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

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.

The question is whether it's the pause that refreshes, or is it the end of the bigger run? It's a pause, with the caveat that it's an extended market. He's worried that there's not as much cash on the sidelines, bullish sentiment is high, and valuations are stretched. A lot of fast, hot money moved in and you have to shake the tree a little bit and see where the stronger holds are. He has cash and is getting ready to redeploy it in cyclicals like financials and industrials.

US bond market. The advice to sell all equities at 1% would still have a ways to go. Bond market is signalling slower growth ahead, earnings won't be growing as fast as expected. Growth expectations got a bit ahead of themselves. The Fed and money centre banks are still out there buying bonds, so that puts pressure on the yield. Rebalancing at quarter's end also. He's not concerned about the checkback, doesn't think it will last.

When's the next big correction? Not soon. Investors have been obsessing about this. Lots of newbie investors in the market. Market cycles are long. They don't just die of old age. Usually a bull market is brought to an end by either a cyclical or a structural recession. He sees scant evidence that either of those is imminent.

Aren't cycles compressing? He looked at that. Recoveries from bear markets are inversely proportional to depth and length of the bear market that preceded them. Short, sharp bear markets are typically followed by faster and stronger recoveries. Like an elastic band, the further you stretch it, the faster it snaps back. Today, markets have correctly priced in the rapid snap back in corporate profitability. If analysts are correct, TSX is poised to put up record corporate profits. Not a surprise that markets are at all-time highs. Rapid cycle of interest rate hikes could bring on a cyclical recession, but central banks are not signalling this. Interest rate derivatives market is also pricing in minimal rate hikes this year. Supply chain issues, and warehouses being empty not full, point to no recession.

10-year yield of 1.3%. US treasury rates bounced hard off their lows, and some froth has come off lately. Indicators indicate the economy is growing but decelerating, which shows we're moving from the rapid snap back to more of a steady state growth rate.

ESG. ESG investing affects all the oil explorers and producers. The problematic effect on Canada is like ESG on steroids, given the political climate and green activism here. They own no explorers or producers in Canada or the US, and only one offshore.