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

WTI. There is resistance at $85 for WTI. We could expect some selling to show up. There is value and rotation happening. There is also inflation. Will speculatory demand drive us through the resistance. Thinks we will see it. There is probably still some more upside in the underlying names. Energy should outperform tech for the next quarters.

There is market volatility now but he is optimistic. As an optimist he has never known a rich pessimist. The interest rate and credit markets are telling us that the probability of a recession in the next 12 months is low. He does go to cyclical stocks but only when there is a positive yield and it makes sense. There are two causes of the end of a cyclical run: recession and an industry that over-invests thereby creating an over supply.

He likes energy now since the backdrop for a cycle in energy looks good. There has not been over-investment, i.e. lack of investment, so therefore no over-supply. This is good for the sector.

Recommends increasing exposure to banks in both Canada & the USA. Rising interest rates is good for financial companies. As interest rates go up, banks are able to pass this cost onto costumers without increasing costs. Owns RBC and would recommend buying it.

Market correction. Whenever you have a yearly gain of 25% in the S&P, you always have some give back the next year averaging 6%. Seeing some sloppiness in the NASDAQ, almost hit a technical correction just shy of 10%. Still in a bull market, earnings still going up. If the markets do pull back, don't sell in anticipation of that, but deploy some cash if you have it.

Odds of Canada outperforming US? High. Three horsemen: materials, energy, and financials. They're all in the sweet spot, but have all underperformed the S&P dramatically for years. We're now ahead in earnings protection, lower valuation, lots of opportunity to return capital to shareholders and increase dividends. CAD going up is a reason for global investors to take note. If BoC doesn't raise rates on January 26th, he'll be disappointed.

Canadian bank index hitting a record high today. Great place to be right now. Higher interest rates, loan growth, growing franchises internationally, green light from OSFI to return capital to shareholders, still not expensive, growth rates look OK. Steepening yield curve will really help on net interest margins. A good bet right now.

Tech names. Last quarter, MSFT beat on revenue. He's modelling 17% EPS growth, which is pretty good. Trading at 29x 2023 earnings. Price to growth is compelling. Pick away at lower levels. Big tech alternative that's even more compelling is FB. Both are buys. But real value right here, right now is AMZN, with price to growth at almost 1, 42% growth rate, trading at 32x. Tech is dominant, so it's in the cross-hairs. The government's going to find a way to chip away at that over several years, which often unlocks value. If you can buy a company that's growing predictably at 40% and trading at 40x, that's a good buy.

Energy infrastructure names. Likes energy infrastructure names. Commodity prices are the wind at their backs. PPL is a buy, as are ALA, ENB, KEY, and TRP.

Stock splits. He doesn't pay much attention. Once a stock splits, people do end up buying more. It is a bit of a wind at your back. But from a financial management perspective, it doesn't move the needle.

2022 outlook. Pretty constructive on equities for 2022 with positive, though more moderate, returns than 2021. Another challenging year for bond investment. Though Omicron may delay economic activity, it won't derail the overall global economy. Start to see higher interest rates and tapering, but they'll do it in a subdued manner because the inflation is supply driven, and some of the bottlenecks will start to ease. We'll see inflation above pre-pandemic levels, but not hyper-inflation. We'll see new targeted vaccines and anti-viral pills, and these should help ease restrictions on business.

Sectors to avoid. Broadly, a lot of indices look full in terms of valuation. Stock and sector selection is very important going forward. Be careful of richly valued, high growth tech and other stocks. Rising bond yields will continue to weigh on high growth, long duration stocks, and a lot of these are in tech. Those companies have low or negative margins. Higher rates make the promise of future profits less valuable in present terms. Likes cyclical areas, and value stocks like financials, energy, and healthcare. It's not that he's not in tech at all right now, but don't add too much to tech at this stage of the game.