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

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.

Inflation. The sad thing was that the fundamentals in 2022 were great. We got punished because of rising interest rates, not because of bad fundamental data from corporate profits or dividend increases. The natural inclination is, that if we're heading into a slowdown or recession for 2023, won't the stock market be lousy? The market was already lousy in 2022 when we had good results, so maybe in 2023 when we have not so good results, the stock market will anticipate the recovery that will eventually happen. Hopefully, future problems have already been priced in to the stock market today.

Interest rates. No one knows whether rates are going to stay high. We've had the fastest rate hikes we've ever seen. If things worsen, and they can worsen pretty quickly, they'll be cutting rates by the end of 2023. Inflation is dead, it's peaked, it's over. You can see this when you look at hard goods and commodities. The last holdouts are rents and healthcare services, but these will start to roll over. He expects a pause very shortly, and then probably rate cuts at the end of 2023. If the message for 2022 was don't fight the Fed, the message for 2023 will be don't fight the Fed on the way down as they start to pivot and start to prop up the economy. That doesn't mean stocks will do badly, in fact just the opposite.

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.