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COMMENT
Markets. Lots of volatility. Stocks and bonds have been challenged this year, due to higher interest rates to combat inflation and less liquidity in the overall market. Volatility likely to stay high. 90% of days in 2022 in the S&P 500 have had a swing of 1% or more. Running out of places to hide. Historically, we've seen pretty significant bounces in the second half of the year, and there's a good chance in 2022. What will drive that is a possible peak of inflation and the earnings trajectory.
COMMENT
Oil in the second half of 2022? Until the last couple of days, energy had been the best performing sector by a wide margin. Energy was up 20% in both the US and Canada, whereas the broader indexes are down between 10-25%. Energy may consolidate for a while; the fundamentals look quite good. Market is tight, not a lot of new production coming on. Medium-longer term, the price should remain elevated. Short-term, fears are triggering some exaggerated moves. Be a bit cautious in the next few weeks and months, but over the next 12-24 months it should be a good outperformer versus the broader index.
PARTIAL SELL
Sell half of NA to buy BMO? This trade makes sense. Canadian banks have been under pressure given economic slowdown. All the banks grow earnings nicely and return excess capital to shareholders via buybacks and dividends. BMO has done a great job with Bank of the West acquisition. He's tilting toward more US exposure, as the US consumer is in better shape and the economy is less reliant on housing.
banks
BUY
Sell half of NA to buy BMO? This trade makes sense. Canadian banks have been under pressure given economic slowdown. All the banks grow earnings nicely and return excess capital to shareholders via buybacks and dividends. BMO has done a great job with Bank of the West acquisition. He's tilting toward more US exposure, as the US consumer is in better shape and the economy is less reliant on housing.
banks
COMMENT
Energy sector. With energy, the market should be higher for longer. Pretty good demand profile, despite any slowdown. Not a lot of new production growth. Volatile year, war premium on prices. Companies should return cash to shareholders. Recent volatility may be due to profit-taking on sectors that have held up best. If volatility continues into the third quarter, you want to buy back into the higher quality names. Small-mid cap stocks are the most volatile, but give the most torque to the upside.
DON'T BUY
Issues around balance sheet, leverage, and selling assets. Struggling to have positive earnings. Look to other names for industrial exposure, such as WCN, CP, or CNR. All 3 of these names have good long-term economic moats, generate free cashflow, fairly high quality, can see earnings growth over time, and have sold off with the market.
transportation equip & components
WAIT
Signals for re-entry? Tech has been under a great deal of pressure, especially those companies that have negative earnings. Down significantly. Technical signals include whether it's starting to outperform the broader market. Is more money flowing into things like tech and discretionary? Fundamentals and financials are challenged. Longer term, still a great growth stock. Into 2023, starts to look more positive.
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PAST TOP PICK
BUY
Canadian telcos. Not a ton of downside. Have done relatively well. Good dividend payers. Continue to grow businesses at a fairly stable clip over time. If volatility continues, capital will move toward them. If things start to turn around, they may well lag, but you're not going to lose a lot of money owning BCE, RCI.B, or Telus.
