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

CAD outlook for the rest of 2021 Forecasting currencies is difficult. The CAD started strenthening against the USD starting a year ago. Maybe that's due to the BOC being more hawkish than the US Fed, and energy prices have surged. She thinks the CAD is rangebound at 75-85 cents. The economy will drive what will happen to the currency. She doesn't see the Canadian economy growing stronger than the US, though both countries are reopening and both will see higher interest rates at some point.

Market. He thinks we are early in this market recovery We are going to see strong profit growth out of cyclical companies. He thinks there will be strong economies and growth for the next three to four years. Don’t be afraid of the high valuations. Auto parts manufacturers should do well. He thinks supply issues will resolve. A high quality growth name is measured through return on equity and return on invested capital. Investors should stay invested.

Educational Segment. U.S. second quarter earnings season is starting. Expectations are very high going forward. Looking at the chart comparing 2017 market expectations to EPS, the market was up 20%+ with dividends even though earnings did no go up much. However, this can be accounted for by the anticipated tax-cuts from Trump. In early 2018, the market was down with lots of volatility since it was priced in. Earnings expectations fell dramatically in 2019 but the S&P500 had a great year. Every year is different but this year, we have super high valuations and high expectations for earnings. 2022 earnings are now at $213 and 2023 at $235. These are crazy high in terms of growth. Taking a 20x multiple, we have 4700 on the S&P500. Very close to where we are now. This means that we cannot expect double digit growth for the next few years since it has already been priced in.

China saw their growth metrics turn down a couple months back. There will be a perennial discount for the Chinese companies but they offer good value. China will be the biggest economy in the planet and you cannot ignore this. Last couple weeks have seen some interference by the Chinese government in capital markets. There is opportunities in pull-backs but there is risk of government influence.

Earnings week. Must draw trend lines and differentiate between pre-covid, during covid and post-covid. $163 was the initial expected earnings for the S&P. Now it is $191. This speaks to the strength in capital markets. Selling the news may be a good strategy.

Feds. The liquidity support that is driving multiple expansion is now being talked about to start unwinding. What are they going to say about housing? It is quickly becoming unaffordable for average people. Why are feds supporting mortgage markets when there is strength there.

It isn't "live free and die" but "live like a moron and die like a moron" if you don't get your Covid vaccination. Getting it is a no-brainer, so why are some Americans avoiding it? They see a conspiracy or a violation of their personal freedom or don't see the effectiveness. His daughter caught Covid and was sick and miserable for a long time. He knew elderly who caught it and died. What gives? We're at the start of earnings season and could see the impact of absenteeism from those who didn't get jabbed.

Market outlook. The cycle will continue to be bumpy. We are in the early stages of the bull cycle. The global economy is getting back up on its feet. Once it's back, it will expand and valuation will expand. Seasoned investors expect those bumps to occur, but we will see even higher valuations.

Bond yields. The bon yields continue to fall. The markets are a pendulum. There was a lot of worries over inflation and government aid being pulled back in the first quarter. Now, the pendulum is coming back to centre. We see a technical breakout in the bond yield. The up trend should continue.

Covid variant risks. We cannot tell anybody that covid is behind us. It is a question of the probability of a variant that we do not have an effective tool against is going down. Vaccine roll out is moving forward and although we are seeing variants, vaccines are still effective.

Stocks have been flying blind without looking at earnings. All the indices made new record highs today. Use sell-offs, though, as opportunities to buy. Next week, banks kick off earnings seasons. Rates go up, the banks make more money and vice versa. The banks are a microcosm of the recent stock market. After a flat Q2, the banks can resume their climb.

Value stocks going forward. He switches between growth and value, depending on where the most upside is. Since vaccines were announced, value has been running the show. That's slipped in the last month with a lot of the cyclicals being hit hard. Tech has come back, but the recovery trade is still in place. They have better valuations and better earnings growth. Tailwinds of monetary stimulus, massive fiscal stimulus, reopening, capital spending. Stock market's come a long way in 15 months and valuations are extended, so a correction is not surprising.

Is current market action just the pendulum swinging the other way? With the reopening trade, that side of the boat got a bit crowded. Some of the growth data started rolling over. China is slowing down the economy to quell inflation, and the Fed might move earlier than expected to slow down rates. What happens when the fiscal benefits run out? The past 2 quarters have been quite a bounce, but we can't expect this to continue, so this took some froth off the cyclical trade.