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

Yes. Oher things such as Q1 earnings and the debt ceiling seem to have fallen away. Inflation is stickier than people had thought. Central banks have a real issue, because they need to bring down inflation. Either they increase rates to dampen inflation, or they keep rates higher for substantially longer than people think.

Inflation is very bad for the economy, as it affects the lower end of the wealth spectrum. Those people spend proportionately more on the basics like food. It doesn't affect someone who's wealthier.

Fed and BOC are probably doing the right thing to increase rates until they can get the economy to slow down and bring down inflation numbers. Just as the BOC did, the Fed was right to take a break on rate hikes, to see where the numbers are falling in. Remember, the BOC started hiking rates before the Fed did.

Still some complacency in the market, VIX has been relatively low over the last couple of months. You may see some volatility on and off over the next several months. This provides opportunities to buy things you really like at good valuations. 

Investors have been climbing the wall of worry for the last little while. There's also complacency. The S&P can probably do OK if people digest the fact that even with increased rates, they can feel comfortable with how the environment is going to look. You may get slower growth and slower earnings growth, which is what's going to cause the volatility. 

He doesn't see it collapsing. Even if it goes down to the October 2022 lows, that's a buying opportunity for the next little while.

Not trading at high multiples, around 1.1-1.5x book value. Great dividend yields, and all have increased over the last little while and will continue to do so. Lots of capital, except for CM, even if OSFI decides to increase required levels. Difficult macro environment, which is reflected in the banks. 

TSX can't go up unless the banks go up, as banks are 30% of the index. Good time to buy. A year from now, banks will be substantially higher.

Highly regulated, in good shape, oligopolistic. They experience volatility due to events in the States, but we won't have a collapse in the banking industry.

That looks to be correct. Even the pause is pretty symbolic. There have been 10 or so interest rate increases in an aggressive rate tightening cycle by the Fed. What's unique about the inflation numbers is that we're lapping a year ago, when inflation peaked. 

May/June numbers are expected to come down significantly. This, combined with turmoil in the banking industry, gives the Fed the opportunity to pause. They can give forward guidance but still wait for all the data to roll in.

They are. You're starting to see it with all these large purchases. And you're even starting to see it in the employment numbers, with businesses pulling back. Governments around the world are very indebted, which has the potential to crowd out crucial spending. 

Over time, the goal is to moderate interest rates. But right now, the goal is to put the clamps on inflation.

We're going to be close. Not this year. The June reading will be closer to 3%, and that's where we started. And that's the one thing that will stop any type of interest rate cuts.

Giving him confidence with Canadian banks and large US ones is that they're coming into a period of economic weakness with the best balance sheets and capital levels they've had. A contrast to 2008-09 where the banks had lower-quality assets and were much more levered. 

Highly unlikely they'll need to raise equity. Dividends are being increased. Current valuations allow you to get in at a weak time and plant seeds for the future.

The really great compounders are always the difficult ones to sell. In theory, avoid selling it as long as you can, because the longer you own it, the longer it can compound for you. He uses tax implications as a guide. It's simpler to rebalance if there's no tax impact.

The rally partially depends on the TONE of hawkishness and dovishness today from the Fed. The market is building up to a point where other areas of the broader market catch up to the gains of the megacaps. Tech, discretionary and communications services are up 35% YTD, but not the wider market. Tech's rally can continue, but not as this extreme rate, but slower.

The street expects a hawkish pause by the Fed today, driven by lowering inflation data yesterday and today. The market is already pricing in a hawkish pause, so the Fed won't upset the current rally. Also, it's positive that the rally is broadening away from only 10% of stocks and into areas like small caps.

If you're sitting in a money market fund after today's announcement, you have a problem, because how do you enter the stock market and not fall behind?

Can tech's rally continue? Within 90 days, based on history, the market will be flat or negative probably. Six months from now tech will remain the market leader.a

Evaluating Growth. As investors, we need to evaluate the quality of a company’s growth which ranges from:

1. High-quality (capex as a percentage of revenue usually less than 5%): which needs minimal capital to achieve high growth in industries such as software, med-tech, strong brand name consumer products, etc.

2. Acceptable quality (capex as a percentage of revenue usually from 5% - 15%): which requires capital, but offers an appropriate return usually in industrial, retail, railroad, freight, etc.

3. Or the worst of all growth destroys value as the company requires significant capex without good enough returns, most often found in industries such as energy, airlines, telecom, etc.
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Inflation is the big driver today (US inflation came in as expected at 4%, but lower than before and on the right track). The markets expects the Fed will stay on pause and see what happens. Recently, the Bank of Canada slightly surprised the street by raising rates in reaction to an increase in Canadian inflation. With rates flattening, income investors can buy corporate bonds and even GICs at 4.5% to 5%. Not a lot, but still a decent rate of return and safe.