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

The market was very oversold coming into this week, meaning it would soar on any good news. That happened today with a rally of over 3% Technical analyst Larry Williams called this rally. Meta and Salesforce led the rally (tech rallied).

Inflation is persistent, hitting a 40-year high of 8.6% in the US, market volatility and a technical bear market in the S&P. Only energy is the only star this year; there remains opportunity here. The US Fed is hawkish with a 75-point rate hike. He doesn't feel a recession is imminent; the 3- month 10-year treasury spread doesn't indicate one, at least not in the coming 12 months though perhaps later. He has tilted his portfolio away from growth and into value. Canadian and US banks are an opportunity. Energy, materials and healthcare too.

We're stuck now. It will be three weeks before we see June's inflation data and when earnings start. Earnings estimates have been going up this year, and are the big question going forward. That answer will come with earnings reports starting in three weeks. However, personal and corporate balance sheets are still in good shape. Companies are buying back shares. These balance sheets are a positive in a pessmistic environment and cannot be overlooked.

He's waiting for the world to change. He sold some S&P futures on the morning of the last inflation report and hasn't made any moves yet. There's no clarity in inflation, rates or tariffs. There is overwhelming pessimism in the market which gives rise to a trading opportunity, which is a bit of optimism. Also, lumber, copper and wheat are down over 20% or more since the winter. Even gasoline and crude oil are down (the latter 12% from the recent peak).

Not sure if we will enter a recession this or next year, but she expects growth to return to 2017-19 GDP (2-2.5%) levels based on earnings growth. Earnings growth will be the catalyst to raising stock prices. There are companies with strong moats and strong earnings whose PEs have come down a lot. Those names deserve to trade at a premium.

The market is reacting positively to Powell's comments today: the Fed has a blunt tool to raise rates and yet start quantitative tightening--two things that haven't come together before as the economy slows or maybe stalls. We are in uncharted territory for a few quarters. We are in purgatory.

semiconductors He owns no semis, because they are a commodity and we are in a declining economy. Earnings can grow more reliably and strongly elsewhere. You have to time your entry into semis perfectly.

Glimmers of hope over next 6 months? Historically since WW2, every time the stock market ran up 20% or more as in 2021, it fell double digits in the first half of the following year. In the second half of that year, markets had at least returned to break even. The second thing is that inflation and interest rate hikes have already been significantly priced in. So by spring of 2023, developed world economies could experience a relief rally, if investors convince themselves that the Fed will dial back aggressiveness to prevent a deep recession. Remember, stock markets tend to look 6-12 months ahead. So spring 2023 should look more optimistic than today. Lastly, technology sector needs to lead the charge, as it's the biggest sector. Look for tech to be more robust as we enter the second half of this year.

Which area of tech to watch? Every 10 years, the pendulum swings between hardware and software. From 2011-2021, the horses that led the way were software. Before that, it was hardware. Now, the ones that seem to have the stabilizing factor, like META, are starting to move towards hardware. The trend is just starting to swing away from software and over to hardware.

Semiconductor space. The semi space has come off a good 50-60%. Though he's unsure of the macro headwinds, he kept his stocks and shorted the SOXX to protect the portfolio.

Portfolio protection for aggressive tech positions. Everyone should have the tools to at least weather bear markets, if not profit. To protect yourself in a name like ARKK, you can buy the PSQ, which is the inverse of the QQQ. What he does is use equity indices to protect his long stocks. Yes, this year he's down 7%. But this is very manageable compared to the NASDAQ that's down 33%. ARKK's down more than that.

Ideas in tech security. Interesting opportunities in cybersecurity. Look at ZS for web gateways, SPLK for security information management, or PANW for network security.

This is a shopper's dream--everything is on sale. Higher interest rates and oil prices means consumers will have less money to spend. Offsetting that partially are people who won't buy a new home and spend in retail instead. Tech has been punished. So has banking. Canadian banks are down at least 15%, but American ones a lot more, even though the banks are in great financial shape (share buybacks and dividend increases). Energy and metals stocks: buy them when prices are low and sell high. 12 months from now, the Russian war will likely be over (to no one's satisfaction) and energy prices will subside partially. Oil prices are probably near their peak.

Buy preferred shares? Many investors don't understand preferreds, because the dividend rate is reset every 5 years or called away by the issuer. When interest rates declined, preferreds trading down sharply. If you buy one, you risk the rate being cut. If we have a recession, rates certainly will. Instead, buy 5-year corporate bonds yielding over 4%, which he recommends for someone like a senior who seeks income, rather than preferreds. Safer.

BC Bonds Bond yields have taken off in the past year. There's not decent value for bond investors. Your capital will be secured with BC Bonds, and you'll get a reasonable yield. Stable income here from bonds in the 1-5-year range.