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A Comment -- General Comments From an Expert (A Commentary)
COMMENT
GIC's We have an inverted yield curve now, which means that bond yields in 2-year investments are higher for 10-years and longer. So, you're not being paid for doing on the duration curve. Maybe you go out longer, if you believe interest rates will come down, say in 2023 if there's a recession. If so, you can lock in a 5-year yield at a higher rate than a year from now. But you're not getting paid for the inflation risk. The sweet spot is around 2-3 years. If you invest 10-15% in a longer GIC if you think rates will go down, you likely won't get hurt too badly.
COMMENT
Believes higher interest rates will take time to hit economy, & hasn't filtered into corporate earnings yet.
Should have seen more companies with downbeat earnings.
Yet to be determined how things play out in the economy.
Suspects we are currently in a recession. 1-2 years of sluggish growth in the economy.
Investors happy with recent earnings, but will take time to play out.
COMMENT
Educational Segment. Believes we are currently in a bear market.
End of a bull market usually has a recession, & every indicator is pointing to a recession now.
Difference between now and periods of high inflation in 70's & 80's is high amount of public debt.
0% interest rates have enabled many people to take on large amounts of debt.
Rising rates are going to stress both the public and companies.
Need stronger economy to come out of recession.
Believes US Federal Reserve will focus on stopping inflation with continued rising interest rates.
Doesn't believe S&P will rise above 4200.
Good time to sell equities and have cash to buy in the next selloff.
COMMENT
Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. The Canadian markets have mostly been flat over the past couple of weeks, while the US markets have begun to see an improvement. The stagnating price of oil has put downwards pressure on the Canadian markets which carry a higher weighting towards the energy and commodities markets than the US. The June inflation number for the US was released at a 40-year high of 9.1%, aided by rising gas, food, and rent costs, and the Canadian inflation reading for June came in at an elevated 8.1%, but still lower than the expected 8.4%. The Bank of Canada raised interest rates by 1.0% and the Federal Reserve is expected to make its interest rate decision mid-next week. In this market update, we are going to be talking about the benefits of having a low time preference and the importance of investing to protect one's capital over a long timeframe. Unlock Premium - Try 5i Free
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COMMENT
The Inflation Reduction Act won't reduce inflation but rather will inject more money into the system. So, the Fed will likely raise rates higher. Sure, the law reduces global warming and he's totally for saving the planet. However, IRA will hurt some earnings. For instance, Medicare can negotiate lower drug prices which is good for consumers, but not for drug company shareholders.
COMMENT
Economic weakness has actually fueled a rally in stocks. An American growth pattern that allows inflation to come off leads to a more constructive case for equities in 2023 but this depends on the Fed not aggressively tightening. We have seen the peak in inflation and there shouldn't be steeper declines in economic activity. Canada has under-performed the U.S. due to commodity weakness in energy and mining. Look for mining stocks to recover as we start to alleviate the probabilities of severe recession. Global growth should do better which is good for commodities and there could be a rotation out of consumer stocks probably to mining. Energy stocks are well valued and prices should improve. He is picking away at banks since they are quite cheap and pay decent dividends. The U.S. is cooling off in the second half of August but not likely to get back to recent lows.
COMMENT
The question was on the outlook for gold. It should be doing better but the strong U.S. dollar holds it back. However the U.S. dollar should see some weakness in the next year. A strong dollar is not good for emerging markets and trouble in these markets is not good for the U.S. Bitcoin will not replace gold.
COMMENT
Today's hot jobs report He's now cautiously optimistic. The market was too bearish until this current rally. But now this is stalling before serious resistance levels. The bond market has already priced in the good news, but is starting to pivot. Today's hot employment number changes the outlook over the Fed's rapid accommodation; the Fed doesn't want today's data. There will be ebbs and flows in this bear market bounce and the S&P could rise to 4,300, but at valuation will act as a ceiling. The Fed is still tightening and the economy is slowing.
COMMENT
Today's strong jobs data He's bullish not because of a perceived US Fed pivot, but because he believes in better-than-expected earnings going forward. He expects a soft landing. Inflation is of course the major headwind, but gasoline futures are off 33% from late June's peak and that has yet to show up at the pumps. Also, shipping rates are going down.
COMMENT
Today's hot jobs data The data this week has been very encouraging, like factory orders being better than expected and new orders in the ISM report. Inflation is coming down. However, the economy can handle higher interest rates; unemployment is only 3.5%. The Fed didn't pivot--and has no reason to--last month. She's more worried about 2023, because we don't know the effect of all these rate hikes. For now, though, things look pretty okay.
COMMENT
Investors pricing in an end to the Fed tightening cycle. A bit premature. Nice rally off June lethargic lows, with growth stocks leading the recovery in the NASDAQ. Long bond yields have come down from the May peak, USD rolled over a bit, and gold dipped and then rallied. Cyclical stocks have lagged, which indicates to investors that the Fed is nearing the end of tightening. He hesitates to jump on that bandwagon here. Risk going forward. Fed must get inflation under control. Another 100 bps of tightening to go. Long way to go from 8% back down to 2%. Can't tell if we've seen the peak of inflation, though it seems we have. When Powell soothed nerves a couple of weeks ago, the market may have rallied too much.
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