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

Believes investors should focus on high quality/profitable companies regardless of macro-economic conditions. Markets will always have noise that investors need to ignore. Consumers facing headwinds with higher interest rates and inflation. Companies will start to invest more with prices falling during economic recession. Re-shoring of supply chain, and automation will increase business investment. Realization that offshore supply chain is problematic/fragile given global tensions.

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. Inflation Impact on Equities. If inflation stays within the expected cyclical range, there is little effect on stocks as the market prices in expectations fairly quickly and companies can raise prices in-line with inflation to some degree. Unexpectedly high inflation might make central banks take action to slow down the economy by raising interest rates, which is what affects valuations of high-growth and highly leveraged companies. High inflation benefits those companies that can pass on inflation, which generally tend to be of consumer staples, financial and industrial sectors.

S&P 500 chart. He's very constructive and bullish. Underneath the surface, a lot of charts are getting quite constructive. Main thing is when you look at the US indices, the mega-caps are really dragging the index down. So while the goliaths are dragging down the index, a lot of other stocks are starting to turn up and improve. Financials, industrials, and materials are really seeing signs of improvement, and this is consistent with a new 4-year cyclical bull market trying to take hold.

Energy. Right now, energy is very late cycle and potentially starting a new cycle. The chart shows that the TSX Energy Index has really gone sideways over the last year. His view is that reward/risk ratio is not great, and so it's likely to become a market performer or underperformer over the next 2 years. You have to look at valuation, relative performance, and where we are in the market cycle. We're starting a new cycle. Energy functions really well at the end of a cycle, because that's a time of high demand when everything's running on all cylinders. Right now, the economy has an empty tank, so demand for energy will be down. Had a good run, now consolidating and that's his concern, it's dead money. So he's cautious.

Gold. Poised to glitter. If we can get a breakout above 1960 (the major resistance level), he suggests there's upside potential to around 2600. Over the last 2 months, he's been recommending exposure to gold equities. One of his top 5 ideas for this year is gold/platinum. 20-year chart shows why he's quite constructive here in setting up for a push higher.

Emerging markets exposure. China has had a big correction, definitely a laggard. There's a change in the world, and there's real potential that China and Asia sit out part of this next cycle in that they'll be underperformers. You'd be better to get exposure to Argentina (ARGT) or Mexico (EWW). FXI is trying to put in a longer term low, China's under pressure. People are hoping for a sharp move up, but he sees more of a choppy, sideways trading range for China and Chinese equities.

NASDAQ prospects. Will likely see at least another 10% downside for the NASDAQ. AAPL is a good example, as it's downside level is roughly another 10% away. Fed talk is that rates are going to be higher for longer. A lot of people are focused on the longer term chart being up and to the right, where you can buy the dip and immediately see another leg higher. Very strong likelihood that a lot of these growth names are going to be locked in a trading range. It had a peak and then a correction. A lot of the growth area remains under pressure.

USD. Had a big move, mainly due to risk off. Then there was a pullback to a support level. In the next couple of months when the Fed is likely to pause, what's likely to happen is a soft, choppy sideways trading range for the bulk of 2023.

Dividend stocks and the new cycle. Doesn't expect returns in the new economic cycle to be out of this world. A big portion of that return will be in dividends. Having a good portion of your portfolio in dividend stocks will give you the bulk of that return, but will also cushion the impact if markets remain under pressure.

Uranium prices. If we're seeing signs of a bigger commodity cycle taking hold, then we're likely in the early stages and could have more upside. He's highlighting gold, platinum, copper miners, and steel. All fit the theme of a breakout that pushes higher.

Consumer discretionary and the new cycle. First phase of a new cycle should be positive for consumer discretionary names like automakers. Markets always look ahead by 6-9 months. So an uptrend shows it's already anticipating that consumers are becoming more positive and are starting to buy the things they held off on through all of 2022.

Interest rates coming down? Maybe late summer or fall of 2023, or the start of 2024. Markets are going to anticipate an end to this hiking cycle well before that, and are going to price in a recovery as well. So if, in the spring, the market prices in the end of Fed hiking, it actually means the Fed's going to stop hiking in the fall. Watch for when the markets start to take off.

When to sell? As we work through the market cycle model, look for 2 things. First, where are we in the cycle? Second, sector performance. If you see industrials start to underperform on a relative basis, that would be the clue that it's time to start easing off that sector. Same as we're seeing in energy right now.

Outlook for 2023. Remember the movie Men in Black, where they wipe the year clean? That's what he hopes will happen with the market as well, where you start the year on a fresh note. There are a lot of positives. For short-term investors, you can now buy a GIC at 5% for 1 year. The last time that happened, he had a full head of hair. Cash is paying 4% in high-interest savings. Short-term bonds have 5% yields. Dividend payers are now offering 4-5-6%. Some of the world's greatest businesses were marked down 30-40-50% in 2022. Let's focus on the opportunities for 2023. If you're a longer-term focused investor, the setup for 2023 looks pretty good.