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

He owns MSFT, but getting a bit pricey based on valuation. Also AMZN and AAPL, neither is too pricey. GOOG is a name to look at. AMZN is rebounding and in a clear uptrend. On his radar is FTNT.

He's very careful of the tech market. We had a pretty decent run until a month ago, but now rotation out of tech. If you look at the S&P Tech sector, it's trading around 7.1x price to sales. 10-year average is 4.5x. Years 1999-2000, it was around 7.5x or so, and then the S&P Tech index dropped 83%. Not that that's going to happen, but we need to be aware of valuations in the tech space in general.

See his Top Picks.

Many ways to play the sector. He owns SU and CNQ. There are also US names such as XOM. You want to have a few names, as each of them will have its own issues with management, safety, and the like.

He's following the macro inflation data carefully, and that's what's tossing the market around. Both stocks and bonds have been very volatile this year as investors fear higher, more persistent inflation, more rate hikes, and a slowing economy. Sentiment has been swinging quite wildly. 

It comes down to the data. We're seeing inflation come down quite rapidly now YOY. He thinks that's going to continue, and we should hit the target rate of around 2% by year end. The rate hikes are coming to an end.

He's always been in the camp of a soft landing, and still is. Very strong employment numbers, and as long as people have jobs they're spending money and paying their mortgages. Housing market had a very mild correction. He's not seeing much of a slowdown, except perhaps in durable goods. Services are still trying to catch up from the pandemic, but this should taper off by the end of the year.

Things are slowing down, but we'll see prices coming down and rate hikes coming to an end. 

Odds of Recession.

Since the middle of last year, the dominant topic of discussion revolved around the possibility of a recession, be it a soft or hard one. This prevailing thinking stemmed from the belief that global economies would grind to a halt due to the aggressive measures taken by central banks to combat surging inflation.

Economists are now softening their stance on recession predictions. With easing inflation, a strong labor market, and resilient economic activity, Goldman Sachs cut the chance of recession from 25% to 20%.
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Advising investors to be cautious, but expects market rally to continue for 6-7 months. 
Inverted yield curve: short term interest rates higher than long term interest rates - suggesting investors worried about markets.
Historically, inverted yield curve has been a good predictor of recession.
A.I. boom & strong stock market confusing investors. 
Strong economy is also broadening out to all industries - not just tech. 

The market is very overbought and it's too late to buy a stock you've been following. You failed to catch the upside, so wait for a swoon (pullback) that hits the entire market (or an individual stock right after earnings, like Tesla). Also, don't buy before an earnings' report--that's a sucker's bet.

Rising Interest Rates: Should I sell all my bonds?

Most investors know that bond prices decline when interest rates rise. Many investors are wondering why they hold any bonds at all. We think this thinking needs to stop. First, bonds are not in your portfolio to make capital gains — they are there to provide balance and regular income. Second, as we’ve noticed this week, the fear of higher rates can hurt the stock market at times, also. Going 100 per cent equities from a 60/40 stock/bond split could have serious consequences to an investor. If not in performance, then most definitely in stress and sleep. We would suggest sticking to your overall investment plan, and to not “react” to short-term market events with big portfolio changes.
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He's seeing conflicting economic data, a tug of war, and sentiment is stretched. For instance, interest rates are rising while homebuilding shares are hitting all-time highs. He's cautiously invested. The S&P and Nasdaq have been on a tear while the TSX has risen respectably, but lags them. The TSX trades at a 60% discount to the S&P in terms of price-to-book, a gap that's a 20-year highs. The good Canadian banks look fine now. He will discuss these later today.

Visa and other big names report next week. Can earnings deliver on these higher multiples? 36x for the top 7 stocks, but only 17x for the rest of the market--which is reasonable. Unsure if the top stocks can deliver, though the others can. Next week, watch for reports from healthcare.

This week shows that there's resilience in the market. It's healthy that discretionary and tech stocks will (if it happens) work off current overbuying. He's not excited by airline stocks, given today's news that American Express' CEO notes that card users are spending less on hotel and travel, and spending more on dining out. Technicals are extended for the homebuilders, so that's a challenge for that sector. Tech won't give up leadership, but will remain leaders, which is good; we haven't seen leadership since March 2022. In October, if the S&P sits near current levels, he predicts an all-time high made on the S&P.

Tech names are priced for perfection and have moved up sharply this year. He's pleased to see transports, health and materials rally now, because that shows the rally broadening out. He's looking at Chevron, Boeing and Exxon Mobile, for instance. Multiple expansion is the first leg of a bull market. If there are misses like with Tesla and Netflix then other big tech could fall like that. Megatech is certainly vulnerable to a pullback. Look at Tesla and Netflix this week. Healthcare and energy will likely be the best-performing sectors for the rest of the year; they have underperformed so far this year. The labour market remains tight, which is a catalyst for healthcare. Energy stocks are pricing in a recession.

Believes financial markets have entered into bull market territory. 
Economic rally has expanded from Big Tech into broader economy.
Any economic pullbacks will present buying opportunity.
Portfolio managers expecting a recession - are now under-performing indexes.
Tech rally will continue with strong earnings, and further growth expected.

Canadian Banking Sector: Not seeing major risk.
Canadian loan loss provisions very strong.
Not worried about prospects of the sector. 
If loan loss provisions are not needed - will be a large payout.
Royal Bank - top pick in Canadian sector. 

Believes Canadians in general, have too much exposure to Canadian assets.
Would be better to seek diversification in markets outside Canada.
ETF's offer good options for this. 
USA, Europe and Asia can be good places for investment as well.