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

Investors need to ignore short term market gyrations and "buy when others are fearful". Interest rates likely to rise again, but not expecting major increases. Economy slowing down which creates good buying opportunity for investors. If housing markets cools in the USA, it will impact markets, but not worried about global banking system. Believes recent TSX downtime will not affect credibility of the exchange.

Expecting a .75% interest rate increase this week from U.S. Federal Reserve. Will be difficult to stop inflation without higher interest rates. Believes U.S. Federal reserve is getting close to end of interest rate hikes. Goldman Sachs speculating a 5% maximum interest rate. Upcoming U.S. Fed meeting will be key. Recent U.S. earnings have been better than expected.

Educational Segment. Elections are important for global financial markets because federal policy has large impact on financial markets. Gridlock in the US Federal government will limit large amount of spending to stimulate economy(equity markets). Upcoming US elections will be interesting to watch, as results will impact financial markets. Republican majority in USA congress would be bad for Federal spending, and create lame duck position for Joe Biden. Generally speaking, rising interest rates are bad for broader equity markets.

Jitters in the market fueled by high interest rate numbers. Believes US Federal Reserve wants to see lower employment numbers (less inflation). Market believes a recession is coming and is pricing equities accordingly. FANG stocks will remain healthy, and perhaps this is a good time to buy (expecting rising earnings and cash flow). Long term, believes current market conditions are a blip on the map.

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. Tracking Errors. In this hectic time that has been 2022, passive investing has increasingly become the new black. Passive investing typically means replicating the performance (or holdings) of a particular benchmark/index or a combination. In this regard, it might raise some confusion when investors see their investment (ETF or mutual fund) perform slightly differently from the index or benchmark the investment is supposed to replicate. This difference is known as tracking error (error tracking the benchmark).

tech The reckoning in growth/tech stocks is not over, because valuations are still high. Growth trades at a 65% premium to value stocks, down from 100% in 2021. The 10-year average is 35%. Growth's outperformance over value from 2019-2021 was only half-driven by better earnings, the other half my expanding multiples and driven by the Fed's easy policy and low rates. We're in an oversold bounce now, but not at a real bottom....yet.

energy Energy is cheap vs. the market. The companies aren't doing big capex. Yes, they've had a great run, but it will remain his second-favourite sector, behind healthcare heading into 2023. Energy is still under-owned and is a fine hedge to geopolitics and inflation.

The Nasdaq is up for the week despite the megatech meltown in earnings. The market wants to rise higher. He's not sure that there's a shift in leadership from tech to value.

Believes economy isn't as bad as media narrative is presenting. Economic numbers not as bad as predicted (Apple earnings etc.). Strong companies will continue to perform, and be robust. Higher interest rates, Ukraine conflict already priced into the market. Good time be buying quality companies in tech. Fears of recession not as bad as people worried about.

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. The US Dollar. Just about the only thing working this year has been the US dollar, which has risen substantially against its peer group of currencies. One notable advancement has been against the Canadian dollar. The US dollar has increased from parity in 2008-2010 to $1.36 today. The rapid increase in the US dollar relative to other currencies has created headwinds for corporations that generate revenue in the US dollar and are required to convert it back to their local currency. A strong US dollar is also impacting global trade, foreign bonds, and international stock markets, as the global economy is thrown into a rapid adjustment to a stronger dollar. How far the dollar rises is mostly up to how far the Federal Reserve hikes interest rates, but it seems to us that the bulk of interest rate hikes has occurred, and what is left may have a diminishing impact on the US dollar.

Market drama, unprecedented bond losses. Going to be one of the worst years ever for bond returns. Makes sense, when we started the year at zero, and you can now buy 1-year corporate bonds for well over 5%. Means that bond prices have to drop dramatically. Good news for retirees and investors that they can now make some good money on bonds. A lot of bonds are trading below par, so they're attractive in taxable accounts. It changes the balance of how much you should have in bonds vs. equities going forward.

Market bottom? If you pull the lens back further, we've been bouncing off the bottom since May for the S&P 500. Canadian investors have perhaps benefitted from US stocks and the CAD dropping. TSX hasn't recovered from its high levels because oil and commodity prices have pulled back. If we get a sense that inflation is peaking and that the Fed is pivoting, looks like the BOC blinked yesterday, then stocks can go a lot higher. The S&P isn't going back to 4850 anytime soon, but he can certainly see a rebound to the 4000 range.

Advice for the long term. Keep in mind, the S&P went from 666 in 2009 to 4850 in 2022. Stocks do tend to go higher. A lot of people get freaked out about a really bad year and all the bad news that's piling in, and pundits who say the low is 3200 or 3000 or 2500. No one knows. What we do know is that over time, stocks tend to go higher, so own good companies.

Why buy a stock if no dividend? Dividends come from cashflow and profits. It's a company's decision whether to pay a dividend, reinvest, buy back shares, or pay down debt. Paying a dividend doesn't make a company great. Reinvesting profits makes a company great. A company like BRK obviously believes it has a long runway to reinvest or make acquisitions. If you want a dividend, trim some of the stock. It would be a tax-advantaged gain instead of a dividend. Dividends are not the be all and end all. Canadians love our dividends like those we get from banks, utilities and REITs. The best return is for the company to reinvest the cashflows in the business, not necessarily to pay out cash to shareholders. If a mature company has no growth opportunities, maybe it should be paying out a dividend.

Whether to buy more than 1 name in a sector? He generally tries to buy only his favourite name in a sector, instead of diversifying. Sometimes in portfolios he may own 2 Canadian banks. You have to determine how big a position you want and how much exposure. Usually limits exposure in any one industry to 10-15%.