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A Comment -- General Comments From an Expert (A Commentary)
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
Stockchase InsightsUnknown
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.
COMMENT
A return to the days when Canadian markets outperformed US? The good ol' days are back. From 1999 to 2010, Canada outperformed the US in 10/12 years. Then the reverse from 2011 to the present, where Canada lagged the US in 10/11 years. Things are off to a relatively good start for Canadian stocks YTD, with the TSX Composite outperforming the S&P 500 by around 800 basis points in the first quarter, which is the widest outperformance in a long time. Sustained trend, because of rising interest rates and higher value vs. growth orientation in Canada. As well, commodity boom in resource companies in the energy and materials sector benefits Canadian stocks over US. These 2 sectors have just eclipsed the financial sectors for the first time in quite some time.
COMMENT
Portfolio construction now. Canada has the home ice advantage right now. He's been shifting meaningful portfolio weightings from the US to Canada. From longer duration, secular growth stocks into value, cyclical, resource trades. All the while being mindful of the risk of the economic cycle being truncated by the expected rate hikes.
COMMENT
Gold. Agrees that gold is going higher. He has good gold exposure across his 3 portfolios from momentum to growth to dividend growth. He owns a royalty play and a big miner. See his Top Picks. If you believe gold is going higher, do you want the high torque name, or the big diversified large cap? The answer depends on your conviction in the direction of gold. Gold's behaviour is enigmatic. Trend is favourable for long positions.
COMMENT
Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. Sentiment in the markets is exceptionally negative. A lot of the selling is likely done. Investors that are still holding are aware that rates are rising. Lower inflation numbers could help the market bounce fairly well. Earnings trends on average have been very good. Unlock Premium - Try 5i Free
Stockchase InsightsUnknown
COMMENT
Today, Jay Powell sid he wouldn't hike rates by 75 basis points, and shares soared. Until that moment, stocks could have swung either way. By tomorrow morning, the market will return to worrying, though. Sellers fear Russian is out of control, that China may invade Taiwan, that the hikes will lead to a crash landing. But he is confident that Russia will back down as the West keeps arming Ukraine, that Powell is intelligent and a smart Fed Chief, and he would not sell this market. He'd own oil, defence and cybersecurity, food, drugs, banks and even some tech, like AMD and Nvidia.
COMMENT
It's widely expected to be a 50-point move tomorrow as well as June, but what he will listen for is their commentary and tone--hawkish or dovish? The bond market is the driver here. The 10-year yield touched 3% yesterday and anticipating the Fed's action while the market rerates what it expects will happen. The market is now at an extremely negative point, as pessimistic as 2008 or even further back, based on data he's seen. There are challenges and the market won't turn on a dime, but investors must remove their emotions and accept that cyclicality is a part of markets. It's a difficult but important time.
COMMENT
We're four months into a bear market. US Fed increases are widely expected, so let them happen. Inflation is approaching a peak and the rate of inflation will decrease. Companies that are still growing at the FAANG stocks, not slowing down, generating a lot of free cash and buying back stock. Also, consumer stocks with strong brands, like Pepsi and Frito-Lay, have pricing power. Witness the Loblaw-Frito Lay war earlier this year. He's watching these sectors.
COMMENT
Educational Segment. Looking at some indicators, it looks like stocks are oversold. Looking at seasonality for the second year of a presidential cycle, you see a period of a cautionary area. May tends to perform the worst. We are probably oversold that there will be a bounce after. Area of opportunity right now. Tradable.
Larry Berman CFA, CMT, CTAUnknown
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