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

Market Outlook The US employment numbers were better than expected. The four year cycle is still up. He spoke with an analyst who believes there is at least another 4 up years to come. We are in a short term pullback, which should provide a strong buying opportunity. With bond yields about 1.3% in the US, corporate average dividends exceed that so this will act as another bullish catalyst to the market. Buy the dips.

We saw bond prices rising by 6 basis points which is a concern. The yield curve has inverted yet again. Bond investors are running to the hills. Looking at the junk bond yields, at 2008, it was at 16%. Now, the yield is at 3%. It tells him that the bond market does not reflect the equities.

Looking at the background of what's going on and why. Last year the NASDAQ was up 35% and stock prices were up 25% based on price-earnings multiple expansion and not on earnings. There were investors who were rotating sectors or piling into shares, like what happened to Tesla. He would recommend half-position entries. Have some cash on hand to see how things unfold.

Historically, momentum traders last around 2-3 years. When the music stops, stocks can dip 60%. Right now, the stock market is overbought so any volatility will send the market even lower quickly.

Market. Fang Stocks. At least a couple of them are overvalued. He thinks history will repeat itself from the Nifty-Fifty days. He presumes they will take a hit. He is concerned about the level they have reached. AAPL-Q is only about 40-50% overvalued, but AMZN-Q is unbelievable. The question is what are their earnings.

Record highs across the board. Coronavirus had an effect on the market, but people realize it can be controlled, especially outside China. In Canada, there's a lot more transparency than with SARS. It's hard to get transparency in China. China is a bigger part of the economy now than back then. Slower growth over first quarter, but then we'll move on from there.

How long with the party south of the border continue? Looking at the US stock market, if you have single digit earnings growth, that translates into single to mid-double digit returns, which isn't bad. The US consumer continues to hold up. ROE in the US is higher than in rest of the world. You pay more, but get a bigger bang for your buck. With interest rates, equities are still attractive. Stay liquid but don't leverage yourself.

Too late to deploy new money? If you have a long-term view, consider whether it's a good company and if it meets your requirements. Whenever you buy a stock, there's a good chance it will fall below your purchase price very quickly. Pullbacks can be very short. Sometimes with waiting, you can miss a gain. Consider your risk allocation. Put some in equities, and some in bonds, since on a really bad day in the markets, bonds will rally. Develop a personal investing and risk management philosophy. Stock volatility is much higher nowadays. If a stock falls a lot, he goes back and reassesses. If he still likes the company, he buys more. Also if a stock gets to be a substantial part of a portfolio, trim a bit.

Are stock splits a thing of the past? Back then, it was hard to buy an odd lot, but today it's easy and it doesn't cost you anything more. You can buy one share of any company you want. The multiple determines how expensive a company is, not the actual dollar amount of a share.

Gold. Doesn't own any gold or gold companies right now. It's doing well because negative interest rates are helping, as it doesn't cost you to hold gold anymore. Trade issues and coronavirus have helped, because people see gold as a safety asset. A feeling that central banks will keep the market liquid, and this will continue to help.

Market Outlook He thinks this virus scare will likely be a short-lived one, much like SARS was. Towards the second-half of the year he expects a re-acceleration to the market. Cyclicals and commodities tend to do well in this environment. Unemployment and interest rates are low, which aids market growth. Add to this a Presidential election year and all things look positive, especially for stocks.

Cannabis? His view of this space is fairly negative. It is a very tough market. Demand forecasts were too high, he thought. These companies are spending a lot of money and will have a difficult time sourcing more cash in the future. In 20 years this will be like the alcohol sector, but there is a lot of uncertainty between now and then. It will be particularly challenging for the smaller companies. He would not invest new money in this space.

US vs CDN Large Caps? Their view is that the US landscape is generally more favorable for valuations and diversification -- more tech and larger companies that are able to sell into larger markets. Tech companies in the US tend to have good capitalization and strong demand. He would prefer the US Index.

Out of nowhere came the coronavirus which hit the energy stocks of the TSX (and the U.S.). A rebound had to come. Surprisingly, investors are brushing off this scare, though he hopes the virus doesn't spread. Canada will do very well with this rebound, because China is a big user of our products. The TSX hit a new high today, but over 10 years it still badly lags American indices like the Dow. The Dow is way up today because of health stock soaring....He always believed in Tesla and still recommends it. Sometimes it's not bad to pile onto a bubble--but you don't lose money taking profits too early, either. Tesla could show big growth this decade.

Investors feel that the virus is under control. Also,the price of oil is falling because the market expects the (Chinese) economy to soften because of the virus. He doesn't expect a recession, because historically before every recession the price of gas doubles. YOY the price of oil is flat. The virus will impact Q1 growth in China but also the US; Chinese productivity will be down because the factories may be closed for another week following the Lunar New Year celebrations. Overall, manufacturing companies may re-examine the place of China in their supply chains, given this disruption; this means less manufacturing in China and more abroad. Other Asian economies may benefit....Bombardier will sell their business jet division and the timing is good; this space also crowded and needs consolidation anyway.