Fed Chair Powell implied that rates will stay higher for longer, and the market's reacting to that.

But the positive side is Powell suggesting that a soft landing is still possible, given that the economy's holding up much better.

Eventually the economy will slow to the point where central banks have to start cutting. Consensus expectations are that that point will be well into next year. In Canada, the ratio of debt to disposable income is much higher than it is in the States, so our economy is much more sensitive to higher interest rates. 

Canada has variable rate mortgages, but they aren't really sold in the US where fixed rate is the norm. As rates stay higher for longer, and those mortgages need to reset, that's going to impact households. Unfortunately, CPI in Canada is trending the wrong way, so the BOC has a dilemma as to what to do on the next rate decision.