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

The Fed will likely tighten too far and go the other way, but the Fed will respond in early May to today's core inflation (PCE) data of February which edged down, cooling slightly.

When the year began, she noted that the positive thing about the market was how negative sentiment was. Three months later, the Nasdaq and tech is up 15-19%. Who expected that when many expected new lows first. This is the effect of all previous rate hikes, and maybe there are 25 basis points left before the Fed likely pauses. Inflation is clearly going in the right direction. Tech was smothered last year when their multiples fell lower than the market. So, their current comeback makes sense to see some reversal now in leadership. Also, the market has handled this banking crisis unexpectedly (well).

"Resilient" & "uptrend" best words to describe current markets.
S&P 500 up ~17% from October lows. Past 6 months have seen upward moves.
8 consecutive months of lower inflation, will lead to dovish policy from US Fed.
China re-opening will also help industries around the world.
Record level amounts of money market funds being held with higher interest rates.
Still looking for high quality & value oriented stocks.

How Come the Market is Rallying with All the Bad News Out There? We have high-interest rates, inflation, war, pandemics and a financial crisis, amongst other problems. So how come the markets are so resilient? Well, as they say, markets climb a wall of worry.

If you want to worry, there are plenty to choose from. But keep in mind two things. First, valuations might be lower as fearful sellers exit positions. Lower valuations can set up better investment returns for those brave enough to step in.

Second, when all the news is bad, any actual positive developments can have a larger influence. If investors are worried about eight-per-cent inflation and it comes in at six per cent, there can be some relief buying. If you expect your company to report lower earnings and it reports flat earnings, even that so-so report can spark a sudden rally since no one was expecting anything, anyway.
Unlock Premium - Try 5i Free

Canadian REITs are down 15-20% in the last 12 months, US REITs down 25%. Public real estate world has experienced quite a bit of volatility with the volatility in markets and interest rates. Reality is quite different in the private real estate markets in those sectors that have positive supply/demand fundamentals. He's more focused than ever on defensive sectors, those that have growth, and companies with great balance sheets. The sectors that make sense today include manufactured housing, single-family rental houses, industrial warehouse, and grocery-anchored shopping centres.

In 2022, private REITs were up by high single digits. In the publicly traded world, real estate was down 20% last year. Who's right, or are we somewhere in the middle? It all comes down to the asset class and the balance sheet. Today there's a wonderful opportunity in publicly traded real estate. Typically, public trades at a premium to NAV compared to private, but today the discount is 20-30% to NAV. Over time, that leads to increased M&A activity. That environment should come back once we have a bit more stability in financing.

Regional banks have 5x the exposure to commercial real estate as the large US banks. Credit has always been open for those borrowers with good credit and great relationships. He's not concerned at all about the publicly traded REITs. He'd be more concerned about private landlords in the wrong asset class, such as office buildings, as they're going to have trouble refinancing their mortgages. This will translate into great opportunities for well-capitalized owners, and hopefully some of the REITs can take advantage of that.

Trapped between the 50- and 200-day moving averages. Though, this morning, it broke above the 50-day. But it's done that before, and it's quite an inflection point right now. It looks as though we're going to have a decent month.

You can make the case that if you go out into the latter part of Q3, you're going to have this financial tightening, which will weigh on the multiples. Therefore, we'll probably have an earnings recession going into Q4 and in the beginning of 2024. What that means to the market depends on where the market is when we get there.

For Q1, US earnings are expected down 9%. And for Q4, it was down about 5.5%. There is a trend going on. Revenues should be modestly higher, 1.5-2%. When you pull all the technicals and fundamentals together with what central banks are doing, it feels as though we're going to be entering a pause period, at least for the Fed. This is similar to what the BOC did. That would give a green light for investors to come in and put some money to work.

There are always going to be cracks out there. He wouldn't be surprised if we have some other nasty bank crises. The US has 5,000 banks, whereas in Canada we have fewer than 20. So the odds are that you'll have some problems down in the States.

Instead of trying to pick the winner on the hardware side, there are so many on the software side that have much better margins. When it comes to EVs, buy a TXN or a QCOM, which does the CPUs and the GPUs. LCID, for example, just announced layoffs.

Potential for a recession, but only if there's more credit or financial tightening. Credit tightening would happen, at the soonest, in Q3 of this year. If there is a recession, it won't be until later in Q3, maybe into Q4. Makes sense, because it's only a year ago that they started raising rates. Most economists say that for rates to filter through the market, it has to go on for about 18 months. 

He uses it at least half a dozen times a day. Phenomenal product that will change our world. He still thinks GOOG will be the winner, despite MSFT's entry in the space.