Market Commentary — Page 468

Market Commentary

COMMENT

Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. There are opportunities in both the US and Canadian markets. Currency variability is also a risk for Canadians. In terms of geographic allocations, a balanced approach would be favoured. If the majority of your expenses are in Canadian dollars, it makes sense to have some exposure to some Canadian equity. Unlock Premium - Try 5i Free

COMMENT

Today's sell-off in tech and modest rise in S&P is what is expected before an economic reopening, a boom-time like the Roaring Twenties. You're not early getting into these reopening names, like Caterpillar and the airlines, but not late either. Growth and tech names will suffer until this rotation ends, but don't give up. Growth and value stocks always come back, but there will be pain until then.

COMMENT

Technical analysis to forecast the next few months Tech analyst Larry Williams has been predicting markets accurately during this pandemic. Williams expects the current bull market in cyclicals (and rotating out of tech stocks) has room to run and that the Dow will peak in late April or early May, then we start going down. Past Dow charts show that we get a strong buying opportunity every 240 days. There'll be selling pressure around April, which paves the wave for a strong buying opportunity in mid July. There'll be pain, but it will lead to gain. Further, oil is a leading indicator of the stock market 3.5 years down the line; it takes time for strong oil prices to translate into strong stock prices. Charts from 2014 and 2018 prove this historically. So, the Dow has more upside. Lastly, a historic link between crude oil prices and airline stocks indicates that airline stocks will soar from now through late April. The, there'll be a consolidation then a strong rally at the end of the year. He considers these forecasts spot on, but not: we're talking about reopening stocks, not tech stocks, rallying.

COMMENT

Market Outlook. Looking back one year, that's when the TSX peaked, right before the March sell-off. The markets have decided to give a pass for 2020. Central banks have eased dramatically and interest rates are near zeros. Markets are reflecting the thinking that things will continue to improve this year.

COMMENT

S&P 500 companies' earnings season for the fourth quarter is nearly over and they have surprised on the upside. Q4 earnings were 4% higher than the previous year. Companies are starting to be more comfortable giving guidance. Demand is coming back in areas that have start reopening. The earnings need to continue to come in to support the market as these highs.

COMMENT

Rising bond yields. The market was a bit nervous this week, but the US 10-year bond yields are below what they were a year ago. Real interest rates are still negative. When the 10-year bond yields get to 3-3.5%, that's when you start to get a little nervous. Inflation needs to be watched. Feds have committed to low interest rates for the near future. If inflation gets up to 2-2.5% for a sustained period, markets can see more volatility.

COMMENT

U.S. 10 year yield. The US yield is 1.3%, and 1.1% in Canada. Very low interest rates. When interest rates start to go up in terms of the yield curve, it is a good thing since it means the growth outlook is improving. Cyclical stocks are doing better because of this. We must evaluate the discount on future earnings with higher interest rates for growth names and this is what is hampering their performance right now.

COMMENT

Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. There’s a lot of worry in the market, but this is a perennial issue. The broader markets should return around 10% this year. Earnings have been good and interest rates are accommodating. Unlock Premium - Try 5i Free

COMMENT

Are you still finding reasonably priced equities? We are. You can't look just at valuations. You have to look at the surrounding environment. Historically low interest rates, which naturally lead to higher valuations. Lower cost of capital, as well as competing asset classes. On top of that, the Fed has the market's back. Big cap has really been leading, driving markets higher. A lot of companies under the hood have good valuations, in different sectors, more value oriented, more cyclical, and that's where the economy is going.

COMMENT

Are you interested in stocks that have been hurt by the pandemic? Not necessarily, because the market also has been sniffing around there and driven prices higher. Look at DIS, MCD, and BKNG. He's seeing more value in the likes of GM, an industrial that represents great value with great innovation ahead of it.

COMMENT

How to participate in the EV revolution? He's purchased GM. A long time coming, and now it's a practical opportunity. Planning 30% EV offerings by 2025, and 100% by 2035. Tesla has built a fantastic brand, but there's a fundamental disconnect between the stock price and the fundamentals. GM is trading at 6x enterprise value to EBITDA, whereas Tesla is trading at 95x. A number of the EV upstarts will fail, just as most of the upstarts in the car industry failed at the beginning of the 1900s. GM is in a good spot in terms of innovation and cost structure.

DON'T BUY

Would you be a buyer of the airlines now? Pre-Covid, the airline industry was as healthy as it ever was. This underlies the importance of diversification. That black swan can come from nowhere and hit you. He wouldn't look at airlines right now. Severe financial damage has been done. A lot of work to do to get back to the metrics from before.

COMMENT

A year from now, what will we say about these markets? Stocks are not cheap now from historical metrics. But a year from now, we won't say that this was a bad time to buy. He's at a full weighting in equities right now. A lot has to do with both growth and inflation accelerating, two important pieces that drive equity prices. This is happening in 90% of economies around the world, and will continue to drive the narrative toward equities.

COMMENT

What about the cloud of interest rates if inflation comes back? No doubt that that's one of the key risks this year. If rates rise because of inflation, not great. But if they rise because of growth, that's not a bad thing. There will be a bit of a tug of war going on. Even with the 10-year in the US at 1.25%, that's still a negative real rate of return on that bond, so he's still not compelled to sell some of his growth stocks. We're still a ways from that discussion, but keep an eye on it. There will be lots of commentary on inflation over the next few months, and this will drive some inflation numbers higher in the short term. It's something to watch that it doesn't spill over into something more systematic. He believes that commodities will stay firm. Supply is low, and demand is picking up, and portfolio managers are trying to add exposure. Commodities outperform when growth and inflation accelerate, and that's what we're seeing.

COMMENT

Are you interested in any of the giant gold producers now? Not really. More attracted to some of the juniors in good jurisdictions, such as Marathon Gold. He'd rather be the one being acquired than doing the acquiring.

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A Comment -- General Comments From an Expert (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 analysis to forecast the next few months(A Commentary)

Market Outlook.(A Commentary)

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

Rising bond yields.(A Commentary)

U.S. 10 year yield.(A Commentary)

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

Are you still finding reasonably priced equities?(A Commentary)

Are you interested in stocks that have been hurt by the pandemic?(A Commentary)

How to participate in the EV revolution?(A Commentary)

Would you be a buyer of the airlines now?(A Commentary)

A year from now, what will we say about these markets?(A Commentary)

What about the cloud of interest rates if inflation comes back?(A Commentary)

Are you interested in any of the giant gold producers now?(A Commentary)

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