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

Words have power over the markets. Today, the St. Louis Fed chief said on CNBC that he expects a rate hike in 2022, just days after Jay Powell said 2023. Markets slid. He thinks the Fed will crush inflation merely by talking about raising rates. Seasonality says we're in for bearish selling for 3-4 days before the late-June swoon ends. The Fed is in warning mode. He expects money to keep flowing into the high-growth stocks (tech). Commodities are retreating now as investors fear rate hikes. Buy Adobe, AMC or Amazon.

Are we headed towards tightening? The Fed can't keep up at these levels if the economy continues to grow. They're all worried about last time they tapered, which caused increased volatility in the stock and bond markets. They want to signal to the markets that if it happens, it's going to be a slow process. If the economy continues to grow, they'll have to cut back on monthly bond purchases. The Fed intends to communicate clearly and effectively, which will be helpful. People forget that we're still in a pandemic. There's a lot of noise in the numbers. Recovery will be much more volatile, and it will take a while to get out of this situation. Fed decision has more of a global impact than other central banks. Lots of concern that inflation is transitory. Economies have a lot of government fiscal support, and we have to consider how the end of this will affect labour, the economy, spending habits, and so on. Lots is happening, so the Fed has to be cautious.

Sell now, come back in the fall? He doesn't work that way. It's a difficult thing to do. You might have sold at the right time in March, but then missed the rally. You need to think about your asset allocation, and perhaps reduce your equity exposure. The problem is that the stock market generally tends to go up, and so it becomes harder for you to step in and put your money to work. If you wait to make your move, the stock goes up 5-7% and you decide not to step in as it's gone up too much, but then the stock continues to climb another 30%. Better to stay invested, but move your asset allocation around if you feel you have too much risk.

Markets. The donation of vaccines to developing economies is a positive for global economic growth, as those have lagged. Borders being closed impacts immigration growth and creates labour shortages. Increased vaccinations will set the stage for a more synchronized global economic recovery.

Inflation. Hard to say at this point whether it's transitory, durable, or a threat to equities. We haven't gone through this before. CPI has spiked, but it's limited to certain sectors that have supply chain issues. We'll have to see what the Fed has to say. If inflation stays high, central banks may have to raise interest rates sooner than forecast, and this may cause markets to have a negative, knee-jerk reaction. The 10-year treasury peaked at 1.74% in March, but yields have declined since then, which indicates the bond market thinks inflation is transitory.

Impact of consumer spending on the market. We're seeing increases in hotel rates and air fare. Consumers have cash saved up and are willing to pay. Prices should normalize over time.

Evaluating an insurance company. They tend to get valued off price to book value. But there's also a correlation to ROE that a company generates. Manulife, for example, trades at 1x book value. Sun Life is 1.2x, and Great West Life is between 1.5-2x. The higher ROE generated, the higher price to book value, and the higher the PE multiple.

Canadian banks. Banks have a lot of cash on the balance sheet because of share buyback and dividend restrictions. Those should get lifted later this year. There's more room to go. Likes the group. Dividends should be increased when allowed. Wealth management and capital markets have been doing well. Loan growth should return. She owns a few. Likes RY, and see her Top Picks today.

Lumber sector. She hasn't played in the lumber space, as it's so cyclical. Lumber prices are rolling over. Could be due to hoarders now releasing supply, and home builders pausing because of the high prices. Eventually, supply will come on and bottlenecks will be alleviated. Wise to take some profit.

Jerome Powell's comments today Yields rose today in reaction, but mostly 2- and 5-years; 30-year yields didn't move much, which tells him the market is starting to price in a rate hike, which may be more agressive than we thought. Fed is starting to price in a rate hike. With the dollar moving higher, it could drag on commodities, and could make this a transitory blip in inflation. We could see commodity prices come down, though maybe not a deflationary spiral. Powell accomplished what he set out to do--cool down the inflation market narrative. Problem is, if we get a much stronger dollar, that will slow global growth. The dollar is a new VIX. There are also supply-chain constraints. And this all could lead to deflation. Watch housing stocks. If rates rise, that will hurt and reduce the housing market. The taper has begun, really.

Jerome Powell's comments today He's intrigued Powell said he's not ready to declare victory yet, but that's complete horse-hockey--he's saying this way too early. Thought it's been derailed in recent weeks, the commodity trade will continue to work. The banks will get a lift from his comments today.

Jerome Powell's comments today He talked about supply chain disruptions which are freeing up. Stimulus money will eventually end. He thinks we're in a deflationary spiral. We entered the pandemic in a deflationary environment and now we're flattening out. That's why we're not seeing inflation spikes. Even if rates flatten, he's long many value (diversified chemical) plays. There will be a HUGE reopening band, which could counteract any non-rate spike.

Jerome Powell's comments today Powell was focused on an uneven labour market which is what they're basing their policy on now. What also stood out was that the Fed clearly upgraded their inflation forecast, and the Fed regained their credibility in the market. They're not asleep at the switch and could make a reaction (in rates) at some point. That's what he took away. Regional banks moved up nicely today, but not materials. The dollar is the biggest story today, up 1%, which may reflect the market pricing in inflation. All we heard today was an upgraded GDP. Ultimately, the Fed wants to get to full employment.

Biden-Putin summit today We need diplomatic dialogue, not silence, between the two countries. But the more important Russia dialogue is with OPEC to stabilize the oil price. Russia amounts to only 5% in the MSCI EM, but the diplomatic story today was important.