Market Commentary — Page 328

Market Commentary

COMMENT

The S&P is approaching its 200-day moving average of 4,326. Only 12 days in, August is the best month for M&A since last November. Growth funds the past week have since the largest inflow since December. Same with equity flows in the past 8 weeks. Taxable fixed-income has reversed 18 weeks of outflows with 2 weeks of inflows.

COMMENT

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. The US Consumer Price Index (CPI) and the Producer Price Index (PPI) data both came in below economist expectations for July, and this translated into renewed optimism that inflation has finally peaked. The CPI number, the best-known measure for inflation, came in at 8.5% for July against expectations of 8.7%, and the month-over-month change came in at 0.0%, against estimates for an increase of 0.2%. This was the first time in months that the US inflation reading came in below analyst expectations and it has provided investors with a sigh of relief that good news may be on the horizon. Unlock Premium - Try 5i Free

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COMMENT

Bed Bath & Beyond (BBBY-Q)

AT&T (T-N)

Silvergate Capital Corporation (SI-N)

Tesla Motors Inc (TSLA-Q)

Advanced Micro Devices (AMD-Q)

Verizon Communications (VZ-N)

Apple (AAPL-Q)

Coca-Cola Company (KO-N)

GameStop Corp. (GME-N)

Microsoft (MSFT-Q)

JP Morgan Chase & Co (JPM-N)

AMC Entertainment Holdings Inc. (AMC-N)

Walt Disney Co. (DIS-N)

Alcoa (AA-N)

Invesco QQQ Trust, Series 1 (QQQ-Q)

COMMENT

Inflation. This is a lot like the early 1950s, where there was a mismatch in allocation of capital. Big surge in demand, tight supply, and 2 years of elevated inflation. But fairly quickly, things came back into line. Some rate hikes, mild recession, but it kicked off a great decade in the economy. That was the beginning of the last reflationary cycle. After a couple of years of inflation, things came off the boil, and we had steady growth. Now, transport costs have come down, some commodity prices have come off, and supply chain issues will slowly get fixed. We saw a durable low in June of this year.

COMMENT

Markets interpreting inflation. Some parts of inflation will be a little more sticky. The market cares about the change in the rate of change. When things are accelerating to the upside, inflation scares everybody. When it starts to decelerate, people can start to look beyond it. The market is looking around the corner and sensing that may be the case.

COMMENT

US healthcare. One risk is that economic slowdown is more significant than people expect, so you want defense in your portfolio. One view also is that things will repair more quickly than people think. He has a barbell approach with some defense, including healthcare. Healthcare has been one of the best performers YTD, as it's less economically sensitive, and the biggest industry in the US.

COMMENT

Real estate and rising rates. We're into a secular, long-term rise in interest rates for markets. That means certain assets that benefited from falling rates now face more of a headwind. One of those asset classes is real estate. There's no more interest-rate sensitive asset in the world.

COMMENT

Food retailers and portfolio construction. Fan of the grocers. He owns Loblaw. It's not popular, but when there's inflation, the food retailers tend to take an extra price, which protects them from inflation. He also owns WN. These fit on the defensive side of the barbell. On the other side are the more value-driven, economically sensitive sectors like industrials and materials. Important to have both in your portfolio right now, as there's still some economic uncertainty out there.

COMMENT

What's catching your attention? Inflation numbers. Happy with the numbers today. He thinks inflation peaked in Q2. Today's number confirms that, though there's still more to go. So much will be driven by energy prices, which are hard to forecast. He'd like to see them stay low for a while in terms of the inflation outlook, as that would be really bullish for the market overall.

COMMENT

Supply shortages persist? Yes, but we hit peak shortage in Q1. Semiconductor situation is looking better as we move through the year. Commodity prices have fallen back, perhaps as fear of shortages and political risk dial down. In the auto sector, one of his holdings, LNR, reports tonight, and he expects encouraging news on the supply front that will drive new auto production in the back half of the year. All that will help with shortages going forward.

COMMENT

Focus for an income portfolio? High-yielding opportunities, mostly focused on the Canadian market. There are lots of great small- and mid- cap, Canadian companies yielding 5-6%. Some of those are in energy, like ENB or WCP. Even in financials, POW or BNS, their 5+% dividend yields are attractive given the market.

COMMENT

ADR explained. American Depository Receipt. Stocks that trade mainly on a foreign stock exchange, but the company takes some of those equities and lists them on another one, such as NYSE. You get ownership in the share, but it's not the exact same unit at the end of the day.

COMMENT

Oil & gas stocks down - sell or hold? Commodity stocks are volatile, with prices difficult to forecast. They always look their best when the price point is high, but now things are a bit choppier. Oil stocks are still attractive value. Capital spending is much more disciplined, debt's been paid down. He'd stick with them. The economy seems to be a bit more resilient than the pundits predicted. Still good for oil and energy. Worst case would be a big recession, with demand impacted. He doesn't see that scenario. See his Top Picks.

COMMENT

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. The Effects of Inflation. Inflation, by definition, can be described both by as an erosion of the purchasing power of the dollar, or as an increase in the price of goods and services. By investing in the financial markets, individuals can earn a return over the long-term that is above the rate of inflation, and thereby having a low time preference and increasing their wealth after the effects of inflation. We can see that if an individual held one US dollar from 1988 until the present, it would provide that individual with ~$0.40 in purchasing power in today’s terms. Similarly, one Canadian dollar held from 1988 would be worth roughly $0.50 today. Conversely, one US dollar invested in the S&P 500 in 1988 would be worth ~$6.0 (after the effects of inflation) in purchasing power today, and one Canadian dollar invested in the TSX in 1988 would be worth ~$3.0 today. Unlock Premium - Try 5i Free

COMMENT

Today is what peak inflation looks like. Today's CPI number of July was lower than expected and the indices roared by 2%. The rally was across the board from Microsoft to Disney. We're at peak inflation because commodity prices have been collapsing, including oil. Also, supply chains are clearing up. In fact, there will be gluts in products from washing machines to houses. But those gluts will lead to layoffs.

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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)

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

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

Inflation.(A Commentary)

Markets interpreting inflation.(A Commentary)

US healthcare.(A Commentary)

Real estate and rising rates.(A Commentary)

Food retailers and portfolio construction.(A Commentary)

What's catching your attention?(A Commentary)

Supply shortages persist?(A Commentary)

Focus for an income portfolio?(A Commentary)

ADR explained.(A Commentary)

Oil & gas stocks down - sell or hold?(A Commentary)

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

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

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