A Comment -- General Comments From an Expert (A Commentary)
COMMENT
Either tech or the banks/industrials are winning, not together. Like today, when the yield flattens, tech gains, and the cyclicals slide. When the yield rises, the opposite happens. It's been 7 weeks of rising yields and falling tech. Today's pause won't last, because stimulus will propel spending. Powell, though, says that persistently high unemployment among African-Americans and Hispanics are more dangerous than rising inflation--and he (Cramer) agrees. Powell feels that inflation won't last. The yield could rise for another week; he wouldn't be surprised. But one day, the rise will overshoot, and THAT is the time to buy tech.
COMMENT
Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. Higher rates has a negative impact on bond prices, so shorter duration bonds will help reduce the impact of higher rates. Adding bonds right now is a good way to diversify away from equities and for downside protection. Unlock Premium - Try 5i Free
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COMMENT
Share multiples won't do well if bonds become much more attractive? That's right. Not sure what the breaking point is. The Fed was at pains to say that it wouldn't raise rates for the longest time, letting inflation run higher. Not sure the market's completely buying in to that. In 2018, the Fed raised rates more aggressively which resulted in a downturn in the fourth quarter. They don't want a repeat. Reality is, US growth could be 6-7%. The long duration equities that have ruled the game have been predicated on 0% interest rates, and that's probably not going to be the case. Cyclical and short duration assets, such as financials, industrials, and energy, should do better in a higher growth environment.
COMMENT
Bank stocks have caught up. They were huge laggards. They benefit on a number of fronts, including the steepening yield curve, over-providing on loan losses, and stimulus. Sitting on excess capital. When the doors open up again, look for share buybacks and dividend increases. They're in a sweet spot right now. He's overweight financials in Canada and the US.
COMMENT
Semiconductor sector. A fast-moving sector with high valuations. Go with the 5G players. QCOM, which he owns, goes to the top of the list on valuation and potential growth. AMD has done exceptionally well, though valuation is a bit extreme. Not a bad way to play is through the SMH ETF. Nvidia has had the highest growth, but valuation also extreme. He wouldn't chase INTC, even though it's cheap.
COMMENT
Holding bonds. The 40 year bull market in bonds is over. The only way yields can go from here is up. Have some weighting in bonds, and it provides some protection and income when equities come under pressure. He'd rather go with preferred shares, and they have better tax treatment. Corporate bonds will do a bit better than government. He'd have a hard time promoting jumping into a bond investment right now.
COMMENT
Gold. He's underweight gold. Problem for gold is the USD. Rising US dollar is a real headwind for gold. Gold has also suffered from interest in crypto currencies. You do want to be in the sector. KL is a candidate, also Torex, Alamos, and B2Gold. Exceptional valuations. The USD will come under pressure at some point, with all the monetizing of debt.
COMMENT
Is there too much euphoria in the market right now? A mixed bag. Economic outlook very strong with people getting vaccines, economy reopening, pent-up consumer demand. Market's had a good run. Pockets (tech, in particular, and speculative areas) are showing some froth. Up to investors to pick the right securities in the right sectors. Value-based, cyclicals will benefit. Some the of high flyers from last year can take a step back.
COMMENT
CAD vs. USD CAD has strengthened recently. One of the better currencies globally in 2021 against a weaker USD. Could be related to energy prices picking up or that there's a cyclical trade underway, commodity prices improving, more US investors moving assets to the Canadian market. He worries a bit longer term. US is in better shape than Canada in terms of the consumer, economic reopening, GDP outlook, debt-to-GDP levels. Unlikely CAD goes back to par. If CAD goes up to 85-86 cents, he'd consider moving some assets back to USD.
COMMENT
Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. The onshoring trend could be a longer term theme. There is a desire to bring certain types of manufacturing back home. Semiconductors for example could be such an industry. Retail is also a sector that will grow. Unlock Premium - Try 5i Free
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COMMENT
U.S. Fed Powell today said pay no attention to inflation, so the markets rallied. Powell says he'll keep rates low into 2023. But bond investors didn't believe him while new investors to markets also ignored. Ignorance is bliss in today's market--younger people who get stimulus cheques this week and will buy stocks. Who's right? Hedge fund managers think Powell is deliberately ignoring inflation and will get out of control; that's why they're selling growth stocks and buying cyclicals. Meanwhile, aluminum, steel, semis, lumber and housing keep rising. This will drive up prices for products like cars, triggering inflation. However, if the Fed wants to slow inflation, it means slowing down the whole economy and there's still a lot of unemployment.
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