A Comment -- General Comments From an Expert (A Commentary)
COMMENT
China-US tension. The modern day Cold War with China's tech right now. China wants to become the largest economy and global influence. The Cold War is being debated and fought in large cap tech. Right now it is the secondary companies that are being affected.
Larry Berman CFA, CMT, CTAUnknown
COMMENT
Earnings. Earnings expectations year to date have ramped up tremendously. At the start of the year, $163 on the S&P for this year was expected. However, now it's up to $191. We have never seen earnings ramp up so much, but also we have never seen this much government spending.
Larry Berman CFA, CMT, CTAUnknown
COMMENT
Market drivers. It's always earnings that drives the market. The valuation is on the high side right now. You get some risk off and this is what we are seeing right now.
Larry Berman CFA, CMT, CTAUnknown
COMMENT
Crypto and gold. It is a digital asset that can be traded. The fundamental value is probably closer to zero and thinks it will collapse under its own weight in a bubble. The real interest rate is negative. Gold has seen a dislocation from this.
Larry Berman CFA, CMT, CTAUnknown
COMMENT
Educational Segment. Any good educated market technicians, the number of stocks participating in performance is important. Some analysts are saying breadth is still doing okay. He does not agree. In March and April, the S&P was making new highs. However, the average stock was turning down. Last week, most stocks were down but the index was only slightly down. This was last seen 25 years ago. Market breadth is wonky. This divergence often leads to a 5-10% correction. This should be looked at as an opportunity. We have not seen markets come down to trend. There are indicators that are showing cautionary levels. Risk-return is telling us to be cautious here.
Larry Berman CFA, CMT, CTAUnknown
N/A
Market. The TSX has been hitting record highs over the summer. The delta variant is weighing on the markets. We don’t go from lock-down to re-opening and it is all over. Markets and earnings will tend to go higher. Inflation is now off the table and we are now on to the delta variant. Markets climb a wall of worries but every day will not be a day of roses. We do not know the full extent of the damage done by COVID. This is a 95% amazing economy and 5% bad. He does not think the economy is in trouble but it is not going to be a straight line.
Barry SchwartzUnknown
BUY
Canadian Banks. What a difference a year makes. Terrific return so far on the backs with no loan losses so far. As interest rates started to go higher, everyone got excited but now that story is put to bed. Canadian banks could not raise dividends or buy back stock due to COVID. It will be interesting to see what regulators will do with them now. They will trade sideways for now. His favourites are TD-T, RY-T and NA-T. They are very well run banks. NA-T is his favourite of the three as it has the greatest total return.
Barry SchwartzOwned
COMMENT
Too much speculation and not enough stablity in the face of Covid uncertainty, which explains today's meltdown. This was the end of euphoria. The spec stocks, which attracted young investors, were hardest hit. Those specs include SPACs (638 this far so far, which is insane), IPOs and the Reddit/meme stocks, such as Corsair. Throw in the cryptos, though he likes and own Bitcoin, but likes it more at lower levels. Crude oil was also speculative.
COMMENT
Inflation. At a real crux. It is uncertain whether we will see a pure reflation trade or if there will be deflation with growth or not. Demographics and debt as well as tech lead to deflationary outcomes. At the same time, economies globally are reopening and a real surge in the desire to get back to business as usual. Really a difficult question. Equity markets are fully valued and yields are low. Commodity space has seen good returns. Should focus on being diversified. Certainly not 100% certain of inflation or deflation.
Mike PhilbrickUnknown
COMMENT
Equity markets fully valued. Equity assets are calculations of discounted cashflows. Looking at 1 year valuations, they are based on discounted cashflow rates. When rates are at 0-1%, you will pay more for earnings. All assets are priced higher than historical levels. The reach for yield is because it is hard to come by.
Mike PhilbrickUnknown
COMMENT
Sectors. In a Q2 situation. Global asset prices is from inflationary growth. Global growth is strong enough to tolerate inflation. This is why Canada is doing well. When inflation overwhelms growth, it causes stagflation. You want something in your portfolio that will do well in all environments. The reflation trade has come a long way and quickly. There is a continued narrowing in the US.
Mike PhilbrickUnknown
COMMENT
The week in review Under the surface recently is weakness is being masked by strong in tech stocks. On the S&P, less than half of stocks are trading below their 50-day moving average. So, it's not as broad as a market rally as we saw earlier this year. Even within tech we're seeing a bifurcation with the Nasdaq 100 names hitting fresh highs, but some of the Cathy Wood names not. This is no longer the rising tide lifting all boats kind of market. Investors are looking for fundamentals. Volatility will be present in coming months. Retail sales numbers today are encouraging. Spending is happening even as fiscal stimulus is waning. He still feels we're early in this bull market.
COMMENT
The week in review There's a risk that the megacaps are priced for perfection, so going forward they may not have the same catalysts going forward. The market weakness we saw this week is a reversal of the previous attitude of "buy the rumour, sell the news." This recent pullback could set up nicely going into earnings season that we've just started.
COMMENT
The week in review We are at "peak-ish" transitory inflation, but not runaway inflation. It's not only earnings that investors should look at (in earnings season now), but corporate outlook. The banks this week put it good numbers, and the FAANGs have had a good run, so we'll see how tech reports in two weeks.
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