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

Markets losing ground from the summer rally? Equity markets have stalled mainly in response to a much more hawkish tone from the US Fed Reserve. We've given up almost half the gains from the June lows. YTD, energy has been the star, up over 40% for the S&P 500 and 23% for the TSX. Tech, communication services, and consumer discretionary have been the laggards. Continued choppiness over the very near term. September is usually the toughest month, being a winner only 45% of the time since 1950. Further ahead, seasonality can improve sooner rather than later during a presidential cycle. Usually Q4 of a mid-term election year signals above-average returns. From a seasonality and technical perspective, investors can look to better times ahead.

Favoured sectors right now. Energy, healthcare, and financials. Energy has a major supply/demand imbalance, along with major under-investment over the years. So pricing can remain pretty firm, with demand steady. Healthcare has that combination of growth, defensiveness, and dividend yield. Financials are fairly inexpensive, both insurers and banks, and provide great income through their dividends. They tend to do well at the beginning of a cycle, and he may be a bit early, but he's being paid to wait with those great dividends.

Inflation. The principal concern for markets today. We're seeing a lot of encouraging data that indicates we may have hit an inflection point. Gasoline, oil, copper, and wheat have retreated pretty sharply from their summer highs.

Long-term theme of food. Longer term, the decline in arable land will force increased production with products from companies like NTR. Countries like China and India are keen to secure their food supply. Food should be a major theme in portfolios.

Covered call ETF vs. non-covered when markets rise. In general, when markets are moving higher, a covered call ETF will lag a regular ETF in total return. A covered call ETF performs best when you see markets or the underlying positions being flat or slightly negative. The benefit is for investors who need income, as you get the dividends plus the premiums from the covered call. Some of these strategies are paying upwards of 7-8% yields today. That's great, though it may not be as high a total return as if you owned the underlying security. Covered call ETFs are also very tax efficient, as most of the income is considered dividends or capital gains.

Investing in telcos. Defensive, low beta, nice dividend. If you're looking for aggressive growth, they may not be for you. If you're looking for income and low volatility, these names are attractive.

Favourite healthcare ideas. Right now, he owns PFE and MRK, as well as some non-pharmaceutical names in the healthcare space. He has pharmacies and managed care. When you're looking at pharma companies, you want to see the breadth of drugs that are in the pipeline, and any blockbuster drugs in there. You're also looking for dividends. For healthcare, you're trying to get a bit of defence and offence, plus growth. Valuation is always important as well. See his Top Picks.

Tech as part of a broader rally in 2022? This year there's been so much uncertainty regarding inflation and interest. The path is a little clearer now, and that's why he's more constructive. But there's always incoming information, so projections could change on a dime.

Inflation. The big buzzword for the year is inflation. Only when CPI got to 8% did they start to increase rates around the world. Driving inflation are data points, in particular CPI. The last few months have seen a number of disinflationary readings. He thinks, barring any big spike in costs, month over month CPI will be from 0-0.4%. If you extrapolate that over a year, CPI will remain high now but could get down to 2-4%. At the same time, Fed fund futures are priced at just under 4% from March - July 2023. As long as the month over month inflation readings stay below 0.3% for the next 6-9 months, you'll see Fed funds rate and CPI be on top of each other. The road map is becoming clearer, and he expects the market to start acting more positively than it has been.

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. 2H 2022 and 2023 Outlook. What history has shown us is that there is a great deal of sector rotation that happens from year to year, and if we end up in a cyclically bull setup for 2022, that on average, tech, materials, consumer cyclical, financials, and communications have been outperformers. In looking at the ‘land of opportunity’, we see the opportunity for financials, real estate, tech, communications, and consumer cyclical to be relative outperformers going into 2023 and 2024, and we feel that these are attractive sectors that might provide investors with a source of good return.

he and the market isn't so sure that the Fed will cut their interest rate increases. A big theme now is power generation; see California's energy crisis as well as Europe's based on Russia's invasion. Canada though punches above its weight. Hopefully the LNG pipeline will increase natural gas flows when it comes online.

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. Annual S&P 500 Sector Performance. Near the beginning of the year, we mentioned that investors should be prepared to develop an ‘iron gut’ and to prepare for volatility. Then, close to the middle of the year, we noted that investors should focus on just surviving and staying the course, and now as we look to the back half of the year and into 2023, our focus is on the ‘land of opportunity’ ahead.

Doesn't believe resource markets will turnaround anytime soon. Higher interest rates not good for stocks in any industry. Increasing valuations in Canadian resource companies will be long term catalyst for equity appreciations.