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

She's optimistic about stocks in the second half of 2022. She expects continuing volatility, and winners and losers. Inflation and supply shortages won't slow as fast as we want. For Q2, companies have digested that the Fed will be aggressive, and the Ukraine war could turn into one of attrition. However, stocks remain better investments than bonds or cash. You must find pockets of stocks to invest in. Fundamentals are key.

Believes TSX will continue to outperform market with large weighting in energy & materials. Is tilting portfolio towards value sectors such as financials, energy, materials & healthcare. Doesn't believe a large downturn is in the future for the price of oil. US oil reserve increase won't affect price too much. Would advise investors to stay away from the tech & communication sectors. Thinks further outperform of tech sector is unlikely.

The Ukraine war accelerated trends before the war: the oil shortage, deglobalization and inflation on commodities. This puts more pressure on the Fed which is already behind the curve. The market is way underpricing the war. The Fed must get more aggressive. Both factors make him cautious. Supply chain shortages happened because consumers bulked up on goods during Covid. Post-Covid now, people will shift from buying goods to restaurants and travel--experiences. So, this will lessen pressure on the supply chain and reduce inflation.

US releasing oil from SPR today. Government policy has made a bit of a mess of this energy cycle. On one hand, pushing a green energy approach. But in the short term, we just don't have the supply to let us do that. Structural deficit in energy production is causing high prices. Releasing oil from the SPR is a drop in the bucket, but they're also handing out stimulus cheques for high gasoline prices, which encourages people to buy more gas. Government's doing everything it can to fight inflation, and prices at the pump are target #1.

Stagflation. That's where prices are going higher and growth comes off the boil, but doesn't have to be recessionary. It's a real threat, with some of the highest inflation since 1970s-80s. Certain sectors do well, and others suffer. Stocks that do well are those that are part of the supply chain, are a scarce resource, and have pricing power: energy, commodities, materials, chemicals, base metals. Consumer staples margins get squeezed. You want to barbell high quality, cash flowing cyclicals such as energy and materials. Avoid some of the most expensive stocks and stocks that need expensive inputs for their products.

Approach to buying stocks. His firm is quantitative. He looks at the facts, rather than reading research or talking to management. He's concerned with price momentum, valuation, and volatility. He wants to buy cheap, rising, stable stocks.

Auto makers. Auto makers caught up in supply chain headwinds. Not helped by the war and China's zero-Covid policy. Valuations are decent, but poor price momentum makes them volatile. Value buyers who buy now may be buying at even lower levels in the not too distant future. Wait for the trend to turn before buying.

Agriculture, energy, and materials continuing to do well? With Fed raising rates, commodity- and inflation-centric part of the economy is usually late cycle. You could argue we're either late mid-cycle or early late-cycle. It's usually another 6-18 months before we tip into recession. If Fed is extremely aggressive, then these cyclical stocks won't work in that environment. His Top Picks today are not defensive. They're meant to position for stagflation and to tap into the direct beneficiaries of a commodity inflation cycle.

Russia-Ukraine volatility added to rate uncertainty. Just when it looks like things are getting back to normal, it gets weirder. There will be a peaceful settlement. If the situation escalates, then we all have bigger issues. Tech and pandemic stocks that did well through 2020-21 have recently had a big correction, and now we're seeing a bounce back. He's had a lot in cash. The market is taking Russia-Ukraine and rising interest rates more or less in stride. If that continues, we're looking at higher markets by the end of the year, so he's looking to deploy some cash.

How long will supply chain issues and commodity prices disrupt the market? We must accept that the world is never going back to what it was. We saw peak globalization, for the foreseeable future and possibly for this generation, in 2019. Globalization has lifted millions out of poverty. Now we're going to see a return to nationalization and perhaps mercantilism, where more gets produced domestically within trading blocs. It will mean higher commodity prices and inflation. More domestic production, and less on just in time, and there are companies that can benefit from that.

Investing in a stock that's run up. If something's already had a big move, always better to buy just a little bit, perhaps 25% of your total position. If it goes down, you're glad you didn't invest the rest. If it goes up, you buy a little more.

Homebuilder space ideas. He owns TCN, a Canadian stock with most properties in the US south. Also HD, which is less home renovation and more toward the industrial building side. There's a bit of a supply crunch in the US. MLM is another name you could consider. More people will need places to live, especially with immigration from areas of the world in such turmoil.

S&P hitting 5000 this year? Yes, it's possible the S&P can top 5,000 if the macro news is out of the way and we see strong earnings growth. People are making more and spending more money as more goods come in and this will raise prices--this is the cycle. This can be a dangerous cycle, but strong companies can outperform.

Sectors to buy now? Dividends indicate quality. He started 2022 with energy is his top sector, though it may take a pause for a little while. Financials depend on rates on the longer end. Without a doubt, the Fed is focused on the front end of the curve which is very steep. Technology got hit so hard, so it became attractive and now he's buying it.

The U.S. presidential cycle We're not in a bear market now. 2022 is exactly what happened in 2016--look at the chart. On March 30, 2016, the S&P advanced by that year's end. The problem is that Q2 in 2016 went sideways. Year 2, Q2 of a 16-month presidential cycle is the weakest quarter (going back to 1950). Also, April is the strongest quarter for treasuries. We're entering earnings season. He wants the Nasdaq 100 accelerate with strong momentum above its 200-day moving average.