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

Shares coming under pressure today due to drop in the US GDP. There's been a huge run up. US stimulus payments end today, and that's a challenge. People working from home, lower consumption of energy, and less restaurant traffic are taking a toll on the GDP.

Behaviour of US dollar related to recessions. Historically, the US dollar has been the standard for global transactions. But the Chinese yuan has taken a bite out of it. Plus fiscal policy has driven interest rates low. These elements are a structural bear on the dollar. The US doesn't have the healthy social safety net that its trading partners do. So the US will experience much deeper recessions than its partners. US dollar will continue to weaken if the full impact of Covid continues to affect the US.

Where to allocate capital? If currency were your only consideration, you'd redeem some of your US assets and put the money into areas like China, Hong Kong, and Singapore. Recovery in those markets will benefit you, and then you cycle back into the US when it falls to a low. Global investors cycle their money from strong currencies to weak.

What stocks on the Australian market can you recommend? BHP has done very, very well. Also South32. Also COH, one of the global leaders in hearing aids, though it's very expensive.

Many of the large cap stocks are trading above their intrinsic values. Rational investors must be careful and look at the fundamentals. He's looking into small and mid cap stocks that are still under valued. There is a large increase in personal investment accounts being open by new investors. These accounts hold investments in many similar companies because they are in the news, and not because of their investment worthiness. He is positive in the market still, especially with lower interest rates expected to hold for a while and government stimulus being injected.

It's strange times. Big question: What will the US Congress do with stimulus that's keeping the economy afloat? Will Republicans support working poor people? Many big tech names report on Thursday; it's like the Superbowl. These tech giants have reasonable valuations rooted in reality, so he has no problem with the price run-up of Amazon, Apple, Google, etc. However, Tesla and Shopify share prices are entirely speculative; maybe he'd buy Shopify at a third of the current price.

Stop losses You tell your broker to sell a stock when it falls to a certain price, useful for traders and speculators but not long-term investors. If you like a stock at $125, you should like it more at $110 and not sell it or even buy more. He never uses stop losses and doesn't recommend them to long-term investors.

He's been bullish since late-March due to so much stimulus in the system, but in the last 3 weeks the markets has been narrowing with tech and healthcare facing headwinds now. 10 days ago we saw a strong reversal intra-day. He's become cautious, taking profits in tech names and holds short positions. He sees a rotation into transport stocks and medical devices. Expect bumpiness in the next few weeks. Earnings this week are important to watch to see how the market reacts to those reports and to guidance. Markets consistently rally on good vaccine or stimulus news, including today.

Market Outlook This week in the market has had a lot of issues to deal with. Going forward investors need to be cognizant of these points and how they may impact their portfolios. There is a potential in the US to see the pandemic case and death counts tick up. He suggested investors should re-think asset allocations. Those heading into retirement should want some exposure into fixed income and increasingly into cash.

US Banks? The big US banks have reported this week. All have pre-signalled what they expect loan losses from the pandemic to be. All the expected losses have been big, making this sector one he is suggesting patience with. He might suggest WFC as they have new executives in place. The company has been hurt and could be moving away from the issues dogging them in the past.

Nasdaq vs TSE exchanges? If you look at the Nasdaq, it has been dominated by just a few names with the shift of work to home. We are likely to see mean reversion. He might trim a Nasdaq position and add to a TSE position. He also would look outside North America due to the correlation of the TSE with US markets. He might suggest looking into a Eurostock 600 ETF to be added.

Markets. A battle between the bulls and the bears. The quality of this rally, looking at institutions and retail flows, is poor. The rally is really coming from small individual investors and not institutions. It's driven by central bank support and liquidity that hasn't really solved any of the risk issues that is in the backdrop.

The fundamentals are not bullish, especially since central banks in many countries had to take on debt and print money. It's an inherent sign of the fundamental weakness in the world economy. It doesn't mean the markets can't continue to go higher, especially with investors who fear missing out but he sees tougher times ahead.