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

Educational Segment. Powell stated on Friday that it was the start of discussing tapering accommodations. Looking at 2013, which was the last taper tantrum, Feds started only raising rates in 2016. Equity markets started to have problems in 2014 when Feds started to shrink the balance sheet. We are probably okay and corrections will be relatively modest right now. In 2022, 16.5x multiple is expected. Low end of a pull back would be 3,500 on the S&P500. This would be a 15% correction, maximum. Any big correction will happen when the Feds balance sheet starts to shrink, which would be around 2023-2024.

Market. The striking rally in the Canadian dollar is caused by the increase in commodity prices. The US dollar has fallen against the world's major oil currencies because of large money printing, massive deficits, and an unwinding of the safe haven trade. Investors experience the Canadian Market outperforming the US as well as the Canadian currency outperforming the US. If you are on the wrong side you are under-performing on both. The Canadian market under-performed the US market for 9 of the last 10 years. These periods tend to last 10 to 12 years during the last 35 years. If you believe the pattern is going to continue then this is going to be the decade where the Canadian market outperforms.

Canadian Banks. Generally are great long term holds. RY-T and TD-T are two he owns. BNS-T is also very attractive right now. For all of them, their loan growth is expected to increase as well as net interest margins increasing, they will benefit from releasing of credit reserves, and they have all this excess capital which they can deploy. They are the one sector you can hang onto indefinitely.

Monday's rally erased Friday's gains. There could be further dips to buy, and an investor should look at oil, travel and leisure, The Gap, Adobe, Home Depot on weakness (down 40 points from its high) and American Express. Tomorrow, traders will go for winners like these. The artificial forces that drove down markets recently have vanished.

Feds comments. There was a change in tone from the feds regarding interest rates at the latest meeting. People were waiting for Feds to lay the ground work more, but it has leaned against higher inflation ratings. There is continued excessive easing from the Feds. They say inflation is transitory. The market is buying into what the Feds are selling. Markets are moving out of cyclical stocks into growth areas such as tech and defence. A tough spot in the market since you have to play one side or another.

Longer term the impact of technology and globalization will put downward pressure on prices. At the same time, there is cyclical pressures that have been exacerbated by the supply issues from the pandemic. We have had an entire decade of underinvestment in commodities and infrastructure. There is tightness across the board giving rise to inflationary pressures. Short term strong upward impacts of the inflationary pressures could be under-estimated. The movement we have seen will continue, but there may be a break soon.

Interest rate trend. The interest rate will probably trend higher. With higher inflationary pressures in the short term and growth will push rates higher. The Feds were gently trying to tell you that.

Words have power over the markets. Today, the St. Louis Fed chief said on CNBC that he expects a rate hike in 2022, just days after Jay Powell said 2023. Markets slid. He thinks the Fed will crush inflation merely by talking about raising rates. Seasonality says we're in for bearish selling for 3-4 days before the late-June swoon ends. The Fed is in warning mode. He expects money to keep flowing into the high-growth stocks (tech). Commodities are retreating now as investors fear rate hikes. Buy Adobe, AMC or Amazon.

Are we headed towards tightening? The Fed can't keep up at these levels if the economy continues to grow. They're all worried about last time they tapered, which caused increased volatility in the stock and bond markets. They want to signal to the markets that if it happens, it's going to be a slow process. If the economy continues to grow, they'll have to cut back on monthly bond purchases. The Fed intends to communicate clearly and effectively, which will be helpful. People forget that we're still in a pandemic. There's a lot of noise in the numbers. Recovery will be much more volatile, and it will take a while to get out of this situation. Fed decision has more of a global impact than other central banks. Lots of concern that inflation is transitory. Economies have a lot of government fiscal support, and we have to consider how the end of this will affect labour, the economy, spending habits, and so on. Lots is happening, so the Fed has to be cautious.

Sell now, come back in the fall? He doesn't work that way. It's a difficult thing to do. You might have sold at the right time in March, but then missed the rally. You need to think about your asset allocation, and perhaps reduce your equity exposure. The problem is that the stock market generally tends to go up, and so it becomes harder for you to step in and put your money to work. If you wait to make your move, the stock goes up 5-7% and you decide not to step in as it's gone up too much, but then the stock continues to climb another 30%. Better to stay invested, but move your asset allocation around if you feel you have too much risk.

Markets. The donation of vaccines to developing economies is a positive for global economic growth, as those have lagged. Borders being closed impacts immigration growth and creates labour shortages. Increased vaccinations will set the stage for a more synchronized global economic recovery.

Inflation. Hard to say at this point whether it's transitory, durable, or a threat to equities. We haven't gone through this before. CPI has spiked, but it's limited to certain sectors that have supply chain issues. We'll have to see what the Fed has to say. If inflation stays high, central banks may have to raise interest rates sooner than forecast, and this may cause markets to have a negative, knee-jerk reaction. The 10-year treasury peaked at 1.74% in March, but yields have declined since then, which indicates the bond market thinks inflation is transitory.

Impact of consumer spending on the market. We're seeing increases in hotel rates and air fare. Consumers have cash saved up and are willing to pay. Prices should normalize over time.