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

He feels constructively optimistic about equity markets going forward. Inflation has been dropping for 9 consecutive months and will possibly continue into next year. Interest rates will stabilize and central banks will become much more dovish.

Historically when the Fed tightening cycle ends, 12 months later the S&P 500 is up an average of 14.3% with a win ratio of 80%. Despite volatility, markets are up since the October lows. We've had two 7%+ quarters. Those are signs of an uptrend.

Likes the cyclical areas. Opportunities in financials, especially given what's happened in the last couple of months. 

Despite oil being down, there are major constraints in supply, and demand remains steady. OPEC+ has reduced capacity and supply. Strategic petroleum reserve is down about 37% over the past couple of years. China's withdrawal from its zero-Covid policy is going to help names in the energy sector. 

Consumer discretionary is his third most preferred area. Inflation dropping, China back on board after almost 3 years of lockdown.

Buying high-quality Canadian companies at attractive valuations has historically done very well in inflationary environments like those we're experiencing now. For much of the past decade, growth stocks have done quite well. But growth stocks are longer-duration assets, so much of their value is based on expectation of future growth. When interest rates increase, valuation tends to drop by applying a discount rate. 

SHOP is an excellent example of this. Down 70% since November 2021. Despite that, the Canadian market has performed relatively well. In 2022, Canada had a strong return for developed markets. YTD, it's up about 5-6%, so it's starting out pretty well.

Looking at a chart of PE multiples for the last 20 years, right now there's a significant difference between the two in terms of multiples. The S&P is trading at 19x earnings, while the TSX is at 13x. That's about a 50% difference, and means that the Canadian market offers much better value right now relative to the US market. Other multiples such as price to book show the same thing. Dividend yield for the TSX is 3.2%, whereas in the US it's a paltry 1.7%.

Warren Buffett likes to say, "Be fearful when others are greedy, and be greedy when others are fearful." Now is the time to be a little bit greedy for Canadian equities.

Impressive profitability. High ROE and ROIC. Strong balance sheet. 

Barometer of profitability of the Canadian market is 12%, US is 14%. That's the average, and he wants companies that are better than average.

Energy is down 7% this week. It's a classic case of a sector going too way too far and must be belanced out.

She gets it: if we go into a hard landing and recession, there will be pain in oil prices. She sticks by oil this year, though, by adding to your position, or sell calls and collect the dividend. A lot of this current weakness is overblown. Over 18 months, the price of oil will be fine.

Basics Company Metrics Investors Should Pay Attention To: These are the rules and procedures a company uses to prepare its financial statements. Investors should carefully examine these policies to understand how the company records and reports its financial transactions. 1) One area to pay attention to is revenue recognition, which refers to the timing and method of recognizing revenue on the income statement. It is important to understand how a company recognizes revenue to ensure it is not manipulating its financial results, such as recording revenue too early when there are generous return policies. 2) Another is depreciation and amortization, which refer to the method a company uses to allocate the cost of its assets over their useful lives. Investors should understand these policies to ensure they are consistent with industry norms. 3) Inventory accounting, or how a company values its inventory, is a third key area. Investors should examine a company’s inventory accounting policies to ensure they are conservative and that the company is not overvaluing its inventory. 
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Inflation and rising rates continue to preoccupy investors. Markets are volatile as investors react to changing economic data and will continue to be. The pandemic's impact on global supply chains continues as well as rising geopolitical. Interest rates are unlikely to pull back anytime while a recession remains possible--can't predict its duration or depth.

Look at the company balance sheet. Can they keep paying those yields? When interest rates rise, that exerts the most pressure on preferreds. Are not a bad place to collect yield.

Industrials, energy and materials have delivered the biggest beats during earnings season. Tech has actually had smaller beats, while FAANG has taken off with this market.

Feels okay about the market. The market endured a scary event (the regional bank crisis), and expects a 25-point hike this week, and earnings were better than expected. But: What's the right market multiple? 18x means only 4,350 on the S&P.

If you take out Amazon, S&P earnings were flat this quarter. Sure, 80% of companies beat, but they cut earnings the past 5 quarters--companies manage expectations. He remains bearish. The market might rise with a new generation of investors/buyers who have fresh eyes on the market. The economy is weakening with the impact of the Fed still to come. 

The S&P is approaching 4,200, so let's see what happens at this technical level. Will there be new buyers? A breakout? We got to 4,200 on the megacaps and better-than-expected earnings. Also, the market has digested the First Republic meltdown, and the markets expects a 25-basis point rise in rates this week. Overall, we're pushing to 4,200.

Higher interest rates have hurt the smaller technology companies which are more leveraged. A few big techs are driving the U.S. market higher. 'Buy the dip' is starting to work again after this strategy failed in 2022. Owning after the down days produces good results.