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

Inflation. The big buzzword for the year is inflation. Only when CPI got to 8% did they start to increase rates around the world. Driving inflation are data points, in particular CPI. The last few months have seen a number of disinflationary readings. He thinks, barring any big spike in costs, month over month CPI will be from 0-0.4%. If you extrapolate that over a year, CPI will remain high now but could get down to 2-4%. At the same time, Fed fund futures are priced at just under 4% from March - July 2023. As long as the month over month inflation readings stay below 0.3% for the next 6-9 months, you'll see Fed funds rate and CPI be on top of each other. The road map is becoming clearer, and he expects the market to start acting more positively than it has been.

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. 2H 2022 and 2023 Outlook. What history has shown us is that there is a great deal of sector rotation that happens from year to year, and if we end up in a cyclically bull setup for 2022, that on average, tech, materials, consumer cyclical, financials, and communications have been outperformers. In looking at the ‘land of opportunity’, we see the opportunity for financials, real estate, tech, communications, and consumer cyclical to be relative outperformers going into 2023 and 2024, and we feel that these are attractive sectors that might provide investors with a source of good return.

he and the market isn't so sure that the Fed will cut their interest rate increases. A big theme now is power generation; see California's energy crisis as well as Europe's based on Russia's invasion. Canada though punches above its weight. Hopefully the LNG pipeline will increase natural gas flows when it comes online.

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. Annual S&P 500 Sector Performance. Near the beginning of the year, we mentioned that investors should be prepared to develop an ‘iron gut’ and to prepare for volatility. Then, close to the middle of the year, we noted that investors should focus on just surviving and staying the course, and now as we look to the back half of the year and into 2023, our focus is on the ‘land of opportunity’ ahead.

Doesn't believe resource markets will turnaround anytime soon. Higher interest rates not good for stocks in any industry. Increasing valuations in Canadian resource companies will be long term catalyst for equity appreciations.

Is very bullish on Canadian energy (oil & gas) due to false narrative that world is able to move beyond conventional energy overnight. Increasing energy requirements from both developed, and developing world will require more energy (traditional & renewable). Government policies are undermining transition to renewable energy, and actually increasing reliance on oil & gas.

The 10-year yield peaked on June 14, the day before the stock market bottomed--not a coincidence. That yield is now ripping higher and heading to where the 2-year yield already is. When that happened before, markets were even worse. So, when these yield meet again, will the market tolerate it better. Possibly. That's the number-one thing to watch.

Stocks will be rangebound and earnings will come down. PMI, consumer confidence and declining gas prices will buoy companies to some degree. The market isn't as bas as it looks or is.

We've seen the lows for the year, but he expects volatility ahead. More data needs to come out. But employment is very important to the Fed.

Today's higher than expected unemployment number It's a Goldilocks report. He see a 50-bais point hike in September, 25 in November and 25 in December to reach a soft landing (no recession). But the crucial data is the inflation (CPI) on Sept. 13--that will move the needle even more than this report. You want to see labour participation rise, but wage growth lower than expectations. Remember, September is the toughest month of the year, traditionally negative.

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. The markets have slid over the past few weeks as the Federal Reserve made it clear that the job to squash inflation is not yet done. The US dollar has continued its strength as an energy crisis in Europe carries on, and global growth begins to slow. Both Canadian and US bank stocks are reporting weak results on the back of falling bond prices and the declining capital markets of 2022. The markets have endured severe volatility, and the reasons for this volatility may be warranted with unprecedented velocity in Central Bank rate hikes, quantitative tightening, and decade-high inflation. Nonetheless, we see a land of opportunity up ahead as nothing ever stays the same, and this too shall pass.

Fourth straight day of decline in equities. Rally that started after the rout in June is looking more like a bear market rally, unfortunately. We've rolled over and are at least likely to test the lows. Sparked by the Fed. Notion of a pivot was taken off the table. Fed is going to raise rates and hold them there for a time, which has changed the narrative on stocks. Bond market wasn't all that fussed about it, until the last couple of days.

Stagflation. Where inflation is high and sticky, but growth is slowing. Q2 earnings reports didn't show a big degradation in earnings. But the challenge is the outlook is getting worse, and guidance and analysts' estimates are starting to materially decrease. The one good August CPI print at 8.5% came down only because of energy, which is pretty volatile and already seems to be on its way back up. Inflation could just as easily reverse the other way. Stagflation is a very tough environment for equities.

Timeline of a downturn. If we're going into a typical recession, which seems more likely, earnings could decline by 15%, and it takes 18 months for that recession to run its course. Stocks start to discount the end of the recession 6 months earlier. Spring/summer next year could see the market finding a bottom.