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

A hawkish Fed triggering a sell-off today, so sell? If you're fully invested and rely on income from your dividend stocks, you can't sell everything now. Consider your capital gains bill. If your time horizon is long, then keep holding and you'll be fine. Don't be cute by selling now just to avoid a 10% drop in the market if there's a recession.

The hawkishness from the Fed's Brainard (who made hawkish comments yesterday) was not priced into the market. We have an adversial Fed who clearly intend to use wealth destruction to cool demand and inflation. The Fed has declared war on stocks. This market is as challenged as any investor or trader will face. Caution prevails. Who isn't losing money (in the U.S.) unless you're a pure commodities trader?

End of zero rate interest is here, but not necessarily bad news. People have short-term memories in the investment business. From 2000-2010, US 10-year treasury was between 3.2-6%, whereas the long-term average is 4.5%. He expects treasuries to rise to reflect normalized inflation. Investors and everyone else have done very well during most of those periods. People are worried about consumers and housing. Consumer savings rate is extremely healthy, so they're well positioned to handle higher rates, though the housing market may suffer somewhat.

Tech sector not necessarily dead money? The key is "in some cases". Several large-cap tech companies have strong earnings, earnings growth, and great franchises. The selloff gives value investors the chance to step in and own businesses that should have double-digit returns over the next 5 years. These are companies where growth is happening on both topline revenue and on bottom line as well. He's not interested in the likes of RIVN, where revenues are barely ready to start.

Bank stocks continue impressive rally? Canadian bank stocks give great dividends and great dividend growth. If there's a tax on banks, they'll figure out a way to pass it on to the consumer. Global banks have been under pressure and some are trading at single-digit PE ratios. The world is not coming to an end. We will have growth over time, and now is when you want to own these businesses.

Defense sector. The sector has already moved. The two major players, GD and LMT, are at 10-year highs. He wouldn't buy defense stocks today. Need to wait for a pullback.

EV sector. Eventually, the sector will be filled with offerings from all major car companies. Auto sector is a difficult investment because of competition and high capex. Young people are buying fewer cars. They're car-sharing, which is smart.

Should high yield bonds be part of the strategy for a senior who likes to sleep at night? High yield bonds are the only fixed income asset class that does well in a rising rate environment. A diversified portfolio of these bonds currently offers around 6%. Every issuer has a fair bit of debt, so that's why they yield 6%. He wouldn't want an investor to buy them individually. You want to own a well diversified fund. There will always be a default or two, but the return is way better than government bonds. High yield bonds offer a really solid return with short duration, so it's far less sensitive to rising rates and you're not locking yourself into 15-year bonds.

Big US money-centred banks vs. regional banks. He prefers the larger banks. People often overlook TD bank. It's a top 10 US bank, purely retail, and this would be his play from a regional perspective.

REITs have had a rough time. REITs will always be sensitive to rising interest rates. The only one he owns is CAR-U, the largest in Canada, incredibly well run, a solid income play. If rates keep going up, the sector will see volatility, because people buy REITs for income.

Portfolio construction with bonds and equities. If safety of capital is your concern, then you need to have some lower yielding bonds as well as the high yield ones. This will protect your capital if the market takes a tumble. For the dividend portion, you want to own Canada's and the world's best businesses that have a track record of earnings growth and dividend growth. This is better than going just for the highest yield, as the company may not be able to grow that dividend or it's borrowing money to pay it.

Forest products oversold, so a buy? Lumber is a wildly volatile commodity. Rising interest rates should cool down the housing market. If it does, prices will probably seriously decline. It wouldn't take much. The 30-year US mortgage has already risen substantially. He's the last person to ask about technical charts. Commodity prices, in general, are not going to maintain current price levels.

Monetary policy is seeing a seismic shift and the impact of the Russian war is weakening the global outlook. Both amount to sustained volatility. In recent weeks we've seen a decent rebound especially in Canadian stocks. Pull back in Q2 on equities as we wait to see what happens in Ukraine. He isn't a massive fan of energy stocks. The second half of the year will see oil pull back to $80; the best is behind us.

Oil or gold? Two different sectors, though gold is seen as a storer of wealth during geopolitical turmoil. He prefers gold. Oil will likely fade later this year though there could be upside near term. Oil is a short-term trade, or you pick for the long term companies with strong dividends and balance sheets.