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

Economic weakness has actually fueled a rally in stocks. An American growth pattern that allows inflation to come off leads to a more constructive case for equities in 2023 but this depends on the Fed not aggressively tightening. We have seen the peak in inflation and there shouldn't be steeper declines in economic activity. Canada has under-performed the U.S. due to commodity weakness in energy and mining. Look for mining stocks to recover as we start to alleviate the probabilities of severe recession. Global growth should do better which is good for commodities and there could be a rotation out of consumer stocks probably to mining. Energy stocks are well valued and prices should improve. He is picking away at banks since they are quite cheap and pay decent dividends. The U.S. is cooling off in the second half of August but not likely to get back to recent lows.

The question was on the outlook for gold. It should be doing better but the strong U.S. dollar holds it back. However the U.S. dollar should see some weakness in the next year. A strong dollar is not good for emerging markets and trouble in these markets is not good for the U.S. Bitcoin will not replace gold.

Believes large companies like TransCanada issuing equity (shoring up balance sheet) is sign of market turnaround. Expecting recovery in global markets to continue. Process of large companies raising money indicates confidence of economy going forward.

Believes cannabis industry has potential (medical applications) despite recent market fallout within sector. Expecting consolidation within cannabis sector which will lead to growth. Advice to investors is to take losses and move on.

The S&P may not break 4,200, but parts of it like financials and energy are up today because rates are going up. He feels that the Fed will keep raising rates.

Today's hot jobs report He's now cautiously optimistic. The market was too bearish until this current rally. But now this is stalling before serious resistance levels. The bond market has already priced in the good news, but is starting to pivot. Today's hot employment number changes the outlook over the Fed's rapid accommodation; the Fed doesn't want today's data. There will be ebbs and flows in this bear market bounce and the S&P could rise to 4,300, but at valuation will act as a ceiling. The Fed is still tightening and the economy is slowing.

Today's strong jobs data He's bullish not because of a perceived US Fed pivot, but because he believes in better-than-expected earnings going forward. He expects a soft landing. Inflation is of course the major headwind, but gasoline futures are off 33% from late June's peak and that has yet to show up at the pumps. Also, shipping rates are going down.

Today's hot jobs data The data this week has been very encouraging, like factory orders being better than expected and new orders in the ISM report. Inflation is coming down. However, the economy can handle higher interest rates; unemployment is only 3.5%. The Fed didn't pivot--and has no reason to--last month. She's more worried about 2023, because we don't know the effect of all these rate hikes. For now, though, things look pretty okay.

Investors pricing in an end to the Fed tightening cycle. A bit premature. Nice rally off June lethargic lows, with growth stocks leading the recovery in the NASDAQ. Long bond yields have come down from the May peak, USD rolled over a bit, and gold dipped and then rallied. Cyclical stocks have lagged, which indicates to investors that the Fed is nearing the end of tightening. He hesitates to jump on that bandwagon here. Risk going forward. Fed must get inflation under control. Another 100 bps of tightening to go. Long way to go from 8% back down to 2%. Can't tell if we've seen the peak of inflation, though it seems we have. When Powell soothed nerves a couple of weeks ago, the market may have rallied too much.

Sentiment indicators. He's neutral weight in stocks right now. BAC survey had the lowest confidence on record, high levels of cash. Largest gross short position ever. Lots of money is out of the market expecting a pullback. This gives him comfort that some of the bad news is in. Auto stocks, for example, have already priced in the next recession. We're not going to have a dramatic turndown, but they have to cool down economic growth. Don't rush out of stocks, as they've already taken a hit this year. He still hesitates to say we've hit bottom and we're starting a new bull market.

US vs. Canadian banks. He's not rushing to buy the Canadian banks, he's underweight. There's not a lot of short-term recovery, as tailwinds of the last 2 years are going to disappear. Risk to earnings growth, mainly because slowing economy and capital markets will increase loan loss provisions. Dividends are still safe. He favours BNS and CM in Canada. He's leaning more toward the US banks like C, JPM, and non-bank financials like AXP.

Lifecos vs. banks. Different businesses. Lifecos are better insulated and more defensive in a downturn. Loan losses are less of an issue. Light on financials in general. He's comfortable with the valuation of lifecos.

Pipelines. Likes them. He'd rank them: ENB, TRP, PPL, and then KEY. Dividend yields are all attractive, and he wouldn't worry about any cuts in the current environment. Good valuations. Safe place.

Opportunity in tech stocks with NASDAQ down over 20% this year? Expected pretty robust comeback in the second half of the year. But he didn't expect S&P to be up 4% and NASDAQ up 10% in one month. Got a bit ahead of itself. In the summer, the institutions tend to back away and it's more the technicians out there, so you can have a lot more volatility. Going into the fall, tech stocks will take the market a lot higher, if not close to where we started at the beginning of the year. Seems right now that there are clear signals of economic softening. Earnings for the second quarter have been OK. Yet central banks are tightening and you're starting to see the effects which, hopefully, will pave the way to a softish landing. That could leave central banks to pivot going into next year. He sees a much better place this time next year, or even into the spring. Indexes are barometers of where the economy should be in 6-9 months. He's modestly bullish.