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

Tech stocks wobbling. Issues with valuation, especially on the software side, and this migrated into the semiconductor side. Some of the SaaS stocks are second-guessing themselves. Twilio's earnings last night are an example. The cloud side is doing well, and semis have recovered nicely. Earnings from the big mega-caps last week have made people wonder if it can get any better than that, and so they're taking profits. Next quarter is in July, and the concern is about comparables to the last quarter and to last year.

Technology cycle. We're entering the expansionary part of this cycle. The reopening is pretty well baked into the market. Now you get some expansion, mid-cycle, and there's some volatility associated with that. You'll see some pullbacks, and there will be opportunities.

Core technology names. AMZN, GOOGL, and MSFT should always be a core part of your tech portfolio.

It's May. Time to go away? Market's still moving up. Part of the strategy is to move into defensive sectors. In March, the utility sector gained over 10% and consumer staples outperformed as well. That shows that investors are concerned. Lots of rotation going on. Over the next 6 months we probably won't see the runup of the last 6 months. Market's starting to get a little jittery.

Commodity trend and reflation trade overdone? Yes. Tech has suffered since last August, as investors have moved into the reflation trade. But interest rates have moved down again. Investors are still trying to find their footing. Cyclicals underperformed in April. Now money is piling back in, but he's not sure it's going to last, especially if interest rates start to roll over, which is what they typically do seasonally this time of year.

Historically, a weak season from May-October. Yes, over the long term. It was different last year, due to unprecedented stimulus and much faster economic growth than expected. Stimulus probably won't be ratcheted up again. Investors have moved out of tech and into defensives. The weaker season should start shortly.

If a stock's run up before its seasonality, can I still do the trade? The ideal setup seasonally is when there's a sharp correction before the seasonal period starts. Just because it's run up, doesn't mean you can't do the trade. But typically, it doesn't have the same conviction rate. He'd wait a bit closer to actual seasonality before stepping in.

Dividend plays and interest rates. It's the direction of the interest rate movement that really counts. If interest rates are moving up on a sustained basis, the dividend players usually underperform the market. Bonds represent a better relative deal. But also under those conditions, dividend growers tend to outperform those that have a flat dividend. Right now, dividend payers are a good place to be instead of the growth sector.

Interest rates for 2021. Market narrative is that rates are heading higher. But bond investors aren't buying it. The bond market is much bigger than the stock market. The 10 year has pulled back. From a seasonal basis, interest rates tend to moderate now. So he sees rates staying flat or going lower over the next 6 months going into October. Interest rates will rise after that as the economy reboots itself.

Commodities coming under pressure. The trade has been overdone. Look at lumber. The price has doubled since mid-March, but has demand also doubled since mid-March? Lots of speculation taking place, including in copper. The reflationary trade says we need more copper, but the trade is overdone. Commodities like lumber and copper will pull back.

Canadian vs. US banks When interest rates move up, US banks outperform Canadian by a mile. This is because their net interest margins are greater and because they're more leveraged to the economy. But when interest rates go down, US banks tend to underperform. Banks are out of their seasonality right now, so he's not looking at any of them.

Gold miners. Gold miners sweet spot of seasonality starts July 27 - early October. Sometimes a pickup happens earlier in June. June can also be very volatile for gold and gold miners. Right now, he'd wait on gold miners, even though a name like ABX just had some good numbers. Downturn in June may be a good entry opportunity. He'd pick gold over the oil sector.

FAANG continued to sell off today at natural resource stocks rallied again, but he won't give up on the tech giants. Very low interest rates and a once-in-a-lifetime boom has seen Facebook over 700% and Amazon nearly 1,600% over the last 10 years. Doesn't this merit something? Do we just forget these stocks? Throw them away to double-down on the cyclicals? Booms are great, but don't last. Eventually, booms bust and this one will one day face rising interest rates. That's when investors flock back to the likes of Microsoft and the other FAANGs. FAANGs are built to last and not sensitive to the whims of consumers, and they sit on a lot of cash to consistently reinvent themselves. For example, Netflix used to rent DVDs and are now a monster streamer.

He sees pockets of value and an abundance of growth amid earnings season. So far so good. Comps are easy vs. last year. The TSX will enjoy strong growth, and he sees good value in the market. We are set up for easy comparisons this year. A good recovery is under way. There's no denial there's carnage on Main Street where the situation is vastly different from the stock market. As for debt, yes, you can't spend money you don't have. Those who remember Canada in the 1990s know that big deficits lead to belt tightening and/or tax hikes. Someone's got to pay for this. Canadian banks looks attractive with robust earnings.