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

The U.S. 10-year yield rising? 2% this year is possible. Also, the 2-year yield has quadrupled; there's something wrong with this. These should be the most liquid market around, but they're trading like biotechs. Explain that. The bond market is really volatile, and it's a matter of time before that volatility enters the stock market.

Reduce the balance sheet or raise rates? And which is worse? The market is digesting this choice. Value should outperform this year. The whole market--value and growth--will move lower. We saw that today. Value isn't big enough of the index to lift the market. Who knows what will happen with Covid and the markets in the next six months. He thinks we'll be talking about something completely different in a week after the markets digesting today's Fed news very quickly.

Do tech stocks end the year higher, meaning the Nasdaq 100? No. What kind of tech? The top names can be higher, and the bottom lower. He owns value stocks, so he wants to the 10-year above 2%, though he predicts it'll end 2022 at 1.5-1.6%. Inflation is still transitory.

Macro environment for 2022. 2021 saw runaway inflation, interest rates ticking up, labour and supply issues. Yet the stock market still went up because earnings grew tremendously. Expectation is that it will continue in 2022, if not as buoyant. He's expecting a good year for earnings, but who knows what the market will do.

Stick with equities? We saw some great pressure going into the end of the year, especially with high growth, speculative names. Quality, profitable business that continue to increase profits and grow dividends every year are doing fine and will probably continue to do well. People will probably swear off the Zooms of the world for a while and go with what's working, which is businesses with real earnings and reasonable valuations. You have to be bullish on stocks. You don't really have any other choice. Staying optimistic on stocks works, year in year out.

Central banks raising rates, dialling back quantitative easing. Interest rates will go up, bond buying is tapering. Everyone knows this, and the market's already reflected on that. He's more concerned with what we don't know. Back in 2020, interest rates were cut by 1.5% and this has to be recouped. So interest rates have to increase by 1.5% as we eventually get back to normal. Before the pandemic, markets weren't that concerned about a rise in rates. So any increase would just take us back to where we were pre-Covid.

2022 sector outlook Concerned about Q1-2022. She predicts a rotation from growth into cyclical in 2022. Look outside the U.S. for cyclical exposure. Be ready to step in during pullbacks. She expects positive returns in 2022, but not as high as 2021.

Bank outlook Many positives, starting with loan growth demand from infrastructure spending mostly. Also, continued improving labour markets means more credit card use and home/mortgage demand, all good for banks. Meanwhile, stock trading will rise to help trading desks at the banks.

US interest rates There'll be more volatility in 2022 and the US 10-year will pass 2% without inverting the yield curve. The Fed did the right thing to raise rates. A wild card could be China will scare Taiwan after the Olympics. China could sell American paper to rattle American markets. He's fully invested now, but will pare positions in Q1-2022 to buy dips. Raising rates in the near term won't tamp down inflation.

2022 outlook and the U.S. Fed--will it be a wild card? Neither the 10-year nor the Fed fund will reach 2% in 2022. The Fed won't invert the yield curve for no reason. No way. Anytime the yield gets near 2%, there are trillions of dollars to buy those bonds--this is a problem. This demand for debt won't disappear. The inflation shocks are already subsiding. We'll make tons of semis and trucks next year. Wage pressures are sticky, but not worried, because the consumer drives 71% of the economy. The number-one risk in the U.S. economy The Fed is not a wild card, because the Fed has communicated its intentions.

Does not see recession on the horizon. Federal stimulus and pent up demand from supply chain issues will keep economy growing. However, stock valuations are at all time high. Tail wind of near 0% interest rates driving up valuations and laying groundwork for market correction. Does not see large (20% pullback) occurring, will be more along the lines of 10%.

Believes supply of copper is lower than demand. Copper prices should rise as a result.

Prediction for 2022. Continued volatility. Underlying economy has been fairly strong but we'll be comparing it to past strong performances, supply chain issues, Covid variants. All make it difficult for investors to figure out what's working and what's not.

Tempted to reduce equity weighting? Not yet. But we have seen rotation in terms of quality. Some of the smaller caps that he invests in haven't done very well this year. He has been looking at more defensive companies. Right now, he has a barbell approach in his portfolios.