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

Until inflation is down at 2%, the feds are just going to keep saying inflation is too high and they need to continue to raise interest rates. Clearly the data is showing cooling inflation in the US. Canada had a slight uptick, though some recent numbers show industrial production and pricing coming down.

You raise interest rates, you cool the economy, and eventually inflation will come down. The question is do you do too much and cause a recession? In the meantime, there's no evidence whatsoever of a recession in the US or Canada. GDP for Q2 looks as though it's tracking close to 2%. 

If there's a recession, we won't know it until sometime in 2024 or later.

You have to go sector by sector. Look at weakening FDX results last night. There's slowing in shipping and anywhere with inventory of physical goods. One of his favourite companies, CNR, is showing signs of slowing volume growth in 2023; hopefully, things will pick up in 2024.

Prior to 2022, tech was the best place to be for 13 years. The NASDAQ was up every year but one for 13 years, and the down year was only slightly negative. Everyone wants to be in the right place in the stock market each and every day, and to make money each and every day. That's unreasonable. If that's what you want, stick with GICs.

But it is reasonable to diversify your portfolio, own companies that are going to do well in lots of different environments, don't overweight, and don't fixate or bank on flash-in-the-pan success stories.

She remains bullish. The S&P is up 14% roughly this year, but the top 7 market-cap stocks are up 90%, while the rest of the market is up 5.3%. The market can go up, but the rest of the market had to move up too, and that has been happening. Today, the market feels tired, but there is more room to run.

Opportunities During Transition: Some of the most prominent business transitions currently underway include brick-and-mortar retail to e-commerce, software licensing to software subscriptions (SaaS), programmatic TV to streaming and cash to electronic as a payment method, etc. As long-term investors, these are the opportune times to establish or add to positions that not only persist through the downturn but also come out much stronger when the economy recovers. Therefore, we think the current drawdown could offer opportunities for attractive entry points into these names. 
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Data is all over the place, positive and negative, confusing. Nobody really knows if we will have a recession or where interest rates will go. We need market breadth, lowering rates and better earnings to enter a bull market. That breadth has been improving lately, though the rest of the market needs to catch up to only seven mega stocks leading the S&P. No stock is a screaming deal right now. Interest rates will decline in the future, but until then there will be pain for some (i.e. mortgage holders).

The sticking point for the Fed as it fights inflation is the ever-rising price of housing. Homebuilders don't want to build a lot of homes and get stuck with them if buyers can't afford higher mortgage rates. However, today, data showed that the number of new homebuilds actually rose 1.6 million vs. the expected 1.3 million. If this rate keeps going, this could dent inflation. More housing and high unemployment could lead to the Fed to halt rates and avoid a nasty recession.

He's conservative, and the safe approach is to invest it into an S&P index fund. Boring, but it's diversified.

9 of 11 Fed officials are at speaking events this week. The Fed is openly divided about the direction of interest rate hikes. Evenly the Fed doesn't know it's next moves, because opinions are all over the map. He doesn't like this. For example Chicago's Fed is dovish who wants to pause and see how the economy goes vs. Cleveland's who is incredibly hawkish and wants to keep rising, even this month. Powell speak to the Senate Banking Committee on Thursday. Be cautious in your investing. Take profits, because the market has run up so much this year.

Methods to Screen For Growth: Growth without a commensurate (or minimal) amount of additional capital investment is the hallmark of investing. Therefore, these names are usually the safest to own but hardest to find as the list of names is usually short and they are often trading at a premium multiple.

Below are a few screens for growth to help investors:

• Capital expenditures (Capex) as a percentage of revenue that is less than 5%
• Revenue compounded annual growth rate (CAGR) in the last seven years of at least 8%
• Market cap larger than $100 million
• Net debt/ EBITDA of the trailing twelve-month that is less than 2.0x

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The U.S. market is up mostly due to seven companies and in Canada Shopify and Constellation Software represent 2/3 of the gain.The two biggest sectors financials and energy are flat (financials) or down (energy). The six biggest banks and four largest energy companies have a yield of over 4% and all have raised their dividends over the past year. They also offer growth and capital appreciation. Generally dividend yields in Canada are higher than in the U.S. where companies tend to concentrate on buying back stock.

Believes inverted yield curve suggests recession on its way (short term rates higher than long term rates).
US Fed pause on interest rate hikes only temporary.
Stock market valued too high, waiting for correction.
2000-2002 bear market similar to what is happening now. 
Enormous valuations in tech (Tesla etc.) are not sustainable. 

The rally has been broadening only in the past month. In late-April, the rally was dominated by the top 7-8 megatech and telecom names. Now, small/mid-caps are rallying too. Why? Because interest rates are peaking. We are not yet in a recession, so that adds more confidence to the market. The PE (ex-top names) is 16x 2024, which is not bad.  AmEx is 13x, for instance. There is room to grow, maybe more than the top names. The market can rise higher.

He's bearish about the market's current rally. This is purely rising on momentum, and will momentum move up or down. Jerome Powell basically guaranteed a July rate hike in this week's comments. Also, the yield curves continues to invert.

The current rally has more room to run. Earlier this week, 12% of the S&P are making 52-week highs, the highest since April 2022, which was the first bear market bounce last year. Is now another beat market bounce. Well, average 14-day RSIs around 60 vs. the mean of 50--the highest reading since summer 2022. The average S&P stock is in breakout mode, pretty good. Also, the Russell 2000 of small-caps is getting stronger with a YTD return of over 7%, though trailing the 10% of S&P; 39% of the Russell names are above their 50-day average, historically high.