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

There's some softness in the Canadian economy, and that's expected for the next couple of quarters. 

He believes that investors are really going to refocus on monetary policy, at least in the US. There's a strong case for another 25 bps cut by the US Federal Reserve in December. At this point, futures markets are predicting a 60-70% chance of a December cut.

He has no REITs in the portfolio. He'd probably look south of the border to storage, as well as logistics-type spaces such as data centres. Those are growing areas. Could look at PLD.

In Canada you want to be careful, given the softness we're seeing in the Canadian economy. In Q2, we had a negative GDP number. Consumer's stretched, and inflation since Covid has had an impact.

Perhaps in the last week or so, given that the higher-beta, growthy stocks in the market have come down a little bit. The Dow is actually positive month-to-date, whereas the NASDAQ is negative. That's why it's important to have both areas in your portfolio, because they offset each other when markets go one way or the other.

Bull market's 37 months old at this point. Average bull market is 67 months, though some are shorter and some are longer. Interest rates are falling, inflation's in check, large amount of liquidity in money market assets in the US, 13% estimated growth for the S&P next year, and unemployment numbers in the US are steady (softening just allows for more interest rate declines). 

He's still very constructive on the markets. Could argue that we're very oversold in the near term, given the moves since April. But 75% of the year, markets are going higher. You don't want to be really high in cash for long periods of time.

It was needed. Things are still pretty overbought, but at least we got some reprieve from the uber-parabolic move. 

We had to stay above the 50-day moving average. If you look at the trend since the April lows, the 50-day has been supporting the market. We needed to see that hold, and so far it has. As far as he's concerned, the trend is still good.

He continues to leg into stocks that he likes. For now, danger over. 

Still some things he doesn't like:  poor breadth, and divergence of some of the bigger momentum indicators such as MACD (moving average convergence/divergence). There are different price momentum indicators he looks at -- some are short term, and some are longer/big picture. The short-term ones are fine. But things like MACD are showing us that markets are still not seeing price momentum. Price momentum is weakening. 

Upshot is that he's going to stay with the trend, and he doesn't mind the market right now. But in the back of his mind he's keeping a bit of caution.

TSX is heavy in resources, and resources are picking up. And if you look at the Dow, it doesn't have the heavy tech weighting (except for MSFT), or the heavy AI weighting that the S&P 500 has. These 2 indexes are generally outperforming the S&P.

If you look at the tech stocks, some of them are breaking down or at least weakening. Whereas all this other stuff has a catchup to play, and it seems to be doing that.

He and his team have moved into equal weight S&P, and have been buying nothing but commodity and value stocks for the past year. They believed all along that the AI thing would start to roll over, and now we're seeing it. 

So, yes, he pays attention to the Dow. But only because it's an offset against things like the tech-weighted NASDAQ and even the tech-weighted S&P. When we see the Dow and the TSX move, that means there's some rotation going on. We're seeing that rotation.

One of the groups that's just been slaughtered is the sub-prime, non-conventional lenders such as GSY and PRL. The other group are names in the restaurant business. You might want to be careful here.

Here's a good lesson for retail investors. If you're going into a new position, always leg in. Don't put your whole allotment (a 5-6% position) in today. Buy a portion, and see if you're right or wrong. If you're right and you stay with the trade, you buy a second allotment, and then a third.

Go in by stages.

Looking at the chart, "That thar's a downtrend". It broke out on the tariff announcement. But on a worldwide basis, there's only 1 currency (possibly Australia) that's doing worse than the CAD. It's not that he favours the USD (almost everything will outperform it), but he wants to own currencies outside of Canada.

There's a split in tech stocks. Say the AI boom last 5-10 years. The money being thrown at data centres shows we have quite a ways to go. Meta fell back because they made an announcement of spending a lot of money on AI. Then, Alphabet is suddenly in the lead. People get scared along the way, some fearing that we're repeating the 2020 crash. 2020 was fake because the Y2K scare pushed computer and phone sales when they didn't need to, so after 2020 there was little demand for tech. There remain big wins in tech stocks. Energy remains the side-play to AI; everybody wants to build nuclear power, but it takes 10 years. Alberta's gas is ideal to sell to data centres.

It was always going to be resolved by U.S. Thanksgiving, but count on US politics to drag it out. It doesn't matter if government reopens today or two weeks from now, but we were reaching a critical point. For the markets, this news is not a bullish catalyst. Today's snapback is a little overdone and he doubts we'll see new highs. The current market is speculative, relying on leverage and day to day options as opposed to robust economics. He's concerned.

If markets correct suddenly like last April, don't be in a GIC; you can't buy stocks. If you want to take advantage of a market decline, don't lock it up into a GIC. Much prefers a money market instrument or a long-term bond fund in the US and not Canada (out interest rates have declined a lot).

When more debt enters the market, there are few dollars for other assets. He was shocked, well shouldn't have, when Trump said we're making so much from tariffs that we're giving back $2,000 to every American, except the rich. Trump is trying to manipulate markets with a social media post, even though Bessent was very critical of Janet Yellen of manipulation, and yet they are doing the same thing. The TLT chart (the long end of the treasury curve). Getting the long-term rates down will benefit the US government. But giving $2,000 to everyone is an election promise going into the US Midterms is terrible policy, because it would increase the cost of funding the US debt. Therefore, bond yields will creep up on the long end. He likes TLT at $84-85. This will break out if the US falls off a cliff--a recession, stocks are in trouble. But if TLT falls below $84, this means stress on interest rates that could hurt stock markets. Watch the long end of the treasury curve.

The sell off last week was a natural pullback and the market needs breaks from times when they keep rising, especially if not based on fundamentals. However the AI trade is still  intact. Also many companies are trading at slight premiums but have the fundamentals for it with growth in cash flow and earnings. Be cautious with some that are trading on hope. Some are at 80 to 90 times revenue and should be avoided, eg. Palantir. A good portfolio can afford to have  one or two companies with stretched valuations but they must be coupled with companies that are grounded. Portfolios should be overall composed of quality companies. A basic theme is to hold companies that are growing faster than the market and trading at lower prices than the market.