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

Bloomberg Commodity Index peaked in early June at 136, but is now barely above 100. Tells you that the worldwide economy is slowing down materially. Not slowing down as much as the stock market wants, as jobs are still very sticky. Job openings in the US are still dramatically higher. No matter what country you go to, there are still too many jobs to be filled. It will just take some time for interest rates and some of the weakness to filter in. We need bad news for the stock market to go up, but be careful what you wish for.

EV future in North America. In NA, the EV infrastructure is not ready for prime time. We're decades and decades behind. US and Canada are such huge countries with so many rural areas, it won't happen for a long time.

Canadian banks. Mixed bag on results. TD fabulous. RY pretty good, and then it surprised the market with the HSBC acquisition. CM and BNS horrible. NA so-so, but affected by a 1-time issue. Stick with the ones that continue to knock it out of the park -- TD, RY, and NA. He owns these 3, and is happy to continue buying. He doesn't foresee a really bad recession in Canada in 2023. Immigration will offset a lot of the housing issues, interest rates will start to come down later this year. Ontario is still a wealthy economy. Banks can offset a lot of their mortgages. They do have exposure, but it's not as huge as you think. Live and die with wealth management and investment banking operations, so they need the economy to improve.

Reconciling those down years. No one style or investment strategy is going to work every single year, but over the long term it's hard to bet against the stock market.

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. Inflation Effect on Bonds: Rising inflation leads to capital losses as bond prices decline. If inflation remains within an expected range, short-term yields rise/fall more than longer-term yields. However, if inflation moves out of the expected range, longer-term yields rise/fall more sharply. The inflation jump recently seen was out of the expected range, but expectations have adjusted quickly.

Stocks will rebound this year, but not until the second half. There could be a rolling recession as some sectors are hit, then others. High interest rates will effect earnings in the coming months and that will negatively effect markets. But this is not 2008, no financial panic. That's why he feels investors will step back into market in the second half of 2023, perhaps before that. He remains overweight US stocks. What is your strategy is the market is stable or drops 20%. Be prepared--what sector will you focus on?

Where to write covered calls? Any bank, oil stocks or ETFs of both. But ask if you want growth or yield? When is the ex-dividend date? He prefers 6-month contracts to get a good bang for the buck. To go shorter duration means taking on more risk.

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. Inflation Effect on Cash: Inflation has been the new buzzword since the start of the year. So much so, that the market expectations shifted, and valuations are seeing a new range. While some of it was expected, the magnitude and tempo were astounding. Initially, central banks in North America termed this inflation as ‘transitory’ and have since changed their stance. Considering the market mood, it is important to be aware of how assets can be impacted by inflation. Starting with cash, which in a savings or GIC accounts, can be termed as short-term interest-bearing instruments. As short-term interest rates adjust with expected inflation, such securities can earn a floating real rate. Such-term interest-bearing instruments are considered zero-duration and inflation-protected assets, and therefore are attractive in a rising rate environment.

2022 will be the fourth-worst year since 1945 and the worst since 2008, BUT the market tends to avoid back-to-back down years. The S&P was 20% this year. This is the first negative year in the last four. Top of mind for him in 2023 is the Fed: we're closer to the end of their tightening cycle after an historic 400 basis points hiked in 2022. In 2023, we could see 50-75 points, then the Fed will likely hold. Also consider the lag effect of all that happened this year, starting with labour and housing. Beyond that there is some opportunity.

2022 will be the fourth-worst year since 1945 and the worst since 2008, BUT the market tends to avoid back-to-back down years. The S&P was 20% this year. The best thing about 2022 was that expectation were reset to reasonable so that investors are more rational. This portends well for the next 3-5 years. In the decade before 2021, the market returned 16.5% annually. Everyone is so miserable this year, but remember you gained a lot in 2020 and 2021. So a 6-7% return next year is fine. However, her biggest concern for 2023 is that earnings come in worse than the market currently expects.

2022 will be the fourth-worst year since 1945 and the worst since 2008, BUT the market tends to avoid back-to-back down years. The S&P was 20% this year. The best news is that 2023 won't be 2022, which we want to say goodbyte to completely. The consensus is that the CPI print on Jan. 12 will be benign, and tax-loss selling will be well behind us. Therefore this sets us up for a likely recovery rally heading into earnings. He won't go beyond that. Tech: In Dec, 2020, the Russell hyper-growth index's PE was around 45x, but is now below 20x. We've seen a valuation recession for risk stocks. Volatility remains high for growth/tech, so there could be more PE contraction. Wait until there is a better macro environment for tech/growth.

Believes rising interest rates will depress economy in 2023 as effects are felt by consumers. Stimulus packages will wear off in 2023 and economy will see negative growth. Believes US Dollar will lose value in 2023 and emerging markets will see growth. Canadian economy will benefit from falling US Dollar. Multi-national companies will also see gains from emerging markets growth. Consumer discretionary companies are going to feel pain as consumers try to save money. Pipelines, REITs and telecom companies look good in this economy.

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. Weathering a Recession: Maintain your Strategic Asset Allocation & Staying Focused on Your Goals. During times of volatility like this, it is important to stick to your asset allocation rather than making emotional decisions. Your asset allocation should be designed keeping in mind your constraints, liquidity, time horizon, and financial goals, with an aim to achieve the desired level of return with the appropriate risk level and factors, one is comfortable with. There is some room for a tactical tilt, and other than that, it is best to revise asset allocation only when there is a change in constraint, belief, or circumstances. The market tends to over-react both ways. When numbers and times are good, every investor is an enthusiastic bull and seeks growth and innovation. When volatility hits, investors turn to panic-selling with seldom any thought to their allocations. Changing your allocation based on market sentiment and/or current performance can hurt more than benefit. Reacting to a down market is an easy way to derail the progress made towards reaching a financial goal.

Markets. You have to think about discount rates and where interest rates were in 2020 relative to where they are today. Back in 2020, the risk-free rate was 0%. So if you tack on a 2.5-4% discounting rate to the present value of future cashflows, you end up with very high cashflows, which is why at 0% interest rates, growth stocks did very well. Today, the risk-free rate is around 4.25-4.5% on 3-month T-bills. So if you tack on 2.5-4% there, you end up with a 7-9% discounting mechanism, which brings cashflows down and, therefore, earnings down. That's why growth stocks capitulated the most in 2022. As Fed and others continue to raise rates, they're still going to suffer. We've already seen a move from growth stocks to value stocks, which are trading at much lower multiples with higher dividend yields.

Impact of strong USD in 2023? Emerging markets, because they trade at the lowest multiple and because their currencies are down the most against the USD this year, could be the news of 2023. But only if and when the Fed stops raising interest rates, as that could cause a drop in the USD. Then you'd see EM currencies start to rise, they'd have more spending power, and it would get the economies moving in the right direction. If the S&P is trading at 22x earnings, and the EM indices only at 10x, that's where he could foresee investors moving, since that's where the value is right now. The USD rose along with interest rates, because foreign bond investors would buy US treasuries because they have the highest rates out there, and would have to convert local currencies to US dollars.