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

Have the correct investment expectations:

Risks widely vary across investment markets and products. Be wary of implied rates of return that sound too good to be true, because they probably are, at best, very high risk or, at worst, complete scams. Many investors get attracted to high yields: some derivative products have current yields of 15 per cent or more. But past and current returns are not the same as future returns.

A realistic long-term return for stock investors might be in the eight-per-cent range. For a bond investor, five per cent or so. Don’t chase returns. Don’t envy someone bragging about 20-per-cent returns — they are not you, and they might be taking on huge risks.

But if things do work out for you as an investor, don’t get greedy. If one of your stocks has soared, that’s great, but it likely now represents a big portion of your net worth. As such, any future disappointment in that stock is going to be far more painful. In addition to maintaining realistic expectations, we would also maintain portfolio balance and discipline — always.
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If you look at the S&P Tech Index as a whole, it's trading at multi-year, multi-decade valuations. Price to sales ratio is back to 1999-2000 levels. We know what happened after that dot.com bubble, when the tech market dropped about 82%. Not that that's going to happen, but you have to be very careful and selective when choosing technology names.

Bond yields have jumped up a bit in the last little while, oil prices are above $90 or so, and these are going to be headwinds against the market. That being said, he remains pretty constructive. 

Inflation is cooling pretty quickly, down to about 3.7%. Yes, it was higher YOY as reported yesterday, but the core inflation is still looking pretty decent, and way below the highs last summer of 9.1%. He anticipates the BOC and the Fed to stabilize rates, pause their tightening cycle, and hopeful start to lower rates mid- or late next year. Stable interest rates are good for both equity and bond markets. 

Analysts are increasing S&P 500 estimates, seeing better than expected economic data, labour force is stronger than expected, US consumer remains robust.

It could, but the bond market will still look out where the economy will land in 12-24 months. Expects a bit of a soft patch in the next quarter or two. We've sidestepped a deep recession or contraction, and equity markets look ahead 6-18 months to see where the economy will be. That's why markets are responding decently, despite August and September being weaker historically.

Generally, utility stocks tend to do well when you start to get into a more recessionary environment, so 6-12 months before we anticipate a recession. Now that we're getting into the early part of the cycle, utilities and more defensive names tend to underperform. Dividend stocks have not been performing well, because interest rates are moving higher, making dividend plays appear less attractive.

At some point,  the 10-year bond yields will start to calm down, and that's when you'll start to see outperformance in utilities, dividend stocks, banks, and telcos.

He's never considered an ETF for the telecom space. Buying an ETF is a way to diversify your risk. But because telcos  tend to have lower beta than the underlying indexes, he doesn't need to buy an ETF to de-risk. 

Names to look at include BCE (owns in his portfolio), Rogers, and Telus. They'll perform better once interest rates turn over, but the good news is that you're getting a healthy dividend yield while you wait.

The intermediate- and longer-term charts show that's still the case. In the very short term, utilities and financials have recovered slightly, but it's hard to say whether that's a new trend or just a correction we're going through. People are concerned about stability and are looking for something with a higher, safer yield. 

The data doesn't show a downturn, but that could change so he monitors it closely. We're in that historical season where markets see a lot of chop, which coincides with both the calendar and the US presidential cycle. Everything is still intact. Technical levels haven't broken down. His thesis remains that this is a correction inside the upward-trending market.

This could change if all of sudden we see some of those levels break and a leadership change as well.

Whenever the market gets a little uneasy, he definitely sees it in the small caps as well. They tend to be more volatile and liquidity dries up, so they can really get pushed around. Just as with the regular market, they tend to be fairly strong from October - end of May. He hasn't seen that leadership yet in either Canada or the US. The Russell 2000 has been in a trading band for the better part of this year; if it does break out, it will probably be pretty significant.

If you can’t afford to invest yet, don’t.

This rule kind of seems obvious, but you might be surprised at how many people ignore it. We have seen people borrow money to invest on margin even while they have huge credit-card balances. We have watched people buy penny stocks even as they struggle to come up with rent money.

We think, instead, you should look at paying down debt as an investment in itself. Suppose you have a $5,000 balance on a credit card at 19.99-per-cent interest. Paying down that balance guarantees you a solid investment return through lower interest payments. Saving 20 per cent in charges is just as good as making 20 per cent as far as your net worth is concerned (even better if one looks at the after-tax impact).

Of course, there is nothing in the investment world these days (or ever, probably) that is going to guarantee you a 20-per-cent payback. So, you need to get your financial house in order before you consider investing.
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It's important to hold a diversified portfolio. In 2022, stocks and bonds both declined, which is unusual. During inflation, stocks and bonds start to move together instead of moving separately, and this increases portfolio volatility.

Overall, she remains optimistic about the economy. Consumer spending, making up 70% of the economy, remains robust, even though the latest travel data shows a decrease in U.S. travel and retail data has been declining too.

September is living up to its reputation as a volatile month for markets. But when volatility dies down, expect more M&A in the market. Also, watch for the UAW strike that could happen this week and will benefit no one in the economy. Its impact will be that deep.

It can, but don't own gold now. You buy gold when inflation is rising (and the Fed does nothing) or there is a recession coming. She sees neither coming.