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

Pullback post election? He thinks April could be when QE is tappered. The market retreated 15% in 2011, when this last happened. He thinks tightening of liquidity would be followed by the banks. He thinks the US Fed has telegraphed their plan and so a market pullback could happen before the US election.

He's quite bullish moving forward. Stocks, bonds and real-estate is at all-time highs. The US is 128 months into expansion and it looks like they might cut interest rates in Canada and US. There hasn't been inflation either. He expects that it will cool off, but the market is shrugging off worries.

Wednesday night, we saw a spike in coronavirus cases and the futures tanked. However, the next day, the market shrugged it off. The earnings have been tremendous and Feds and BoC are planning rate cuts. It's time for free money. There is some euphoria like with Tesla and Shopify. For the most part, tech companies are underpriced compared to their potential.

Looking at the future, the question is can you achieve your return goal? Earnings keep growing and interest rates aren't going higher. Conditions are looking good.

Market. Coronavirus is putting a bit of a wrench into the previous economic growth. We probably won't know that data for a few months into the future, but usually we see a fall off on commodity prices for about 6 months during an epidemic. We have to watch it closely. Prior to this outbreak in mid-January, we saw some economic indicators accelerating. Technical indicators he tracks in the markets showed more breadth and widening out in market participation since November.

Rails shutting down due to protests. Very disruptive to the economy. Will start impacting businesses. A lot of people depend on VIA to travel. The market will see it as a one-time event, with a catch-up period. CN says it may have to lay off people. Keep holding the stock, perhaps buy on a dip. The company is not at fault; the slowdown is being driven by an external event, and the stock should be fine.

Coronavirus impact. It's going to be a bigger problem than first thought. Chinese economy has been shut down since the Chinese new year, and will be heavily impacted. The supply chain will start to be affected.

Stocks in the broader market. She's not chasing names right now, as everything is expensive. If there was a pullback of 10%, then she'd add positions.

A US or Canadian bias for 2020? It's really about individual stocks and the sector exposure in a portfolio. She doesn't really look at geography. In a sector, looks for a company that's well done and attractively priced. Choices are bottom-up driven.

Do stock prices drive the index, or do large funds drive stock prices? With passive investing, ETFs have to buy the names in the index and this drives the prices higher. There's no discretion as to where you buy it, so it could be one factor why the large names keep going up. It goes the other way too. If there are redemptions, the prices can go down.

Market Outlook They were the number 1 Energy Fund in the world according to Morningstar last year. Energy stocks are down 15% this month on the coronavirus fear. Supply of oil is falling faster than loss in demand due to China's reduced consumption, he believes. The second half of the year will begin a multi-year bull run for oil. OPEC is providing cover to move to another supply cut this year he says. Supply growth in the US is dropping sharply and he might expect to see a net decline in production there next year. This will be the first year in the last five years, where US supply growth will be less than total global demand growth -- this means barrels outside of the US will be in demand. A supply crunch is coming in the upcoming years he concludes.

Free Cash Flows Several companies are posting great free cash flow -- up to 40% of market cap. Once we get past the Corona virus scare, global demand will grow again. We will see WTI go back to $60/bbl. Valuations will rise sharply. You don't have to be a believer in wild oil price increases.

A lot of folks missed this current rally. But how can this rally happen during the trade war last year and the current coronavirus? He answers, markets are the result of a thousand moving parts, and this market has huge shock absorbers. Since 1950, bull market corrections of over 12%, on average, the market rallied 90% before the next 10% correction over 31 months. Investors discounted the bad things that happened in 2018 and sold the rally in 2019. All through 2019, investors sold during the rally (instead of holding on). We've have huge liquidity from central banks while manufacturing data has slowly been improving around the world. There's also wage growth in the U.S. If the market is strong and there are under-positioned investors, the strong market will drag them in. Think of the 2014-5 pullback, then the rally of 2016-7; 2017 didn't allow investors to get in. The coronavirus pullback lasted only 4 days and dipped only 3.9%, but the buyers came in.

The hard part for investors is that we're not viral experts, but some experts have said that the coronavirus will peak in the spring and subside when the hot weather of summer. Also, China's measures to contain it are helping. Overall, things look good for stocks. The rally won't be derailed. He sees no end to the bull run in tech, his favourite sector. He prefers American over Canadian stocks. He's been all-in America (MSFT, Amazon) in the past 5 years. The US economy looks better than the Canadian, but there are winning stocks in Canada.

Markets are continuing, simply. You don't know what'll happen with the coronavirus--markets dropped then recovered, but it may or may not be a black swan event, but it isn't over yet--and there remains risk. Markets are being defensive. The impact will be negative for products made in China and for transportation.