Market Commentary — Page 298

Market Commentary

COMMENT

Very optimistic for energy investors in 2023. Expecting $100 oil in near term future. Two major headwinds gone: 1) China pandemic ending 2) SPR releases have passed. China re-opening will unlock ~1MM bbls oil a day of demand. Supply is still not growing at material rate. Return of capital to shareholders limited further investment.

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COMMENT

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. Representativeness Bias. The representativeness bias is a misconception that future patterns will resemble past ones. An investor may identify an investment as being good or bad based on its most recent price performance. This is why increases and decreases in share prices can often become overextended. If the price of a stock continues to climb higher, then investors may feel that this pattern will persist into the future, and this drives the price up further. Vice versa when stock prices decrease, as investors may feel that they will only continue to fall further. This cognitive bias helps us to explain our general belief that the sign of a top in price is when investors feel that the stock can only go up and the price decreasing is not a possibility, and the sign of a bottom is when investors feel that the price can only decrease further, and no mentions of a rebound are in sight. These types of behaviours occurred at the bottom of the stock market in 2008 and 2020, as investors sought lower prices and were using the most recent performance as an indicator for the future. Unlock Premium - Try 5i Free

COMMENT

Technical analysis by Larry Williams Comparing the charts of the Nasdaq and Dow, while studying Berkshire, which values growth and is thriving in this growth market. Though tech/Nasdaq has started this year strong, be wary of it, and instead invest in the Dow/value stocks. However, Cramer would throw in quality-tech names.

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COMMENT

IBM (IBM-N)

Chevron Texaco (CVX-N)

Copa Holdings (CPA-N)

Sunrun Inc. (RUN-Q)

Tesla Motors Inc (TSLA-Q)

Microsoft (MSFT-Q)

AMC Entertainment Holdings Inc. (AMC-N)

AT&T (T-N)

Warner Bros. Discovery (WBD-Q)

Invesco QQQ Trust, Series 1 (QQQ-Q)

Exxon Mobil (XOM-N)

Kellog (K-N)

Interactive Brokers Group, Inc. (IBKR-Q)

Emerson Electric (EMR-N)

Netflix Inc. (NFLX-Q)

COMMENT

Investor complacency and market opportunity. The VIX is at 20. There's some complacency around what's going to happen in the market over the next year or so. Earnings for the S&P 500 are probably still too high. If we enter a period of slower economic growth, those numbers have to come down. Most of the companies report over the next couple of weeks. Earnings for the S&P 500 have slowly come down, but there's more to go and that's when you want to look at buying.

COMMENT

Inflation. Canada started increasing rates a lot faster than everybody else. Central banks around the world are still going to be increasing rates, albeit at a slower rate. If you look back to 2019, a lot of things like oil and gas are at the same price, so nothing's really changed. Even GDP is not that far off what it was before. The one thing that has changed is interest rates/inflation. Supply issues caused inflation with prices going up. Over the next year, that should change, especially if China really starts moving again. Though this will have implications for oil, in general it should add some deflation to the environment. May have a rocky road for the next little while, but in chaos there's opportunity. Pick companies that you want to own for the long term and put them in your portfolio at cheaper multiples, though they may still fall a bit more.

DON'T BUY

Gold. He doesn't own gold or gold stocks. Owning gold doesn't pay you anything. It's done very well in the last little while, perhaps because Bitcoin isn't as stable as people thought it was going to be. There's a feeling that the USD is coming off, and that will help gold. The feeling that interest rates are being lowered is also helping. He'd rather own gold than the stocks, because you have to deal with company dynamics as well as geopolitical issues. They don't meet their cost of capital on a regular basis. Has the potential to go up from here. It might have done poorly or been flat last year, but it didn't hurt you.

COMMENT

Invest in Europe? Hedge the CAD? He doesn't hedge the CAD at all because these are long-duration assets, plus a lot of companies like MSFT manage the foreign exchange themselves. There are great European businesses, and you should own them if you can find them. But there are a lot of great companies in Canada and the US that have access to the rest of the world, and you're not taking as much currency risk. However, hedging a bond portfolio that's investing internationally makes a lot more sense, as you need to be able to hedge the maturities.

COMMENT

Canadian banks. He owns CM, BNS, and RY. Canadian banks are not expensive. Difficulties with housing market plus slowing economy are pushing them to over-reserve. 2008 scared them. Not expensive, great dividend, oligopolies. CM has always been a difficult story. It had a great retail franchise, until investment was diverted to wealth management where it's always been playing catch up. Great businesses, will continue to do well. May suffer this year on asset management and investment banking. BNS international business sometimes gives them a higher multiple, but sometimes a lower one in times of slower economic growth. Any of them should do well for you.

COMMENT

Uranium. At an interesting level. What happened with Ukraine and Russia has put an inflection point on how we think about energy. Where do we get it from and how do we use it? This is going to help uranium. More interest in using nuclear power to meet green demands.

COMMENT

Natural gas. Spiked because of what happened in Europe. Trouble with commodities is that manufacturers adjust. In Europe, price of nat gas has gone down, even though people thought it would be a terrible winter. You had a supply shock, and then companies did what they had to do to meet demand. There's actually a lot of gas around. The price may have gone down too much. It needs to stabilize at historic levels, somewhere around $3-4, and a company should do well from there. You have to look at a company's cost of extracting and selling.

COMMENT

BOC rate increase. A bit of a surprise on the pausing after this, and the CAD sold off right after the announcement. This is the first of global central banks coming to the end of rate increases, and this will put a bit of pressure on the Fed, especially if bigger markets like Japan or England start to slow increases. Definitely, inflation's coming down, and the BOC is responding to that.

COMMENT

Effect of rate increases still to be seen? For sure. And it was raised again today, so any borrowers who've been squeezed are going to feel it that much more. They're still at a restrictive level, even if inflation does settle back to that 2-3% range, we still have that real rate healthily positive. Stock market's down 10-12% YOY, and that's the response to the slowing in the economy that we're feeling today.

COMMENT

TSX vs. S&P 500 Toronto's been benefitting from the stronger resource market. Companies like CNR and CP were strong performers until today, and now they're starting to feel that slowdown.

COMMENT

The case for equities. Still seeing strength in the real economy. That's why he's still bullish on equities. Sure, the economy's slowing. But we're not seeing a recession or large layoffs outside of particular industries. If inflation goes away, central banks can start to ease and that will help everyone out.

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

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

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research.(A Commentary)

Technical analysis by Larry Williams(A Commentary)

🔒 Premium Content Alert – This buzzing stock opinion is accessible only to Stockchase Premium

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

Investor complacency and market opportunity.(A Commentary)

Inflation.(A Commentary)

Gold.(A Commentary)

Invest in Europe? Hedge the CAD?(A Commentary)

Canadian banks.(A Commentary)

Uranium. (A Commentary)

Natural gas.(A Commentary)

BOC rate increase.(A Commentary)

Effect of rate increases still to be seen?(A Commentary)

TSX vs. S&P 500(A Commentary)

The case for equities.(A Commentary)

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