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

Yes, we had confirmation yesterday through the Fed meeting. When they released their comments, they used really aggressive language in terms of what they were expecting. We're a few months into tariffs, and we haven't seen any inflation yet, but it's in the pipeline.

Different estimates he's been reading indicate that it could take anywhere from 12-18 months for tariffs to be fully reflected in prices. It's expected to be quite severe. Along with unemployment, inflation is front and centre when it comes to the Fed moving on rates.

Consumers and businesses have been relying on credit to drive economic growth. More and more, over time, it's the stock market that's been a crucial factor in driving consumption. In view of the less-than-rosy economic backdrop, for markets to be where they are is a little bit surprising.

That's what people need to keep in mind. There is potential for some downward volatility.

It's a good habit to focus on companies that can control their own destiny on financing. Use the volatility that can come up in the market in your favour. From time to time, when markets are going to be very volatile, really good companies will sell off. It helps to know ahead of time what you might like to buy.

He tends to focus on cashflow. Companies that can generate good cashflow, and with strong balance sheets, have a lot of options in tough markets.

Yes, they have had a boost. Then they'll have to deploy capital to capture the trend. 

For Canadian-centric income stocks (utilities, telecoms, banks), our economy is not as strong as the US. More likely that BOC will be lowering interest rates. This would mean that the competition between these income stocks and bond yields gets tighter, tending to drive money into these income stocks. In that case, valuations could still go higher.

His funds were down around 15-20% only 2 months ago, but now are up 2-3%. Everyone took their eyes off AI and focused on tariffs. And now it's returned to AI. Heavy spending on AI has continued without a decrease. Last year was capex spending by the hyperscalers on modeling (large language models), and this year it's on the applications.

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Oil: There's no way knowing if oil can stay above $70; the oil price is tough to peg. It is a risk asset that responds to geopolitical tension, but after this tension in the Middle East the price will probably not all down, but find balance and this issue will become a non-topic. He wouldn't be surprised to see oil a little higher by year's end. Cash levels: remain high as investor sentiment remains cautious. April remains in the memory, and caution is a good thing for the market. The time to worry is when people are super optimistic. He'd like to see this money bleed into the market as optimism improves. US Midterms: He expects Trump to be less unpredictable and less chaotic because the Republicans need to maintain their power which will be investor-friendly.

Hold 7-8 sectors out of 11, diverse industries and roughly 20-25 companies (in his standard portfolio). Watch for overweighting by a single stock, no more than 8%.

A broad topic. Defensive means predictability: utilities, consumer staples. Stocks that pay dividends and/or buyback shares. Also, telcos. Utilities are super defensive, because they basically issue a yield. Also, do you want that income stream coming from Canada or the U.S., considering taxes.

He expects an agreement to agree on something at some point down the road, and the markets to be OK with that. Historically, these things are measured in years to fully play out. He does expect something of that order between now and that July 9 expiration date, though that date could be extended in view of Trump's volatility.

It's going to be President TACO going forward. Look at the "deal" they got from China last week. All of a sudden, it's still 55% tariff rates. Most importantly, the market seems OK with the tariff thing at the moment. The next moment could change that. 

It's still a risk to the markets, but tariffs in the current package are inflationary. Trump needs tariffs to offset the costs of the "big, beautiful bill" that he wants and needs to pass. Still lots of uncertainties in front of us, but there's always stuff in front of us in terms of the market.

In an update to the dot plot, there's no expectation at all for a rate change. The question is will they choose to tilt a little bit at this meeting? Do they have enough information to say that they're leaning more towards an ease? Tightening is out of the picture. Even if inflation upticks for the next 6-12 months, extremely unlikely and difficult for the Fed (given the upcoming change in leadership, etc.) to want to raise rates.

The next move will be a rate cut, timing is uncertain. A lot will depend on the unfolding situation in the US labour market. Over the last month or so, we're starting to see weakness in the initial and continuing claims. These aren't worrisome by any stretch, but should be on the front burner now.

Prices are going up. In soft surveys of companies, 40% of companies said they're going to pass through some degree of pricing. Inventories that were built up in advance have, perhaps, already gone through the books for cost of good sold. There's more to come. To think there isn't, is a naive assumption.

It won't be a dramatic jump from 2.8% to 6%. But it'll creep into the mid-3% range. What happens now with oil prices is a real front-burner risk. When you have to spend an extra $20 a week to put gas in the tank, it really matters to the marginal consumer.

This isn't going to end until there's regime change in Iran, or Iran believes that Israel has the right to exist and doesn't further its ambition to erase Israel from the world. Unless that changes, which he can't see under any conditions, this is going to get worse before it gets better. He hates saying that, but it's his view.

Typically, it's a bankruptcy, though not always. Sometimes a company will go private. Sometimes an ETF will get delisted, redeems the shares, and you get your money back.