Market Commentary — Page 466

Market Commentary

COMMENT

Bond yields. When Powell was asked his thoughts on higher yields, his response was benign. However, the world cannot handle higher yields. How much higher can yields go before the equities markets get stressed? We saw some hints last week that the markets get choppy with slightly higher yields.

COMMENT

Buying US stocks with Canadian dollars. The CAD has strengthened much more than expected. It is linked to OPEC tightening supply and oil prices going higher. Fundamentally, the CAD should be around $0.75. There is a case when there is reflation and oil prices that rise. 75 - 85 cents is the broad range for the next couple years. You could hedge the foreign currency exposure. You could dip into buying US stocks since he does not think the CAD will go below 75 cents in the near term.

COMMENT

Covered calls. When you are selling calls and the market falls as quickly as it did last March, and then recovers, you get called away since the stock price goes up. When you're bullish, you do not want covered call exposure. You must trade a little, especially during sharp declines and options expire.

COMMENT

Inflation. We are getting asset price inflation and supply constraint inflation. It is very different than demand pull from higher spending power from consumers and regular folks. Until the labour's share of income rises and is willing to spend more, inflation will not be too much of a problem. There is labour market slack in the next couple years so there will not be material core inflation.

COMMENT

Fixed income. In an inflationary environment, real return bonds makes sense if you have to be in fixed income. You don't have to be in fixed income though. Private debt is an area that gives reasonable yields. You can generate 5-7% returns without additional risk. Floating rate notes is another way to play a rising rate environment.

COMMENT

Educational Segment. Interest rates have risen pretty steadily this year. Every time bond yields go up, someone calls the end of the bull market. Bond vigilante is an investor that is gut-check against central banks when they lose control of the fiscal purse. Interest rates have been falling for the last 40 years and this trend continues. In 2017-2018 Feds raised interest rates. The US 10 year needs to get above 3.5% and remain higher to say the trend is changing. We simply cannot afford higher interest rates however. The next tool is Yield Curve Control. Interest rates will be kept low.

N/A

Market. The growth stocks initially did well when the pandemic started, then the cyclicals did well as inflation expectations increased. Inflation expectations have been increasing since last August but got ahead of themselves. Expectations for inflation should pull back somewhat. On a seasonal basis you find inflation tends to pick up until March. Industrials and materials tend to perform well in March and April, but there might be a turning point coming up here shortly.

COMMENT

Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. The initial reaction to higher interest rates is the worst typically. There is some profit taking going on and investors are rotating sectors. Earnings are strong and we must keep a long term view. Unlock Premium - Try 5i Free

COMMENT

The reopening looks more likely and sooner with JNJ's vaccine being approved. Overlooked reopening plays include Ford, Ulta, Federal Realty and others. The airlines are obvious plays, but their balance sheets are in tatters.

COMMENT

Technical analyst Mark Sebastian explains VIX volatility Is there a volatility spike (quick) or swell (slow rise). If you want stocks to rise higher, you want a spike, like today's sharp rally, or in early June and early November. Buy! In swells, volatility slowly rises which happened last August into September as the S&P rose higher--then, markets fell in the autumn. Last week was a classic spike, so expect more upside in stocks; the VIX and S&P were not moving in tandem which happens in swells. We're not in the early stages of a major sell; in fact, the panic is over and the market is starting to roar.

COMMENT

Interest rates. Yesterday the bond rates traded at 1.6%. Rising interest rates means good economic growth. A little rise in bonds is also a good thing. How high should it go? Historically, as long as it does not go above 270 basis points from the low, it's okay. US rates could go back to 3.26% before you get into the pain points, almost a doubling from today. Near term interest rates has caused an intermediate correction in equities of 7%-10% which has happened. Once it's behind us, in the next 2 months, we see a good ride up for small caps and cyclicals. It could be a year for Canada to shine this year.

COMMENT

FANGS. They peaked around November of last year and they are trailing even today. Overall rates will impact on the near term, but the correction depends on which sector you are in. S&P will be less affected than the tech stocks.

COMMENT

Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. There is lots of worry over interest rates but central banks have vowed to keep interest rates low for at least another year. The current rise comes from sentiment and supply and demand. US bond auctions did not go well this weak due to weaker demand and rates spiked. Inflation may spike but this has not been the case historically with other periods of stimulus. Balance in sector weighting is key. Unlock Premium - Try 5i Free

COMMENT

We're in an inflation scare that has put a chokehold on tech stocks. A nightmare, though today interest rates took a breather and the Nasdaq rebounded some. He's looked at the past 6 inflation scares including the last one in 2015 which merit comparison to now: in 2015 like now, the economy was heating up; the Fed Chief raised rates; the highest-valued stock got hammered for WEEKS on end. However, the big difference is that Jay Powell has been crushing inflation and feels we underestimate the risk of high employment and overestimate high inflation. But Wall Street doesn't trust Powell. Rather they believe that inflation WILL hit after the impending stimulus because the economy will overheat. That's why they're dumping bonds and this always hurts stocks. Cramer's game plan next week: on Friday morning, if there's a big uptick in employment numbers in the non-farm payroll report then Wall St. the 10-year treasury yield will climb and there'll be another tsunami of stock selling. Be aware.

COMMENT

What do you think of the broad market? With interest rates rising on the long end, risk to higher growth and higher momentum stocks. YTD, we're still doing quite well. Over the next 12-18 months, we'll continue to grind higher. We might be a bit overextended at this point, but markets and investors see a clear line of sight to a global economic recovery. Vaccine rollout is accelerating globally, and we will see normalization and reopening of the economy.

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

Bond yields.(A Commentary)

Buying US stocks with Canadian dollars.(A Commentary)

Covered calls.(A Commentary)

Inflation.(A Commentary)

Fixed income.(A Commentary)

Educational Segment. (A Commentary)

Market. (A Commentary)

Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. (A Commentary)

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

Technical analyst Mark Sebastian explains VIX volatility(A Commentary)

Interest rates.(A Commentary)

FANGS.(A Commentary)

Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research.(A Commentary)

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

What do you think of the broad market?(A Commentary)

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