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

Signals that the market's moving higher? Leadership on some of the bigger stocks. Last cycle, it was the FAANGs. This may repeat, or others may lead. Look for stronger and stronger breadth. You're starting to see this with AMZN, GOOGL, and MSFT. They're starting to show relative strength against the market, and that's a good thing.

Areas to invest in now? He's been adding positions that he sold earlier in the year. In the last 2 weeks, he's added 2 Canadian banks. He's adding to positions he lightened up on. Now it's a matter of figuring out where the leadership will come from. Where do you want to be? Where do you not want to be? Quite a rollover in commodities in the last few weeks, so perhaps the bloom is off the rose. It's too early to say, but maybe the main momentum of commodities is over.

Difference between ADR vs. ADS? Essentially, the same thing. One is a receipt, while the other is a security.

How do commodity prices affect the pipelines? Not so much, as they're paid a toll to transfer goods. Not the same type of exposure that the producers have.

Canadian rails as long-term winners? They're a proxy on the economy. CP, especially, is a proxy on the Western economy. Both CNR and CP have done very well. Both are trying to expand north-south routes, which is very important going forward. Market dip is an opportunity to add to both.

Gold. He prefers the bigger gold stocks at the beginning of the cycle, such as AEM, ABX, and NGT. Those ones will move first. You can then drop down to the intermediates as the cycle matures. You gain comfort from the bigger players, with more diversification. You can also buy MNT, as a proxy to gold, which is gold sitting in the Royal Canadian Mint.

Putting money to work on the cusp of a recession? This market has discounted a lot of bad news. He still thinks this is a bull market. For other slowdowns in bull markets, most of the corrections were 10% inside a bull market, though they went on for longer. Right now, we're down 30% on the NASDAQ and 20% on the S&P over 6 months. It's an opportunity to add. You don't have to buy everything all at once, but you can start to take your positions and put the money in over the next few months as the market starts to build a bottom and work its way through.

Markets. Lots of volatility. Stocks and bonds have been challenged this year, due to higher interest rates to combat inflation and less liquidity in the overall market. Volatility likely to stay high. 90% of days in 2022 in the S&P 500 have had a swing of 1% or more. Running out of places to hide. Historically, we've seen pretty significant bounces in the second half of the year, and there's a good chance in 2022. What will drive that is a possible peak of inflation and the earnings trajectory.

Oil in the second half of 2022? Until the last couple of days, energy had been the best performing sector by a wide margin. Energy was up 20% in both the US and Canada, whereas the broader indexes are down between 10-25%. Energy may consolidate for a while; the fundamentals look quite good. Market is tight, not a lot of new production coming on. Medium-longer term, the price should remain elevated. Short-term, fears are triggering some exaggerated moves. Be a bit cautious in the next few weeks and months, but over the next 12-24 months it should be a good outperformer versus the broader index.

Energy sector. With energy, the market should be higher for longer. Pretty good demand profile, despite any slowdown. Not a lot of new production growth. Volatile year, war premium on prices. Companies should return cash to shareholders. Recent volatility may be due to profit-taking on sectors that have held up best. If volatility continues into the third quarter, you want to buy back into the higher quality names. Small-mid cap stocks are the most volatile, but give the most torque to the upside.

Names for industrial exposure? Look to names such as WCN, CP, or CNR. All 3 of these names have good long-term economic moats, generate free cashflow, fairly high quality, can see earnings growth over time, and have sold off with the broader market.

Canadian telcos. Not a ton of downside. Have done relatively well. Good dividend payers. Continue to grow businesses at a fairly stable clip over time. If volatility continues, capital will move toward them. If things start to turn around, they may well lag, but you're not going to lose a lot of money owning BCE, RCI.B, or Telus.

Technical analyst Tom DeMark forecasts when markets will change course DeMark's indicators point out that the Dow could have bottomed last month or it will ahead. He expects more choppy trading in the Dow this and next month, with a rally at the end of July, then a decline to a newer low in August, but a strong rally in September and October that could recover 55-60% of the entire 2022 decline. His downside target for the Nasdaq is 10,515. He agrees with DeMark that the S&P has already bottommed and we are looking at an incredible trade.

Worries of a recession persist even on a positive day like today. The US Fed needs to tame not only commodity inflation but wage inflation as well. To be fair, the Fed could not have predicted the post-Covid war, the Russian invasion of Ukraine or China's strict lockdowns. He can't tell if we're heading into a recession or a soft landing, because the Fed may have already won its war against commodity inflation and it certainly beating housing inflation and may soon beat wage inflation. The stakes are high. The banks will report soon and he is optimistic about the earnings they will report. Tech will bifurcate between profitable stocks which will rally and non-profitable which will fall further. Stocks now reflect a recession. So, if we get a stagnant economy that will re-accelerate, then stocks will rally. But if the Fed hits us with several more rate hikes, we will see more downside. He predicts the former.

He's seeing a lot more value in the markets after this strong sell-off. He's chipping away at these companies at or below his fair-market-value estimates. He is sector and geography agnostic. He looks for strong and predictable returns on capital, and the founder is still involved (i.e. managing it). He's not looking at sectors per se. We're already in a recession, probably since the middle of Q1 earlier this year. A market downturn can be your best friend, which sounds off-putting. Investors should focus beyond the next 6-12 months, which he realizes is tough to do. But investors can look forward to better returns in the future. No idea if there's another leg down in the market though.