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

Right now, we've seen that a lot of the uncertainties out there are still there. Nothing has really changed with that. It remains to be seen if the US dollar has finally bottomed out, or if it's going to continue declining as it did last year. It may not have the worst year since 1973 again, but it still seems to be fairly soft.

Gold and silver had a huge run, especially silver -- once it broke through $35, it just soared. We probably won't see something like that again, but at this point they still look to be in a favourable trend. We may see more moderate action, or corrections, or periods of consolidation. 

Overall, the underlying environment for precious metals still seems to be positive -- but the bar is set pretty high in terms of trying to beat last year.

For most of the last 6 months, his RSI rankings for metals and materials were dominated by the gold producers. Late last year we saw the silver producers take off. Now a lot of the base metal names are starting to climb up the rankings as well.

Often hard to tell if you're looking at a correction within an ongoing trend, or if the trend is ending. Usually the end is demonstrated by support failures. So something hits a new high, corrects, comes back, but doesn't get back to that high. You starts seeing lower highs and lower lows. Areas of support on the chart fail. Longer-term moving averages, such as the 150-day or 200-day, start to fall apart.

It's usually not just one thing but, rather, a series of breakdowns and failed rebounds.

At this time of year, stock trading tends to slow down. It's hard to read much into trading over the holiday weeks. Everyone's back this week, but just getting into the swing of things. People are rebalancing their portfolios, making changes, doing tax-loss selling. It's generally a time of thinner trading, which exaggerates the trades.

He's seeing natural gas as more seasonal, as the beautiful weather we're seeing outside today has crushed nat gas prices. When it gets cold again, price should go up. It's said that the main driver of natural gas is how people feel when they open their windows in Chicago ;)

At his firm, as long as something is showing relative strength and that it's attracting capital, they're fine with buying high and selling higher. That's actually what they try to do -- buy things that are showing strength. They realize they'll never get the top or the bottom, but want to capture as much of an upward trend as they can. "The trend is your friend till it ends."

His firm focuses mainly on a stock's price and its relative strength. 

First they ask if the market is favourable for equities? Yes. 
Which equities? Canadian and international have been outperforming US equities. 
Then they look at sectors to see which are outperforming? Drug companies, for example, are starting to outperform. Of the drug companies, which ones are showing the highest relative strength?

That's how they work through their process.

After 3 strong years of the S&P 500, and a solid showing from the TSX this past year, it will really be about monetary policy. We assume that we're going to have a new Fed chair, which is dovish. Leading up to that we may have some volatility. Speaking of volatility, we have the renegotiation of the USMCA, midterm elections (which tend to be the most volatile years and with the highest drawdowns). 

Everything underneath that is fairly supportive. There's an expectation of about 14% earnings growth for the S&P 500, which is positive. Inflation is easing, and that also supports a more accommodative monetary policy which, in turn, is constructive for stocks.

Absolutely. Valuations are higher right now. So it's more about the earnings results and the earnings guidance rather than the narratives around many companies (including tech companies).

Still great momentum and great growth in many of the tech and communication companies out there. His team also likes healthcare and financials. Industrials also have a path to outperformance.
 
Technology and communications performed very well last year. But if you look at the Mag 7, not all of them did very well -- only a couple of them outperformed the S&P 500. We're shifting a bit more to the industrials and the financials. Probably not lowering the weighting in technology, as it still has a path to perform well. But we'll have more volatility this year, and it'll hit the higher-beta type of sectors such as technology.

Historically, some of the trepidation about a change in government does lead to greater drawdowns in midterm election years. Those years tend to be weaker, same as with the presidential cycle. 

However, volatility can lead to opportunities to buy things that have gotten a bit cheaper. Same as we saw last April with "Liberation Day".

Depends on size of portfolio and how much diversification an investor needs.

His team is still pretty constructive on the markets. They've been long the tech sector for the last 5-10 years, and think that still has a great outlook. AI will continue to flow into the enterprise market. Tech is a huge part of the S&P 500, so that should continue to do well. 

Tech's had a great run over the last 3 years, and we're now in the digestion phase where multiples are starting to level out after having expanded. We're going to need to see further earnings growth and further EPS revisions for a lot of these companies moving forward.

The Russell's seeing a rebound in more of the "real economy" companies such as auto stocks and equipment rental companies. That turnaround will continue to push the market higher. For the real economy, interest rates are lower and that's helping. From 2021-2022, ahead of the inflation spike, there was a huge surge from stimulus by governments around the world. We got ahead of ourselves in terms of inventories in lots of areas, and we have to work through that.

He has some exposure to metals and materials -- great performers last year, and expects that to continue. 

Still shying away from consumer staples whether it's personal care or alcohol. Multiples in the sector have come down a ton. Sees a lot of headwinds that are structural in nature. Pricing power is non-existent, lower-end consumers are moving to private label. The digital economy has taken away a lot of the shelf space that companies used to have, and there are now a lot more options.