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

This week proved that investors can get too negative and miss out on stock performance. There was panic over inflation fears based on rising inflation data, but the last two days stocks, especially tech, bounced back sharply. Also, reopening stocks have run up hard, perhaps too far, lately, so they haven't maintained that pace. Doordash and Airbnb, for instance, delivered good quarterly reports this week and they bounced back strongly. The lesson: Stay the course. When things look ugly, they often snap back. You can buy when they pull back.

Stocks at great value? From a technical perspective, some analysts are cautious. US growth stocks have pulled back. Will there be a rebound, or will the correction be 15-20%? Overall, high price earnings growth stocks will have the largest impact. Wednesday's inflation data was higher than expected. Is this transitory, or will it lead to tighter monetary policy? If the outlook continues to be cautious, gold and gold stocks may benefit. This is a correction, though significant, in the secular bull market that started in 2008 and will continue well into 2030.

Interest rates. Rates will have to get to around 3% before it's a headwind to stocks. Inflation will rise, but it won't be a lot higher than expected, as there is too much production capacity and too many supply chain bottlenecks. The question is will there be an equity correction before the end of the year.

Oil vs. gas. Doesn't have a preference. Oil is headed toward mid-70s. Not enough gas storage in Europe, so this will increase price of gas around the world, and this will benefit Canada.

Markets, especially technology. Issue for tech is they had high multiples, so high expectations. Earnings beat by incredible amounts, but people are worried. Stocks that underperformed during Covid are doing better as we return to some sort of normalcy. The uptick in commodities is helping Canadian stocks and the CAD. Pullback today may be a buying opportunity.

Damage from pandemic creating a broad selloff later? Every year, there's a 5-10% pullback, which is a terrific buying opportunity. A stew of factors such as stimulus and interest rates are being distorted, and we won't see until later in the year how they affect the stock market and the economy. Clarity will come. If you can be patient, buy what you really like at the right time. Inflation numbers were up today and, though expected, are creating an unpleasant situation in the market.

Will portfolio managers avoid pipelines to be seen as "green"? A possibility. But these companies are working to get to a level where they are more environmentally friendly. They can always get capital from somewhere. If you're interested in the environment, engagement is the most important factor, instead of just refusing to own a stock. Engage, and encourage companies to do better.

Favourite telecom? He owns BCE in his equity portfolio, owns BCE and Telus in his dividend portfolio. These two are in the best position to do well over the long term, growing their dividends and business. Rogers has had some issues the last little while.

Utilities. Interest rates affect utilities, and people are worried. With the volatility comes an opportunity to buy them at the right price. He owns a lot of them in his dividend portfolio. Consistent dividend growers, and they will continue to be.

Semiconductors. Interesting industry, with political aspects. Chips are vital. US is ahead of China in its ability to manufacture chips. TSM is one of the great foundry companies. Huge capex in the next few years. You can also look at NVDA (gaming, cloud) and QCOM (5G).

The number-one driver of stocks is the bond market--bonds--which in turn are driven by their yields. What raises bond yields is inflation. You need more yield to compensate for inflation eroding the purchasing power of the dollar. So, when inflation rages, bond yields spike. Things just aren't worth as much in the future, and stocks are valued on their FUTURE earnings potential, so those future earnings are worth less in a world of higher inflation. This is particularly true of stocks without dividends or earnings (i.e. the tech stocks of 2020). This is called "multiple contraction." Stocks that benefit from rising bond yields and inflation like metals and natural resources. Stocks that'll suffer are the non-dividend/earnings ones that are growing by momentum. If treasury yields rise because of inflation, then high-growing stocks like those will get crushed which is what happened today with the latest CPI number which was very high.

There's certainly been a rotation out of tech after valuations got pushed high last year. Now, the bloom is coming off the rose as investors look at stocks that are trading at cheaper valuations and more growth. Rising inflation will raise interest rates and that will effect valuations and therefore tech stocks. He looks for stocks with accelerating earnings now, not those expected to. He covers cannabis stocks. U.S. weed stocks and Canadian ones like Curaleaf have been reporting good numbers (Curaleaf today). Legalization in the U.S. continues, perhaps not as fast for some. Canada has an overhang with oversupply, but companies with niches are doing quite well. Cannabis is part of the wider market sell-off, but is compressing valuations of the big players; in the next leg up, these names will go higher.

Market. Dividend increasers are not as inexpensive as they have been. It is difficult to find 'great' opportunities, however Canadian dividend-paying equities are still attractive. He believes there are share price increases on the horizon. One of his focuses is power generation. Electricity demand is going to continue to move higher. It is driven by the rise of electric vehicles and the greening of other fossil-fuel-based power sources. Cloud computing is another big one as well as continued prosperity and build-out of the housing market. This also extends to power distribution utilities.