A Comment -- General Comments From an Expert (A Commentary)
COMMENT
Educational Segment. What will be the catalyst to turn the market? Stimulus coming from China often plays that role. Currently China is having issues with Covid but hight pressure on the government to be stimulative. China's credit impulse should be coming in next 6-12 months. US 10-year yield is currently at 3.2%. If it breaks past 4% it could be really tough on equity markets. There will possibly be a tradable rally soon but a rally that will fail. Almost certainly a down year for US equity.
COMMENT
Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. Sentiment in the market is bad. We haven't seen capitulation yet but it seems close. a VIX spike above 50 might be the sign that the towels are being thrown in. On a more optimistic side, if inflation is seen as peaking, markets would likely relax quite a bit. We get new inflation data on Wednesday. Unlock Premium - Try 5i Free
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COMMENT
Hold cash He doesn't see a turnaround, but we are due for a short-term rally. Sentiment is bearish. He expects inflation to stay stubbornly high, given the war in Ukraine and supply chain issues. Today's jobs report with wages rising 5% was amazing, but inflation is 8%. You can sell the market on pops. Until the market rolls over, he isn't buying.
COMMENT
He has sold most of his stocks to take option positions, totalling $2.5 million. between now and June. He has only 1.5 months to participate in the market. Do I go back into those names as stocks or not? Energy, he expects to go much higher when China returns online. The VIX is hitting highs today, so there could be a bottom soon. After breaking 4,100 on the S&P today, could 3,800 be the next level?
COMMENT
He's buying a lot in this bear market, including Chevron, Dupont, Apple, JNJ, Pfizer, BABA, Moderna, Home Depot and Meta. All these companies do no require financing; they have strong cash flows and balance sheets. They pay shareholders. Their PEs have been crushed. He can either go to cash--but would lost 7.5% in the face of 8% inflation--buy the 10-year bond at 3% (not, not until it pays 5%), or buy stocks with pricing power. They won't go out of business regardless of Powell, Ukraine or anything.
COMMENT
Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. Tough times for most asset classes and sectors. High-yielding bonds or safe large cap names that pay dividends could be a good way to fight inflation. Cash is probably not a bad idea at this time, given the market conditions. Inflation is high but it is not expected to remain this high for very long. Cash is a good place to be until things settle. Unlock Premium - Try 5i Free
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COMMENT
Are market fears justified? Wild ride this week. Markets jumping yesterday, but giving up those gains and more today. VIX is now at those critical levels of 30 or so, which tend to show an inflection point in the market near-term. Lots of fear and panic due to geopolitical tensions, rising rates, inflation, and renewed lockdowns in China. April was a tough month for markets all around, especially the NASDAQ. When we see these major swings, as we saw in March 2020, it's an opportunity if we can look beyond the near-term noise. Heed the Warren Buffett adage: Be fearful when others are greedy, and greedy when others are fearful.
COMMENT
Every challenge has opportunities. Where are they right now? He's been tilting his portfolios from growth, especially high growth and high multiples, over to value. The global economy will expand at 3.6% GDP expansion, based on recent numbers from the IMF for 2022-23. The volatility is caused by the chatter about recession, which is premature and overstated. Look at the Conference Board leading economic index and the US 3-month/10-year yield curve, which is highly predictive of a coming recession. Neither of those predict a US economic downturn in the next 12 months. Manufacturing numbers, retail sales, and housing numbers still look encouraging. Sectors he likes now: financials, energy, materials, healthcare.
COMMENT
Time for GICs? Rates are definitely moving higher. The only problem with them is that there is no exit until they mature. No liquidity. Whereas you can get out of bond ETFs today or tomorrow. You'd want to be at the 3-year mark at the most. It becomes a choice of what the investor is looking for. 3-year GICs are about 4%, and 1-year GICs are around 3.1%. Is that difference worthwhile locking in? He's not so sure. If you wait for rates to go higher in shorter rates, you're not getting that yield in return, so there's an opportunity cost along the way.
COMMENT
Risks to price of oil. A resolution in the Russia-Ukraine conflict would see a short-term fall in oil prices and energy stocks. Longer term, there's an imbalance between demand and supply. Oil prices should go higher or remain very firm. Recession would cause demand to fall off. But recession is not his base case. Energy is not a crowded trade at this stage.
COMMENT
Anticipated market reaction to Fed rate decision? Fait accompli that we're going to get a 50 bps hike. Probably a case of investors selling on the rumour, and perhaps there will be a bit of a relief rally on the news of the actual hike, especially if Powell dials back on the hawkishness we've heard to date. There will be a lot of eyeballs on this one, for sure.
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