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

Reality is starting to set in. We had this great January rally, but interest rates are going higher and staying there longer than perhaps the market was expecting. Morgan Stanley published a report on equity ratios stating that, adjusted for interest rates, stocks are probably at their most expensive since before the financial crisis. Multiples are at the high end, but interest rates are no longer at 0% to offset things. Earnings expectations are still a little too high. The bullish case for long-term investors is you want to stay the course, you don't want to panic out of it. He's probably more bearish now than he's felt in a while, but he still has 40-65% stock exposure, which is at the low end of his traditional norm. You don't want to run for the hills and get out of stocks altogether, but it doesn't hurt to have a little extra cash or to take some profits in some areas that have had a great move. In January, he made back everything he lost in 2022. Sometimes, the market hands you a little gift. Take it and step back a little bit. Energy, telecom, and the bond market still look OK. 

In the shorter term, they won't stop raising rates until they get a crack in the inflation numbers. And you can't get a full crack in the inflation numbers until you get a crack in the economic data. It hasn't happened yet. The bullish case is that the economy will be OK through all of this, but no it won't because if it stays OK, inflation won't come down and rates will stay higher for longer. The economy and individuals are too financially levered to be able to absorb the sharpest increase in rates we've seen in monetary history. A year and a half ago, inflation was "transitory" and they weren't even thinking about raising rates. 

Cash is not trash. You can get an adjustable rate GIC for 4.5-5%. While you're thinking about whether the stock market and the economy are going to be OK or not, you can earn something there and take no risk.

Almost anything in semiconductors or tech got whacked pretty hard. Highly valued stocks got hit the hardest. He looks to see if a stock's had an earnings downgrade. Tech took quite a hit, and he's taken money out recently, but a lot of the problems have been front-ended. Last year was the adjustment to higher interest rates, and valuations collapsed across the board. That part's done, so now you have to pick the winners and do a bit more work on the earnings stories.

He doesn't worry too much about what he thinks are low probability factors. GM, MG, STLC all have capabilities in factories and raw products to switch to products other than those used in peacetime. He doesn't necessarily want to invest on that basis. But if that's your view, the major industrials wouldn't suffer as much, because they would have a production outlet. During the pandemic, modern manufacturing processes allowed many businesses to switch to Covid-related products. He can't invest on the basis of what he doesn't know, so he goes with what he does know.

The market doesn't like banks right now. If the economy slows down, what will that do to loan losses? Earnings start tomorrow, might be all right as the economy hasn't rolled over yet. He'd be a bit concerned going forward. He's underweight banks right now. Lower end of valuation range, decent dividends, but earnings growth will be challenged in the short term. His order would be TD, CM, and then BMO.

He prefers Canadian to US telcos for better growth, valuations, and yield.

None of these businesses are under pressure on the dividends, but it's the valuations. Everybody wants to be in renewables over fossil fuels, and he gets this over the long term. The problem is when renewables were trading at 15-18x operating cashflow, and then suddenly the oil stocks are trading at 3-4x operating cashflow, it's hard to do that shift. Some money has been moving out of renewables and into conventional oil and gas production, strictly on a valuation basis. When the valuation multiples come down, names like RNW, BLX, NPI will come down to 10-11x range, which is cheaper than they were though more expensive than traditional fossil fuels. BEP.UN is probably the most expensive of the group. He likes them for growth and ESG reasons, but hasn't made the switch. He's getting closer to it. Once he did make the switch, BLX and NPI would be the first names on his list.

Yes, definitely for those that have a heavy debt load or that are unprofitable. SaaS companies are especially interest-rate sensitive, because it's a pretty crowded space with a lot of unprofitable ones. Since the whole cycle started in February 2021, SaaS rolled over and then rolled over again in November 2022.

The tech arena was similar to the rest of the market. All the names that were beaten up last year, people saw value in them, bought them back, and that dragged the rest of the market with it. They're all coming back down to earth now.

Around October 2022 and again in November, it was down at the base, and that will be very strong support. With the runup, the selloff is not surprising, but he'd call it more of a consolidation. As long as the NASDAQ stays above the 50- and 200-day moving averages, you can still call it a consolidation. 

The buzz has been going on for about 5 years. But now there's more data and power to process, so it's all starting to happen. 

Everything. Generative AI has taken the place of crypto. EVs, autonomous vehicles. The whole AI segment is huge, both for processing and power chips.

NVDA and AMD are really the kings of GPUs. DDOG is like the data aggregator. Companies like CSCO and AVGO play into that, as they direct where the information is supposed to go.