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

US economy. Third longest expansion in US history of 108 months or so. Slow, sluggish expansion with GDP growth around 2-2.5%. Going forward, she looks at sentiment, manufacturing and services activity. No signs of a recession in next 12 months. Thinks we still have another year or two of runway, though you still have to monitor. Most importantly, consumer spending is very healthy. Consumer spending accounts for 7% of US GDP, unemployment is low at 3.8%, they’ve de-levered, and house prices have gone up. Canada household debt is much higher than US. Canada’s 5.8% unemployment is historically low, but our household debt levels are higher. Rates are creeping up, which will impact those debt levels.

Equities. Still likes equities, despite volatility. S&P 500 still 3% off highs in January. US companies have increased both bottom line and topline growth, and tax reform was another catalyst to add to earnings growth. Tax reform hopefully will encourage capital spending, providing more widespread economic activity.

Ontario election. Conservative party should be more beneficial to business. They promised to roll back the minimum wage increase of $15 planned for next year, which will provide less of a headwind for businesses such as food services.

Market. A minority government in Ontario would cause problems for policy change. Over the last couple of years the polls have only been predictable in that they have predicted the opposite of what happens. We have seen a completely different market coming off the February lows. It is led by very few growth companies. Every 8 to 10 years you have to take a stand on what you like and not buy what is being rewarded at the moment. This is when money managers earn their money. If you become more and more concentrated as the market does, then you take on a lot more risk.

Global growth looks good and synchronized. However, two things will limit its pace: the US Fed raises rates and reducing of the U.S. balance sheet. There's also a debt that will hang over the US for the long-term. Inflation will generally be in check--this provides an opportunity for stocks. We're not seeing extreme valuations. Margins will be flat, though earnings remain strong. Overall, not a bad scenario for the stock market. Also, the U.S. yield curve is flat and historically that means the economy can grow only so quickly--it'll be limited. He doesn't see a recession coming. The Fed has to be careful not to raise rates too quickly. Overall, the U.S. is doing incredibly well, growing faster than the rest of the world.

Is it worth dollar cost averaging? If you really like a stock like BNS, it's not a bad method. It's better than waiting till the year-end to buy a lot of shares (compared to DCA'ing smaller amounts throughout the year). Also, it's cheap to trade stocks now. But make sure you've done your homework on a stock. A mutual fund or index is really effective for DCA.

Market. He includes sentiment and market breadth to score the market from 1-8. Currently, he ranks it at 3 – mildly bullish, but is holding more cash (20%). The old lows from February and March held at 2580 on the S&P500, so the trend is still intact. Sentiment indicators are neutral, meaning they are neither bullish nor bearish. Things aren’t dire yet and he is still 80% invested. He does not see a large risk to higher interest rates and is not afraid of inflation. Hold good quality stocks and stay the course he says.

Gold. He has an extensive blog on the topic (valuetrend.ca). Gold has been stuck with a lid at $1360 /oz. It is near support. He would not be a buyer yet, but could trade it as a swing trader on a short term basis. Over and over and over it has tested the upper bound, but has not broken through, so he is not keen on putting new money into it.

We're not in a frothy market as in January when investors piled on the bandwagon. We're currently not in a euphoric state. We have a bit of room to go, but we are getting stretched. We have at least a year before we get really worried, assuming we don't see a lot more rate hikes. We should we fine going into the second half of 2018, but we're beyond 9 years in this rally. Next year would mark a record stretch for a rally. US equities are still bullish, especially tech. Canadian has some catching up to do. He sees value in Europe and Japan. In Canada, don't look at sectors, but pick individual stocks. That said, energy has done well, like Suncor, though oil this week is in retreat--maybe rotate out of that. Telcos aren't faring well either. In spaces like healthcare, be selective.

Market and interest rate cycles: Bond market performance has been weak in both Canada and the U.S. Current 2.9-3% U.S. 10-year yields are still low to those who remember the 5-10% days, but compared to the moves from last year, these are big. So, yes, it's been a quick, sudden move. Some may say this is already a bear market for bonds. The street thinks rates will keep going up and up. But remember the economy is in a late-stage cycle where interest rates do move higher, though the Fed may raise rates too fast. We're getting close to the end of this rate cycle, moving as high as 3.5% which could drag on markets. Given the strong U.S. economy, he sees two more rate hikes this year in the U.S. as well as Canada.

What are your thoughts on Canadian banks? He likes BMO, TD and Royal for their valuations. He bought TD in the Q1 pullback and has shot up, surpassing his expectations. He wouldn't add to Canadian banks now though they offer decent value on the upside. Be prepared to pull back on Canadian banks if there is a market downturn. The big risk here is if interest rates rise higher than expected and effects mortgages.

The BoC and US Fed are optimistic and so are driving both markets, but he himself has some doubts. For instance, Italy gave us a scare last week and their problems will linger. This week saw some pent-up buying. The Eurozone has one currency for everybody, a one size fits all approach, but not all these countries are the same, namely Italy. This is his doubt. In Canada we face a possible trade war. Trump wants a 5-year sunset clause, but this hinders long-term business decisions. It's better to have no deal than a sunset clause. Investors should find stocks that will perform well regardless of NAFTA. Own the best and skip the rest. The big U.S. tech stocks aren't cheap, so you may not see company earnings for a while; meanwhile, they are volatile, subject to regulation.

What's the outlook for crude oil based on technical analysis? Crude oil broke a key support level on the daily chart. In the short term it's bearish. Since mid-2017, it's been in an upward channel and looks good. Hold on.

Market. The fundamentals underlying the economy are in good shape now and he expects this to continue into next year. The tech space, as seen in NASDAQ, is in record territory but looks to go higher. The fundamentals look great. The companies are growing well, the profits and balance sheets are there. This is an area that all companies will need going forward, so this will be a continuing theme. The TSX reflects a tougher situation. It is based on energy, financials and mining. The energy space has come up, then down a bit, but the overall record has been positive. The financials make up the bulk of the index. The results are very good but there is an overhang from consumer debt levels and house prices. It is tough for the index to move when the banks are not moving. Much of the excellent recent profits of the Canadian banks are based on mortgage loans, and with the new regulations, this growth might not continue as quickly as it has in the past. He prefers to invest in banks outside of Canada at this time.

Market. Trade wars are hanging over equities. It hangs over Canada more so than the US. Canada is a lot cheaper than the US in terms of price to book (40% cheaper than the US). It is due to financial stocks. They are cheaper in terms of their upside potential. They are 30% of the index in Canada. Very expensive stocks are refusing to correct and this is an ominous sign. Unfortunately the outcome of this tends to be dismal. Until we get a sell signal from the markets, we have to say that it is in a nice trading range.